March 21, 2012 / 7:30 PM / 7 years ago

Six keys to long-term care coverage

(Reuters) - Patricia Rief-Heskett purchased long-term care insurance 15 years ago because she was worried about the rising cost of nursing home care. Now that the Omaha, Neb., retiree is 67, she worries that coverage won’t be available if and when she needs it.

Rief-Heskett recently received notice from John Hancock Financial that her $200 monthly premium would practically double this year, to $370. Torn between paying pricey premiums or giving up hard-earned benefits, she decided to compromise on the benefits. “I can’t afford to let that policy go now,” Rief-Heskett says.

Even with the increase, premiums on existing policies will be a lot less than what customers would pay for a new policy today, John Hancock said in a statement. The firm is seeking rate hikes of about 40 percent, on average, in all 50 states for both individual and group policyholders. Minnesota and Illinois are two states besides Nebraska where some policyholders have seen 90 percent increases.

Other insurers are pulling back altogether in the face of rising nursing home costs and an aging population. Prudential Financial Inc. recently announced it will stop selling individual policies at the end of March, becoming the 10th out of the top 20 carriers by sales to leave the market in the past five years, according to industry-backed research group LIMRA International. Berkshire Life Insurance Company of America stopped offering long-term care insurance at the end of last year, and MetLife stopped issuing individual policies in late 2010.

Rief-Heskett's not having it: She recorded a You Tube video (here, and, along with what she calls "a small group of little old ladies" is lobbying Congress to cap long-term care insurance fees.

The video might be exceptional, but the story isn’t. More than 7 million Americans have long-term care insurance today, by LIMRA estimates. Consumers across the country are getting hit with steeper premiums and limited benefits. Prices on new long-term care plans today are between 6 and 17 percent higher than comparable coverage one year ago, according to the 2012 National Long-Term Care Insurance Price Index published March 14 by the American Association of Long-Term Care Insurance (AALTCI).

Low interest rates (which make it harder for insurers to manage investment pools to cover claims), unpredictable medical costs and a tough regulatory environment are some of the key reasons that insurers give for leaving the market, despite demographic trends.

“The long-term care industry is still young and only now is seeing actual usage data, which indicate the need for rate increases,” the statement from John Hancock said.

Some 70 percent of people over 65 will require long-term care services —- including assisted living, nursing home or home care —- during their lifetime, according to the U.S. Department of Health and Human Services. Costs, on average, range from $4,000 to $8,000 per month.

For consumers who can’t afford to self-insure against big costs like that, there are few alternatives. Medicare doesn’t cover such expenses, and individuals with more than $2,000 in assets can’t qualify for Medicaid assistance.

Here are some tips on how to buy a long-term care policy or make the most of an existing one:

- Consider a policy that limits coverage to three or five years. Most consumers now choose those short-term plans because they are cheaper than lifetime policies and typically cover most long-term care situations, according to AALTCI. In fact, a recent survey found that three-year coverage was sufficient for 92 percent of people who had it and had to file claims, said Jesse Slome, AALTCI’s executive director. Expect to pay an average of $2,700 per year to cover a couple of 55-year-olds on a three-year benefit plan that pays out a $150 daily benefit, according to AALTCI. For married couples, consider a “shared-care rider,” in which plan benefits can be used to cover expenses incurred by either spouse or both. That’s more expensive than one policy but cheaper than two.

- Reconsider inflation protection. Premiums drop if buyers forgo inflation protection. A 5 percent compound growth option for benefits was once the norm, meaning a $100 daily benefit became a $265 daily benefit after 20 years. Adding this safeguard today raises the cost of a policy by 120 to 240 percent for a 55-year old, according to AALTCI.

Eliminating inflation protection is the route Rief-Heskett ultimately chose, effectively freezing current benefits in order to keep her premiums low. It’s a less than ideal choice, warns Bonnie Burns of the nonprofit California Health Advocates, because nursing home costs keep rising and it could be a couple of decades before you call upon your benefits.

For some, she says a better alternative may be to walk away from a costly policy and shop for another. You can stop paying premiums altogether and keep coverage equal to the premiums that you have already paid. In certain states, the law requires insurers to allow this once premium hikes hit a certain threshold. So if you’ve paid $20,000 in premiums, your new maximum lifetime benefit would be $20,000.

- Be realistic about what you’re buying. “I advise clients to consider a long-term policy as a way to ease costs rather than cover them entirely,” says Charles Farrell, a tax attorney and CEO of Denver-based Northstar Investment Advisors.

How much insurance you need depends on your annual income and local care costs, Farrell says. If investments and Social Security generate $50,000, for instance, then insurance need only cover $50,000 to pay for the most expensive long-term care (estimated to be around $100,000 per year). Of course, this math changes if a healthy spouse shares your income.

- Get coverage in your early 50’s. Buy before the aches and pains of aging set in, because insurers are becoming more circumspect about the policies they issue. “If you have any sort of healthcare hiccup in your past, you won’t get coverage,” Farrell says.

- Ask if your employer offers group coverage. If you opt for coverage in the first 60 days of employment, you generally have guaranteed acceptance.

Workers who leave jobs are usually allowed to convert their group long-term care insurance plan to an individual plan. But that coverage could change slightly if your former employer cancels the group contract, and of course, rates could always go up.

If your employer doesn’t offer a group plan, associations or churches often do. Your health history has to be approved in order for you to buy into one of these plans, but prices of group plans are typically lower than those of individual plans.

- Understand what you are getting. Long-term care policies are extremely technical. Some plans come with 90-day elimination periods before coverage begins. Others provide specifications about care that can vary depending on what state you happen to be in.

“If an insurance company can find a reason to disqualify you or not pay a claim, it’s in their financial interest to do so,” Slome says. “It might not be in the consumer’s best interest, but it is reality.”

Nearly one in three initial claims are denied, according to a 2010 independent U.S. Department of Health and Human Services audit, although “insurance companies tend to err slightly on the side of approving claims that may not meet policy contract benefit eligibility,” the report said.

That’s only for customers who manage to hang on to their insurance until they have a claim to file. “Right now we’re at the mercy of the insurance companies,” Rief-Heskett says. “The scary part is that they could raise premiums again next year.”

(The writer is a Reuters contributor. The opinions expressed are her own.)

Editing by Linda Stern, Lauren Young and Andrea Evans

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