How to Cover Your Cost of Long-Term Health Care

Megan Johnson

Healthcare Insurance can be a cushion -- if you're careful

Claire Krumpotich and her husband, John, assumed their savings would be secure if they needed extended medical care in their later years, thanks to long-term-care insurance they had purchased in 1990. As they understood their Pioneer Life policies, $250,000 of future expenses for long-term care that they could not provide themselves would be covered. Now, however, the couple's sons are battling in court to get their mother's policy to cover her care in an assisted-living facility and to be reimbursed for the time she has already spent there.

The popularity of LTC insurance policies has grown since they appeared in the 1980s -- more than 8 million people now have individual or group coverage -- but consumer advocates and insurance regulators caution that such coverage is not a good buy for everyone. LTC policies remain confusing, they say, and the terms and features vary widely, from when benefits start and the maximum daily payout to how long benefits last and what services are covered. State insurance regulators field a steady stream of complaints from consumers over issues such as unexpected premium increases and denial of coverage.

Claire Krumpotich's policy at first performed as she and her husband had expected. A ballplayer in the 1940s for the All-American Girls Professional Baseball League (of A League of Their Own), she was diagnosed in 1999 with a nerve disorder that soon confined her to a wheelchair. The policy paid for a licensed caregiver to help her at home with dressing, bathing, and other daily activities. By 2006, however, Krumpotich had developed dementia and needed more attention. Although her policy refers only to coverage of home healthcare, her sons state in the lawsuit documents that their mother's case manager at Conseco, which had taken over Pioneer Life, told them the policy would cover her care in an assisted-living facility. Krumpotich moved into such a facility. But a month later, according to the court statement, the company stated that care in an assisted-living facility was not covered and refused to pay. (Conseco declined to comment for the story, citing the ongoing litigation.) The family kept sending off the premiums, which by 2008 had risen to more than $6,500 a year from the original $470.

To fend off such unpleasant surprises, which may surface far into the future, experts stress that consumers must understand the details of what they are buying and bring a sharp eye to policies under consideration.

A deciding whether to buy at all is something of an educated guess. Are you pretty confident you could handle the cost of long-term care on your own if you needed it? Assisted-living facilities in some parts of the country charge $50,000 a year or more, and nursing homes can cost well over $100,000 a year. If not, can you afford to pay premiums now and for years to come for coverage you may never need? Many LTC purchasers, half of whom earn more than $75,000 a year, should be able to pay some costs from savings, and few families will have to pay indefinitely. Tracey Baker, a financial planner in Fairfax, Va., notes that most nursing-home stays are three years or less. A 60-year-old couple might pay a total of about $3,000 annually for two LTC policies covering $150 a day of nursing-home costs for each person for three years. The premiums would be roughly double for a couple age 70.

Premiums can be made more affordable by altering such factors as the timing and scope of coverage. A 90-day "elimination period," for example -- the time that must pass before benefits kick in -- would carry a far lower premium than if the policy started paying out as soon as you were eligible.

Economizing by passing up inflation protection is a bad idea, say experts. It's the only way to hedge against hikes in healthcare costs, which have been averaging 4 percent a year. An inflation rider may tie benefit increases to the consumer price index, or it may add a fixed sum (simple protection) or a fixed percentage (compound protection) each year. A 5 percent compound rider is the industry standard, says Jesse Slome, executive director of the American Association for Long-Term Care Insurance. The initial premium would be twice as high as with no rider, but the amount of coverage would double in about 15 years. It is critical to get whatever inflation protection you can afford, says Baker. It's better to have some than none.

Choose wisely. Before weighing the pros and cons of different policies, the soundness of the companies selling them should be determined. A.M. Best, Moody's, and other such firms show ratings of insurance carriers on their websites, making it possible to quickly weed out questionable companies. The state insurance office can tell you how long a carrier has been licensed to sell LTC policies (and whether a company has hit existing policyholders with premium increases -- a definite warning flag). At least 10 years' experience in the market is a good sign, says Beth Ludden, senior vice president at Genworth, which, together with John Hancock and MetLife, sold more than half of all LTC policies in 2006.

Because of the wide variations among LTC policies marketed by different insurers, says Bonnie Burns, a training and policy specialist at the consumer group California Health Advocates, several from a range of companies should be compared by dealing with an insurance agent who represents more than one carrier. Your state insurance department can lead you to licensed agents, and Slome's group has an online agent locator.

In the 20 years since the Krumpotiches bought long-term-care insurance, LTC policies have broadened their scope. Most now offer comprehensive coverage for care whether provided in a nursing home, in an assisted-living facility, or at home.

The policies also have become more flexible. Many insurers will pay for services that are recommended by a physician even if they are not specifically named in the policy. More insurers also offer cash-benefit policies, which make regular payments directly to policy holders after they become eligible to receive benefits, without requiring reimbursement approval. This option would add about 30 percent to the premium, Slome says. But it would allow you to purchase monitoring devices or a specially rigged computer, perhaps, that would make your life easier. Or if family members are involved in your care, the cash could be paid to them for the time, perhaps even for the jobs, that they are giving up.

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Covering the Cost of Long-Term Health Care | Megan Johnson