Buying Long-Term Care Insurance Takes Focus
By: Gene Meyer
Kansas City Star
www.kansascity.com
07/27/03
Shopping for long-term care insurance is unlike buying any other coverage on the market, York and Julie Silliman recently discovered.
The choices are overwhelming. The options are intriguing. The costs, when you first see the sticker, are breathtaking. "It's a lot like buying cars," said York Silliman, a retired pathologist. "You spend a lot of time deciding what tradeoffs you are going to make to get what you want," he said.
About 140 insurers offer some form of insurance coverage to help absorb the rising costs of providing help with a variety of everyday living activities that may become more difficult as we age -- bathing, eating, dressing, getting out of bed, using the toilet or remaining continent.
Plans that once focused primarily on nursing home care have been changed to include alternatives such as home health care, assisted living and other choices. Some even pay for home improvements you might need to continue living in your home. Pricing has changed, too.
Premiums vary widely with your age, your health and terms of the contract you buy. The cost can vary from as low as $400 a year for someone in their 40s to more than $3,000 for someone in their 70s.
A reasonably healthy 55-year-old might pay anywhere from just over $1,000 a year to just less than $1,650 for coverage with the kind of inflation protection and other features many advisers recommend.
You can buy all your coverage with a single, up-front payment -- if your checking account can take such a hit -- or you can stretch the payments out for decades. Some companies even offer near-clones of long-term care policies that actually are whole life or universal life insurance policies that allow you to apply for benefits before you die.
"It's not like buying term life insurance over the Internet," said Michael Middleton, a long term care insurance specialist with First Eagle Financial Services in Olathe.
Despite the array of choices, it is possible to cut through the clutter. The Sillimans, of St. Joseph, found a plan that helps shelter their life savings even if costs for long-term care nearly triple in the next 20 years. That's exactly what the couple, now in their middle 60s, fear might happen. That translates into potential costs somewhere north of $150,000 a year for care either of them might need then.
"We first thought we would self-insure, but when you look at the potential costs, that isn't realistic, " Silliman said. The Sillimans aren't the only ones who find long-term care insurance a bit daunting.
Coverage wasn't widely available in the United States before the 1970s. Public interest lagged before 1996, when federal legislation made premiums tax deductible for plans that met federal guidelines.
Even now, 85 percent of Americans older than 45 have no long-term care insurance of any kind, according to researchers at the Long-Term Care Financing Strategy Group, in Washington. Nearly half of us, 46 percent, wrongly believe that our health plans or Medicaid will pay for long-term care, according to a recent Roper Poll.
Actually, most health plans, including Medicare, provide only very limited coverage. Medicaid doesn't kick in until after patients use up all their own resources with the exception of their home, a car and a short list of other personal property each state sets individually.
Do you need it?
Gauging your need for long-term care coverage depends on three things, financial experts say: your age, the amount of the savings you want to protect; and the amount of coverage you can afford.
"There is a sweet spot in which to buy long-term care insurance," said Peter Malouk, an attorney and financial planner at the Will & Trust Center in Overland Park.
"You don't want to buy if you are under 40 or over 70," Malouk said. Many advisers consider your 40s and 50s the prime time to buy, because you get the best benefits at your most affordable prices and you are less likely to have developed a medical condition that would limit your choices later.
While different advisers set other thresholds, Malouk calculates that if your assets are less than $150,000 to $200,000, it may be cheaper to forego long-term care insurance and spend your savings down to the level at which Medicaid kicks in.
Similarly, if your assets total more than $2 million to $4 million, you likely will be able to pay your own long-term care costs without buying insurance to help, he said. People whose wealth falls between those levels have additional choices too. One is to use part of their money to pay the first one to six months of long-term care costs themselves, which will help reduce their premium.
One of the trickiest questions to deal with is deciding how much coverage you can afford, the professionals say. Nationally and around Kansas City, long-term care costs currently are hovering around $64 a day for minimal help at home, up to $150 a day for full-bore nursing home care. Costs can run twice as high in bigger, pricier markets.
What are the odds that you will ever use the policy? There are no clear-cut answers. The Health Insurance Association of America, a trade group, says a person who reaches age 65 faces a 43 percent chance of entering a nursing home. But the United Seniors Health Council, an education group, notes that half of nursing home stays last three months or less. Again, keep in mind that a solid long-term care policy isn't just for nursing home expenses.
If you are in good physical shape, experts recommend, make sure the insurance companies you are considering go to great lengths to evaluate your health status. That could mean lower premiums. To qualify, an insurer might need to examine at least two years of your medical records, or conduct miniexams.
Most long-term care policies today don't allow insurers to raise the premiums an individual policyholder pays unless they also increase premiums for everyone in the same age group who bought that same coverage. Many companies are reluctant to do that because of the potential marketing advantage it would give competitors.
But what companies can do -- and have been doing -- said Michael Weinstein, research director at Conning Research & Consulting Inc., an industry research firm, is pull an unprofitable contract off the market, change some of its features and relaunch it at a new, presumably higher, price. Thus, premiums remain unchanged for existing customers, but newcomers pay more.
"From the industry's viewpoint, there has been a consistent pattern of under pricing for four to five years now," Weinstein said.
Despite rising prices, many insurance executives expect sales to pick up, in part because many aging baby boomers are seeing how fast the cost of long-term care burns through their parents' savings.
"I recently sold my first long-term policy to someone who is younger than I am," said Bruce Kallmeyer, 41, of Kallmeyer Associates, an independent agency in Overland Park. "I didn't expect that to happen for a long time yet," said Kallmeyer.
Comparing policies
More employers, including the federal government, are offering group plans to their workers, often at sticker prices notably lower than workers would be quoted for individual coverage. But many of those group plans offer far more limited coverage, particularly against inflation.
"You need to compare carefully," said Mike Ashley, president of Senior Benefits Consultants, a Prairie Village agency. "Often we can get you better individual coverage than the group plan offers, even from the same company covering the group."
Comparing carefully in this case means looking beyond the first premiums that are quoted, Ashley said. Group plans will win that contest every time.
"That's because most individual policies offer better inflation protection," he said.
Inflation protection is an optional feature that lifts, say a $3,000 monthly benefit today, to a $7,959 monthly benefit in 2023, when care costs are expected to be dramatically higher. Such protection isn't cheap, Ashley said. Five percent compounding of your benefit level, the industry's best deal, can roughly double the premium you'd pay with no such protection.
But the feature is more economical in the long run than the alternatives, which are doing nothing and paying the rest of the higher 2023 prices out of your own pocket or settling for simple 5 percent increases.
As inflation protection, many group plans will guarantee members can buy additional insurance later if they need it. This also can become expensive, Ashley said.
"You get hit two ways," he said. "One, your premiums will be higher, because you'll be older then. Two, you'll have to buy a bigger benefit to get comparable coverage because of inflation by then."
One way to cut costs safely, for most people at least, is to shun the offer of lifetime benefits and buy benefits for only a specific number of years, usually two to six. Again, this can reduce premiums substantially, but you must use your own funds to pay the bills if you need care longer than you specified.
Statistically, buying six years of coverage would be a safe bet if you are older than 65, but lifetime benefits are better if you are younger, Middleton in Olathe suggests. But statistics may not be what most sways your decision, said York Silliman, who at 64 is almost squarely on the boundary between the two choices.
"We come from long-lived families, so we went with the lifetime choice," he said.
The Wall Street Journal contributed to this report.