PersonalFinance: Federal long-term care

(Linda Stern is a freelance writer. Any opinions in the column are hers. You can follow Linda Stern's financial notes on Twitter at www.twitter.com/lindastern)

By Linda Stern

WASHINGTON, March 17 - Tucked inside that healthcare bill and likely to become the law of the land, is a new federal long-term care insurance policy.

Called the Community Living Assistance Services and Supports Act, the new program is a voluntary opt-in insurance plan that would give beneficiaries as much as $75 a day to pay for long-term care expenses. It's not yet clear how high the premiums would be, but people who paid into the program and then needed its benefits would have broad latitude to spend them on anything from cooking and transportation help to rent in a long-term care facility.

This is significant, for many reasons. The primary policy significance is that this is the federal government's first foray into covering long-term care with a national plan (not counting Medicaid, which gets used for nursing-home care but isn't really a long-term care plan). Consumers will have to deal with a more personal and immediate significance: This CLASS Act will affect the long-term care policy you already own, or the one you are thinking of buying.

Here's what you need to know now:

-- That $75 daily benefit could help a moderately impaired person get the help they need to stay in their home and on the job longer. But it's not even close to what you'd need to cover full-time assisted living in a decent facility, or life in a nursing home. That's closer to $200 a day, according to MetLife's latest survey.

-- Medicaid covers nursing-home care for people who have no assets and are poor. Nothing (except for personal savings and private long-term care insurance) covers an extended stay in a nice assisted living facility. If you're living in an assisted living facility and you run out of money, you're most likely to get kicked out and be sent to a nursing home.

-- Private long-term care policies, which have been developed and promoted as the solution to budget-busting long-term care bills, have had a lot of problems, including sharply rising premiums, lack of stability of the underwriting company, failure to pay expected benefits, and heavy-handed promotions to people who probably shouldn't be buying those policies. The National Association of Insurance Commissioners has reported logging an ever-increasing number of consumer complaints about long-term care insurance.

-- Increased government regulations, mostly at the state levels, are helping those policies shape up. The argument for buying insurance now is always that if you wait too long, you may develop a condition that disqualifies you from buying it later. That's true, but long-term care insurance is a product most people buy and don't expect to use for a couple of decades, or longer. It makes more sense to wait for a solid plan before buying it.

-- Insurance companies like Genworth, a major long-term care player, are already trying to figure out how to integrate the federal program into their policies, says Beth Ludden, the firm's senior vice president. Some companies may simply deduct the government's $75-a-day plan from their own benefits. That should make their policies cheaper. Other companies may let you keep that $75 for extras, like a second policy. Some policies that have already been sold, may have a 'coordination of benefits' provision in them that will be affected by the new government plan, says Bonnie Burns, a California consumer advocate who specializes in long-term care issues. So, check your policy.

-- Figure out if you're a reasonable candidate for long-term care insurance. It's a policy designed to protect your assets if you need that kind of care. If you don't have very much money, don't bother to buy a policy because you're likely to spend down your own funds quickly and qualify for Medicaid. If you have loads of money, you can pay your own long-term care costs. If you have assets in the middle, say between $75,000 and $2 million, you should consider buying a policy. Even if you have enough money to pay for your own care, you may want to buy a policy to protect your children's inheritance and budget. (If that's the case, you could always ask your kids to help with the premiums.)

-- Check out your state's insurance regulator before buying a policy. Find them through the NAIC (www.naic.org/state_web_map.htm). Some states have stronger long-term care insurance regulations than others. Some also offer partnerships with the policies, so that purchasers only have to buy enough insurance to cover them for 5 years, and then can get state funding for care needs that exceed that period.

-- Don't buy long-term care insurance without vetting the insurer. The policy has to last decades; you don't want to pay premiums to a company that will go under in 5 or 10 years. Check the firm's ratings with key agencies. You can see a list of the strongest and weakest long-term care insurance companies at Weiss ratings (here).

-- Make sure you buy a policy that includes inflation protection for benefits. And don't buy a plan unless you are confident that you could continue to keep the policy in force, even if rates rose 20 percent or more, says Burns.

(Editing by Gunna Dickson)