Alvin Davis, 59, has a close-up view of what happens as people age. The Boca Raton, Fla., resident’s 98-year-old mother needs someone to stay with her full-time and has spent her savings for it. That’s why Davis and his wife recently purchased long-term care insurance for themselves. “We hope we never have to use this for a long, long time,” Davis said, “but you never can tell.”
Indeed, two of every five Americans age 65 and over today will likely enter a nursing home, with more than 20 percent of those admitted staying more than five years. Other aging people will need help in their homes, or in assisted living facilities, designed for those with less chronic health needs who need help with day-to-day activities.
About 8 percent of the elderly population now has private long-term care coverage to pay for that assistance, according to the Urban Institute think tank, with insurance firms stepping up advertising and other efforts to sell more policies to consumers. But as more people are considering the long-term care insurance option financial experts warn that the coverage isn’t a cure-all. Insurers routinely turn down people with some serious health conditions. Also, the insurance is costly.
The average buyer of an individual long-term care policy is 59, while the average age in an employer group is 42, said Catherine Sanborn, director of individual long-term care products for insurance firm Unum Provident.
“Obviously, the younger and healthier they are, they’re easier to underwrite and will pay less premium,” she said.
For instance, a 55-year-old man would pay $991 annually for a long-term care plan providing nursing home or in-home care offered by insurer Continental Casualty Company (CNA), according to calculations from Lighthouse Point, Fla., financial planner Jay Shein. Someone who’s 65 would pay more than double — $1,992 — for the same coverage.
The issue is grabbing headlines. Congress is considering legislation that would allow consumers a tax deduction for the entire cost of a long-term care insurance plan.
Some companies have already answered employees’ needs. The number of businesses offering long-term care as a worker benefit is climbing, from just over 1,000 in 1994 to nearly 2,200 in mid-1998, the latest year for which statistics are available.
But long-term care insurance coverage isn’t for everyone.
Financial planners say people with less than $50,000 in assets probably can’t afford comprehensive long-term insurance plans.
Less than one-third of people aged 65 and over can afford a comprehensive long-term care policy, according to insurance industry estimates.
While it is far cheaper to buy a policy when a person is in his or her 50s or 60s, the average age of nursing home residents is closer to 85. So consumers must be prepared to pay their premium faithfully, or risk losing both their coverage and all the money they’ve paid in.
Furthermore, about one in four people over age 65 have pre-existing health conditions–including severe diabetes or early-stage Alzheimer’s disease — that exclude them from obtaining private long-term care insurance, according to the Long Term Care Campaign, a Washington, D.C., advocacy group.
As in other health care-related industries, consolidation is also entering the picture, leaving some consumer experts on the lookout for rising long-term care insurance costs.
Consumers face uncertainty when their policies are acquired by a new firm because they can’t predict how the purchaser will view the profitability of current premiums and whether premium prices will increase.
Consumer experts suggest that people considering long-term care policies shop around and stay away from companies dangling significantly lower prices than other firms for comparable coverage.
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“You need to start out with as solid a company as you can get and someone who’s committed to the long-term care industry” and has been selling the policies for several years, said Deena Katz, a partner at Evensky, Brown & Katz, a financial planning firm in Coral Gables, Fla.
If you’re buying long-term care insurance to protect your assets so you can pass them on to your children or a favorite charity, “then you’ve got to have some assets to protect,” said Joshua Wiener, principal research associate and long-term care policy expert with the Urban Institute.
“The average elderly person, not counting the house, has about $30,000 in assets,” Wiener said. “So the question is whether it’s worth paying $2,400, if you’re single, each year to protect this relatively small amount of money.”
A 1993 report from the U.S. General Accounting Office said long-term care insurers expected half their newly issued policies to lapse within five years without policyholders ever using their benefits.
“No one goes into buying a long-term care policy thinking they’ll drop it,” Wiener said. “But many people do, because the market has been changing and they find a better policy, or they find the policy they have has gotten too expensive. Or they decide the reasons they bought their coverage in the first place are not as important as they were initially.”
Some long-term care insurers are pitching their policies to younger people, especially as a growing number of companies offer long-term care coverage as an employee benefit. Insurance companies now offer individual long-term care policies to people as young as 18 and as old as 90, a survey by the Health Insurance Association of America found.
While you get a much better deal if you buy policies in your 50s or earlier, “I would not recommend it because so much is going to change,” said Jon Dauphine, of the Long Term Care Campaign — a consumer advocacy group.
So it’s imperative that younger buyers of long-term care policies also purchase inflation protection, which can boost the policy’s cost by one-third, he said.
Despite the marketing, long-term care policies are not total solutions, said Katz, the financial planner from Coral Gables.
“They may not pay for some kinds of care, like getting someone to cook for you or grocery shop for you,” she said.