Thursday, July 7, 2005
My last article discussed the issues one faces in long-term care as we age. The facts are fairly staggering: nearly half of all the people reaching the age of 65 will eventually need some form of long-term care (LTC), such as assisted living facilities or a nursing home. And if one does enter such a facility, the stay is over two years on average. For instance, a nursing home, the most comprehensive form of care, costs on average $8,000 per month in Massachusetts an average stay could amount to nearly $200,000.
Given the cost of LTC insurance, this poses a couple of difficult questions. First, should one buy LTC insurance? And if you decide to do so, how do you choose a policy? This article looks at the various factors to consider in deciding to buy LTC insurance.
The cost of such a policy can be quite high, especially if you are considered to be in a high-risk group. Age is one of the biggest risk factors, along with having a medical condition that leads to long-term care. For instance, diabetes will lead to exorbitant premiums, if you can find coverage, because of the many complications later in life. Some heart conditions, however, are not considered to be high risk because they have little impact on the need for LTC.
Other factors to consider are your current financial condition, your spouse, and your heirs. As with any risk, there is always a way to put a dollar amount on the problem. To start, there is the probability of ever requiring LTC, which depends on your age and medical condition. Then if you do need LTC, it can range from as little as a few months with minimal assistance, to upwards of 10 years of nursing home care. On the low end, LTC could cost you nothing since Medicare will cover most of your expenses for the first 100 days. On the high end, the cost could amount to $90,000 per year for many years to come.
With some prudent savings, one can create their own "insurance pool," also known as self-insurance. The notion is that instead of buying insurance and paying monthly premiums, place the money aside into an investment account that will generate some interest as well. Then if you do need LTC, you have a cushion to draw on after Medicare expires. And hopefully, the cushion is never fully drawn down, leaving funds for a surviving spouse or children.
The risk is that you find yourself in a situation requiring very expensive care for an extended period of time. A worst-case scenario is that you eventually have to rely on Medicaid, which may not be a viable proposition given the circumstances. For instance, if there were a healthy spouse, they would need to drain most of their assets before becoming eligible for Medicaid. And now many states are going after any remaining assets for reimbursement after the beneficiary has deceased.
A sensible approach is to purchase some insurance with a minimal benefit, especially if you have modest savings. Many states are now enacting laws that protect people who have purchased a minimum level of insurance. In Massachusetts, for instance, if you have a current policy that provides at least $125 in a daily benefit, the state will not put a lien on your home if you do eventually need Medicaid. But beware, each state has different laws, and they are still being written in many cases. It is best to check with your state's insurance commissioner before buying a policy.
When shopping for insurance, you need to be very careful. First, and foremost, go with a well established insurance carrier. You are purchasing only a promise to pay, so you want to be sure that your insurer is in business when you need the benefit. Second, just necessarily purchase the least expensive policy. LTC insurance is a guaranteed renewable contract, which means the insurer can raise premiums in the future if they have priced the policies too low. Buying the cheapest policy probably means you will see higher premiums in the future.
Unlike life insurance, the insurer has an unlimited period of time to verify the information in your application. The protect yourself, be sure that the insurer verifies your medical records at the time of your application. If they don't do it now, then you expose yourself to them verifying medical records when you have a claim, which could be many years from now. If they find inconsistencies between the application and your medical records at that time, they could deny your claim.
The best piece of advice I can offer is deal with the matter now, while you still have options available to you, and seek the advice of an objective advisor who is familiar with the issues.
Kim Purnell,
MetLife Investors LTC Division
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