Long Term Health Care Insurance

Young Workers Must Face Realities of Long-Term Care
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By FRAN HAWTHORNE
Published: October 22, 2008



Michael Hogue

Retirement
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Strategies for retirement in a troubled economy.

Go to the special section » MOST of the nation’s 78 million baby boomers are watching their parents grow old. While investigating caretaking options for their parents, they should also be thinking about their own old age and planning how they will pay for nursing homes or home health aides for themselves, experts say. With life expectancy steadily rising, the odds are that they will eventually need some help with basic functions, like dressing or walking, maybe for decades.

But many boomers are ignoring this prospect.

“You’ve got your 401(k) to fund, you’ve got rising health care premiums, gasoline is up, groceries are up, said Randall K. Abbott, a senior consultant in the Boston office of the benefits consulting firm Watson Wyatt. “Folks tend to look at their wallets and decide it’s something they can’t think about right now.” Besides, he said, “people just don’t believe it’s going to happen to them.”

If they were to pay attention, they would learn that Medicare does not cover these ongoing, nonmedical services. Medicaid does, but it has tightened its rules, making it harder for middle-income people to qualify. That leaves essentially two choices: pay cash or buy long-term care insurance.

Long-term care insurance covers services for people who are unable to perform two or more activities of daily living. It can pay for a nursing home, assisted living facility, home health aide, adult day care and family respite (someone to fill in for a family member who is caring for the insured person).

And it is not just for the elderly; young people who are paralyzed by car accidents, for instance, often need home care.

About seven million of these policies had been sold as of Dec. 31, 2007, with sales increasing slightly over the past year, according to Limra International, a trade group in Windsor, Conn. The choices among these plans can be mind-boggling. Here are some critical issues to consider:

DO I REALLY NEED THIS COVERAGE?

Buying insurance is always a bet on probability. For long-term care, there are four basic questions to ask:

If I don’t buy insurance, how much money can I afford to spend on this care from my own assets and income? AARP reported that the average cost of a nursing home in the United States last year was about $214 a day; a home health aide was around $19 an hour.

Do I have alternatives? Are there friends or relatives who would take care of me — without charge?

What is the likelihood that I will need this care? (This is, admittedly, an uncomfortable question.) Does my family have a history of debilitating chronic illness, like Alzheimer’s disease? Or, on the other hand, do I have a heart problem that makes it unlikely that I will live long enough to use the benefit?

Can I afford the annual premiums, which can top $2,000? If someone’s assets or income is less than $40,000, “most likely you would be better off relying on Medicaid,” said Malcolm Cheung, vice president of long-term care product and risk management at the Prudential Insurance Company.

WHEN SHOULD I BUY IT?

Experts suggest that people buy policies while in their 40s to mid-50s, mainly because premiums rise with age, roughly doubling every 10 years. For a standard policy at New York Life Insurance Company, the annual rate is $1,041 at age 50, $1,941 at age 60 and $3,984 at age 70.

If buying at age 40 is good, why not start at 30? “Your first savings should be to take care of income replacement for retirement,” said Lawrence Singer, a senior vice president at the Segal Company, a benefits consulting firm in New York City. Another reason: “The likelihood of having a claim is really remote in the 30s, 40s and 50s,” he said.

But an applicant can also be too old. The cutoff at some major insurers is age 79; New York Life will sign new policies for those up to age 85, but with limited benefits.

WHERE CAN I GET IT?

“Look for it at the work site first,” Mr. Singer said. More than one-third of companies now offer long-term care insurance as a benefit, doubling the number from 10 years ago, according to Hewitt Associates, a benefits consulting firm in Lincolnshire, Ill.

Employer-based plans have multiple advantages, experts say. Mr. Abbott of Watson Wyatt noted that the group rates are typically 5 to 15 percent lower than retail and “they often have features and benefits that are more difficult to find in individual plans.” Moreover, the employer will have vetted the insurance carrier. One more advantage: policy owners will not need medical screening.