I saw this article at Buffalo News this week.
Are long-term care policies worth it?
Premiums are high, but the alternatives are costly, too
By Melissa Repko NEWS BUSINESS REPORTER
Updated: 07/06/08 8:02 AM
- John and Doreen Cesari are paying a combined premium of $1,185 a month for 10 years for long-term care insurance, and think the high cost is well worth it.
A radio show led Doreen Cesari to contemplate growing older and becoming a burden to her two daughters.
The broadcast about long-term care insurance pushed the 50-yearold Lancaster resident into action.
“That just sounds too good to be true,” she recalled saying about the insurance.
Three years later, Cesari pays $1,185 per month for long-term care insurance for herself and her husband. The high-benefits policy will be paid off in 10 years.
The couple doesn’t expect to see the money for another 10 or 15 years, but they don’t regret the decision.
“Everybody is living longer, and the longer you live the more health care and help you’re going to need,” said John Cesari Jr., Doreen’s husband. “It’s time for people to start thinking about that.”
With baby boomers aging and long-term care costs rising, the relatively new insurance industry serving the market is growing. The trend is expected to increase, and some see a day when such insurance may be offered as a workplace benefit.
In 1990, 1.9 million policies had been sold to individuals age 55 and over, and roughly 1.2 million policies were in use, according to a study by America’s Health Insurance Plans. By 2005, roughly 5 million policies were in effect in the individual market.
Insured or not, the number of people using long-term care services is expected to reach 26 million in 2050, double the number in 2000, according to one federal estimate.
But buying insurance for the care won’t be cheap. A recent study by Fidelity Investments showed that a 65- year-old couple needs $85,000 on average to cover insurance costs for long-term care.
Long-term care coverage can pay for expenses that may not necessarily be for the long term, nor for those who are old or sick, though most recipients tend to be senior citizens. For example, a victim of a car accident may need long-term care for a six-month period of rehabilitation.
As a person gets older, he or she has three main ways to cover the costs of long-term care: pay out of pocket, pay with insurance money or have the government pay after spending down assets, said Robert H. Binstock, professor of Aging, Health, and Society at Case Western Reserve University and author of “The Future of Long-term Care.”
Because of the steep fees for care, paying out of pocket is out of reach for most people. “Savings of $250,000 would evaporate within three years,” Binstock said.
Spending all one’s assets to get on Medicaid is not a solve-all either, Binstock said. People who choose this route often cannot leave an inheritance to loved ones, provide funds for a younger or more capable spouse, or limitlessly navigate care options when on the government-funded system.
Spending down assets can be complicated. The Department of Health and Human Services advises people to consult with the state Medicaid office or an attorney about the process.
Though long-term care insurance dates back to the 1960s and ’70s, the coverage became more mainstream after 2000, said Nanci Pipo, vice president of Southtowns Financial Group in Orchard Park.
Decades ago, the insurance was thought of as a way to cover only nursing home costs. With the expansion of senior living options and the increasing life spans of Americans, the insurance has come to be thought of in a new light, she said.
What to consider
Making plans for end-of-life care, or even retirement can be daunting and outright unpleasant, said Joel Gold, a professor of finance at the University of Southern Maine who published a study on long-term care costs. On top of hesitancy to face the harsh truths of aging, doubts about the insurance’s financial value remain.
“There are some people who think ‘If we get that sick, we’d just want to end it,’ ” Gold said.
Yet thinking about the way aging will affect one’s family is essential, Doreen Cesari said. For her, one of the key selling points was that the insurance would pay for the care that could otherwise burden her 23- and 25-year-old daughters and protect assets that she hopes to pass on to them.
Though the Cesaris are pleased so far, doubts surround the still up-and-coming industry. Many people cannot see spending money now for such a distant benefit on top of everyday costs, life insurance and health insurance.
In the early 2000s, premiums that were supposed to stay at a set price shot up at most companies. The increase may have spurred some of the skepticism about the industry, Pipo said.
“When long-term insurance became more popular, some of the companies priced it too low and so that’s why many of the companies raised the rates,” she said. “Initially, people bought in and didn’t have as many people collecting on those benefits.”
The costs vary widely, depending on the amount of coverage and age. In 2005, the average annual premium for minimum coverage was $1,284 at age 50, $2,587 at age 65, and $5,745 at age 75, according to the New York State Partnership for Long Term Care. Minimum policies covered $180 a day in nursing home benefits. (In the Buffalo area, fees averaged $232 a day for nursing homes in 2006, according to nursing home cost reports.)
In 2005, the average purchaser was 61 and nearly half had incomes over $75,000 per year. Customers buying in at older ages or with higher-risk health conditions, like heart trouble or diabetes, can be denied coverage.
Pipo said that she recommends buying insurance at age 55 or 60, or anytime prior to retirement.
Buying sooner means paying longer, Binstock said. He added that while companies advertise that individual rates can’t go up, “in the fine print, they can raise the rate.”
Premiums can be raised collectively, but only with the permission of the state insurance commissioner. Usually a company will request a price hike when the claims are higher than the premiums.
When selecting an insurance company, reputation and reliability are key, Binstock said. The company needs to be stable enough that it will be around more than a decade or two later when the benefits are needed, he said.
Consulting a trusted financial planner, state ratings, or a savvy friend or family member are all good strategies, Binstock said.
The Cesaris talked to their longtime financial adviser about their options and chose to buy a pricier insurance package that they will pay for over 10 years.
No family to help
Besides the increasing costs of senior living, more women are working outside of the home and are unable to care for an elderly or sickly love ones, Pipo said. She said family care is also less feasible in the Buffalo area because of the demographics.
For Western New Yorkers, “our kids typically don’t stay around here so people don’t typically have people to take care of them,” she said. “So that’s why in our area, it should be really considered.”
Gold, who bought his own long-term care insurance after research, said that in the future, he sees long-term care insurance being offered through employers, just like medical coverage. He also predicts that it will become standard insurance for middle-to upper-class individuals.
“You are going to see, as the years go by, long-term care being a very, very, very big issue,” he said. “You are probably going to see companies putting it into their fringe benefits.”
Yet John Cesari Jr. sees the growing importance of long-term planning as a concern independent of any employer.
“When I was in school, I didn’t have to worry about money or retirement,” he said. “But I think now, at that age, you need to start thinking about it.”
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