Insurance for long-term care promises peace of mind, but at a dear price

It's not only people nearing retirement who are being pitchedthe concept of insurance to cover long-term nursing or otherassisted care. Even people in their early 50s, or younger, mayfind they are the target of insurers who view the aging ofAmerica as an opportunity to sell more of their stock intrade-peace of mind. While long-term-care insurance can salvagefamily finances and ease worries about having a nursing home bedif you need one, its provisions are often misunderstood. Andpeople frequently develop unrealistic expectations of the amountof help such insurance can provide. Buying too soon-or toomuch-can be a waste of money. Waiting too long can make youineligible because of health problems. And, because it's soexpensive, you may decide it's a safety net that you can'tafford or don't need at all. Here's some help to make sense ofall this:Once someone hits 65 and qualifies for Medicare, won't thatpay for a nursing home stay?Sometimes. Medicare pays for 20 days at a nursing home forrecuperation and rehabilitation after a hospital stay, and itpicks up part of the cost for an additional 80 days. Asupplemental Medigap policy could pick up the share thatMedicare won't. But neither covers custodial care that elderlypeople may need when they can't bathe, eat, dress, or get aroundwithout help-or when they need supervision because ofAlzheimer's disease or other forms of dementia.What about Medicaid?This welfare program is often confused with Medicare, thefederal insurance program that helps older people pay doctor andhospital bills regardless of income. Medicaid, run jointly bythe federal government and the states, is a haven for peoplewith few assets and a low income. It may pay for long-termcustodial care and, in some cases, for at-home care or assistedliving in communities for the elderly. But it won't kick inuntil those bills eat up most of a person's assets and income.Provisions vary by state, but protections apply when one spouseis institutionalized and the other stays at home. The at-homespouse can typically retain about half the family's assets butno more than about $84,000, plus the family home-and keep asmuch as $2,100 a month of income, and perhaps more.Despite those safeguards, many people worry about a reducedliving standard for the at-home spouse or an erosion of theassets they can leave to their children. As a result, manypeople transfer the title to their assets-at least in part-andmake other financial moves to appear poor on paper and thusprematurely qualify for Medicaid. That's part of the reasonthere are so many more elder-law attorneys, who specialize inhelping people with the complexities of aging.How does insurance help?It can reduce the incentive to manipulate finances and providepeace of mind about getting care. Insurance can also increase afamily's leverage to choose the care it wants. Not allfacilities accept Medicaid patients, and those that do may limitthe number of such occupants because Medicaid pays a discountedrate. Residents who pay full price from their own assets orinsurance may get preference even in cases where regulations bardiscrimination against Medicaid patients. "It's like flashing$20 to the maitre d'," says Barbara Kate Repa, an attorney inSan Francisco. It can help if you use insurance or private fundsto start off before turning to Medicaid. A nursing home thataccepts Medicaid patients can't force out paying occupants whenthey go on Medicaid, but lawyers tell of patients being moved toa less desirable room or a different facility. Complaints byfamily members may help.Middle-income people are the prime target for this insurance.Their income may not cover long-term care, but they can havesizable assets that could be sliced away. Couples with modestassets and income may need little or no insurance, as Medicaidmay protect all or most of that for the at-home spouse. The richcan probably afford to take care of themselves.What does a policy cover?This is where you must read the fine print; terms vary widely.Generally, insurance may pay $100 to $200 a day for custodialcare in a nursing home for two to four years-but sometimes forlife. A similar or reduced amount may be paid for assistedliving or care at home. A policy with such options can be usefulbecause alternatives to nursing homes are becoming more popularand available.Keep anticipated costs in mind. Nursing homes currently chargeabout $100 to $300 a day, so insurance may not cover everythingunless you pay an outsize premium for very extensive coverage.For many people, the insurance may have to serve as a supplementto other savings and retirement planning. A policy that raisesits daily compensation each year helps protect against inflationeven before the first claim is made. It's a costly added featurethat in some cases may almost double the premium, but it'sworthwhile, particularly for younger buyers who may not claimbenefits for many years. The most generous adjustment compoundsthe rise in benefits-similar to interest compounding in asavings account.Buying minimal protection is unwise, as it will hardly dent thebills. A better way to economize is to accept a wait of up to 90days after entering a nursing home before benefits begin-notunreasonable if you view the policy as a last-ditch backstopagainst the financial drain of long-term care.To trigger benefits, a person must generally be unable to handletwo or three "activities of daily living" from a list of five orsix. Make sure bathing is on the list; that is typically one ofthe first chores that can't be done. Good policies also providecoverage for dementia. Check for restrictions that might, forexample, rule out a preferred smaller facility. If you'reconsidering assisted living, check the policy's definition ofwhat qualifies.What if the benefits run out?In that case, the resident would pay all expenses until he orshe eventually qualified for Medicaid. The following projectionsaren't fun, but the average nursing stay is about two years, andthe chances of surviving long enough to need care for more thanfour or five years is low. Alzheimer's patients, though, tend tohave longer-than-average stays.Some states are trying to reward those who buy long-terminsurance. Pilot programs in California, Connecticut, Indiana,and New York allow residents who have bought insurance to retaina larger-than-normal amount of assets when they go on Medicaid.But the individual's income may be tapped to reimburse Medicaidcosts.What does it cost?A 55-year-old might pay as little as $500 a year for minimallong-term coverage, or $2,500 for comprehensive benefits,estimates the United Seniors Health Cooperative in Washington.An individual who first purchases insurance at 75 might pay$2,000 to $8,000. Changing the level or length of benefits has abig effect on the cost, but also check for specials, such as adiscount of perhaps 10 percent to 20 percent for couples whosign up.Consider whether you can afford the cost-buying a policy andlater letting it lapse is generally a bad strategy, and it issomething that many buyers of the first generation ofunattractive long-term-care policies did. One rule of thumb isthat retirees should not spend more than 5 percent of theirincome on such insurance. Some insurers allow policyholders whoget stretched too thin to downgrade the coverage to a level theycan afford-a half-loaf-is-better-than-none approach. In somecases, the premium will be waived once benefits begin, a goodfeature. It's not unreasonable for children who will inherit theprotected wealth to help out. But for many, coverage won't beaffordable.Can the premium rise later?Once you pass an insurer's health requirements-the older youare, the harder that might be-the initial premium can't beincreased as you age or as your health falters. But the rate canlegally rise if the insurer generally raises it foreverybody-not just for you or those your age. That could happenif claims are heavier than forecast or if a firm initially setprices low to drum up business. Some experts believe thatsizable boosts may come in a few years; you may want to considerthat when budgeting. Ask an agent about a firm's record ofrecent price increases and be wary of a premium that's way outof line.Who sells the insurance?Sellers are life and health insurance companies, including bignames such as Sellers are life and health insurance companies,including big names such as General ElectricCapital, MetLife, andJohn Hancock. A buyer whowants to be conservative should choose a company that receivesat least three of the following ratings, advises Joseph Belth,professor emeritus of insurance at Indiana University and editorof the Insurance Forum. They are: AA- or better by Standard &Poor's, A1 or better by Moody's, AA or better by Duff & Phelps,B- or better by Weiss Ratings, and A+ or better by A. M. Best.For the complete article click on Insurance for long-term care promises peace of mind, but at adear price.