Is Long Term Care Insurance for You?
by Karla R. Cook

As more and more of America's aging baby boomers confront the financial burdens of helping care for their parents' final days, many have started planning for their own final days. One element of many of these plans is long-term care insurance, a form of disability insurance that came on the market in the 1990s as "the answer" to the huge expense of nursing home care.

Huge is indeed the right word for the costs involved. In Dutchess County, the average cost of one day's stay in a nursing home is $298 per day or $108,770 per year. Nursing home rates in our local area can be even higher, depending on the type of facility you prefer. (The national average annual cost is around $52,000, or about half the Dutchess County average.) Some analysts paint an even grimmer picture of what an extended nursing home stay might cost in New York State in 2025: with inflation, five percent compounded, an average of $716 per day.

If you think you can escape the high cost of nursing home care or another long-term care alternative, you may be taking a significant gamble. This year, nine million Americans over the age of 65 will need long-term care services. By 2020, the number will increase to 12 million. While most people who need long-term care are age 65 or older, a person can need long-term care services at any age—and 60 percent of individuals over age 65 will require at least some type of long-term care services before they die. On average, someone who's 65 today will need these services for about three years, and one in five will need care for more than five years.

Despite the apparent need, purchases of long-term care insurance by seniors are lagging. An article in the Journals of Gerontology published last year entitled, "Why Don't People Buy Long-Term Care Insurance?" reports "that demand is very price inelastic" and that state subsidies to premiums meant to stimulate purchases, "are likely to meet with very limited success in the present environment." In short, the policies are expensive.

What Is Long-Term Care Insurance?
Under long-term care insurance plans, an insured persons is paid a specified amount, called a "daily benefit," when she or he no longer can perform two or more standard activities of daily living (bathing, dressing, eating, toileting and transferring out of bed or a chair) or becomes cognitively impaired (having Alzheimer's Disease or other form of dementia). What is covered and for how long depends on the type of policy a person takes out. A typical policy includes skilled care (such as nursing care and professional therapy), as well as personal care, household, and custodial services. Such services can be provided in a nursing home, assisted living facility or at home.

The State of New York, one of only four states in the union allowed long-term care partnership programs by the federal government, is trying hard to get senior citizens to buy long-term care insurance—mostly as a way to reduce New York's Medicaid long-term care expenditure, which was over nine billion dollars in 2003. (New York's program is also the only one in the country that allows you to protect assets from being eroded by the cost of care, under certain conditions.) Nevertheless, few people are buying the long-term care policies, mostly because of the cost of the premiums, which typically run around $2,500 a year if you purchase the policy when you're 65 (or more than double that if you're 75). Among other reasons few people are buying is that they think that the health insurance they have, plus Medicare (the government's program for the elderly) and Medicaid (the government's program for the poor), will pay for quality long-term care. Also, people don't like to think about the end of life. Some fortunate people are wealthy enough that they will never need assistance from the government or insurance.

Why Not Rely on Medicare?
Those who think they can rely on Medicare and Medicaid should realize that these programs do not cover much of the typical expense of nursing home care, which must be paid out-of-pocket or provided by family members. Medicare only pays for long-term care if you require skilled services or recuperative care, and then only for a short period of time, and it does not pay at all for non-skilled assistance with activities of daily living. Medicaid is the joint Federal and state program that pays for the largest share of long-term care services, but only if you meet financial and functional criteria, which are determined by the poverty level and the health-related criteria of the state in which you live.

Generally, the financial criteria require that you possess little more than a small amount of cash, funeral funds, title to your car and your burial plot. Although you're allowed to keep your furniture, you must sell your house unless your spouse (or a dependent child) still lives with you. In the State of New York, a household of two people financially qualifies for Medicaid with a net income of $900 or less a month and a bank account no greater than $5,400. The health-related criteria for receiving assistance require an assessment to determine the level of care you need; in Dutchess County, a nurse from NYConnects (CASA) in the Office for Aging makes the determination. Another worker in the office helps with Medicaid applications. Other Federal programs pay for some long-term care services, but only for specific populations and in specific circumstances. Most forms of health insurance, including managed care, follow similar health criteria in determining eligibility.

Deciding When or Whether to Get Coverage
Judging the right age at which to start paying for long term insurance—and whether the insured will be willing to keep on paying over the years—are two of the trickiest questions for those interested in insuring themselves. Ron Wick, an insurance salesman in Oregon, and his family are currently paying $2700 a month to care for his dying mother, who has been in hospice care for two and one half years. Seventeen years ago he sold his mother "the best long-term care policy she could get at her age." Three years later his mother, unwilling to go on paying and unable to imagine herself ever needing the policy, cancelled it. The premium was about $1500 to $2100 a year. "I talked to her repeatedly and urged her not to cancel. She had been a nurse in nursing homes.... She would not listen."

Red Hook native Ryan McCann, a financial representative for Northwestern Mutual in Kingston, N.Y., has this to say about long-term insurance: "In choosing a long-term care policy, one must carefully consider and understand its coverage. Does the policy cover home health care? How long is the maximum benefit period? What is the daily maximum allowance? Is the policy indexed for inflation?"

McCann, the president-elect of the Hudson Valley Chapter of the Society of Financial Services Professionals, stated that the New York State Partnership Long-Term Care Insurance policies could limit a person's choice of care facilities. People must sometimes transfer to a different nursing home after private coverage expires or assets are "spent down" and applying to Medicaid, because the nursing home they currently are in will not take Medicaid. If you think you might eventually apply for Medicaid, check into the nursing home you're considering to make sure it accepts payment from the program.

McCann said that clients who work with an elder care attorney who is knowledgeable in trust and estate law can use long-term care policies as part of a strategy to protect assets. Some long-term care policies that pay for more than five-years of long-term care will allow you to place assets into a living trust, which gives you control of monies set aside for your beneficiary while you are still living and capable of acting as trustee. Before you try this, though, be sure to consult an attorney well versed in the latest developments in trust and estate law. (And remember that the government employee reviewing your claim for Medicaid eligibility can "look back" into your financial and legal transactions as far back as five years to make certain you didn't transfer assets just to make yourself qualify for the program.)

A Consumers Reports article entitled, "Do you need long-term care insurance?" states that long-term care insurance is, "for most people... too risky and too expensive. As with health insurance, you must keep paying to keep it in force. If premiums rise, you may have to drop the coverage, possibly losing everything that you've paid. The policy's benefits may cover only a portion of the total expense. Many policies are packed with catches that can keep you from collecting. Finally, there's no guarantee that long-term care insurers, some of which may have weak balance sheets, will be around 20, 30 or 40 years from now when you need them to pay.... Long-term care insurance may be a lousy deal, but right now it's just about the only deal."

The article states that if your net worth is less than $200,000, Medicaid will pick up the bills after you have exhausted your funds. If your assets exceed $1.5 million, you will be able to pay for your own care. If you can't afford the premiums for the coverage or pay for the sharp rate hikes, skip taking out a plan. If by around age 55 you have a chronic medical condition that your doctor believes might require nursing home care or a family history of a debilitating disease, your assets are between $200,000 and $1.5 million and you must protect them for a spouse or relatives, and if you have no family member to take care of you, consider a long-term care plan. Buy the insurance at around age 65. "Although salespeople will try to get you to buy a policy as young as age 40, the coverage may be useless 40 years hence when you need it. New systems for care may emerge that will not be covered by a policy purchased today."