For aging boomers, long-term care insurance is an option
Long-term care, whether in a nursing home, assisted living facility, or even your own home, is an expensive situation. Since the early 1980s insurance companies have offered policies intended to help defray those costs. And more and more often those of the Baby Boomer generation are debating the wisdom of purchasing such a long-term care (LTC) policy.
According to U.S government data, this year 9 million American men and women over the age of 65 will need long-term care. By 2020, 12 million older Americans will need long-term care. And, Medicare only pays for "medically necessary" skilled nursing found in a facility (a nursing home, for example) or hired to provide home health care. Medicare does not pay for custodial care (the activities of daily living with which someone may need assistance).
LTC insurance policies may be for nursing home care only, home health care only, or a combination of the two. The greater the LTC insurance premium amount, the greater the benefits. Some policies will pay out a stated total amount of benefits over a specified period of time, while others have an unlimited payout of benefits. Typically the benefits are based on the "daily cost of services" and may pay out as little as $50 a day to as much as $600 a day, depending on the premium schedule.
"A couple of people who have come in with long-term care insurance have told me how happy they are that they bought the policy and kept up with the payments," says Scott Gerstmar, owner of Henrietta Brewer House, an assisted living facility in Vineyard Haven. Basic non-skilled services at the facility now cost $210 a day. If a resident needs additional services, including skilled nursing, the costs are additional. And, the Henrietta Brewer House is "private pay" meaning that the resident pays and then, if insured, seeks reimbursement.
MV Insurance vice president Steve Schwab (Vineyard Haven) sees long-term health insurance coverage "playing a very important role in retirement planning...to protect assets. If you need to go into a nursing facility...that is a very costly affair. Medicare pays a certain amount and then the nursing home will demand assets to take you in (above what Medicare covers). And there are a limited number of facilities that will take you in after you have depleted your assets."
Windemere Nursing & Rehabilitation Center has an 81- bed capacity and provides care for patients even after public and private insurance options have expired. Bob Roy, the facility's designated spokesperson, says of LTC, "I rarely see people use it. I do not see the incentive for people to get it. If you have a lot of money you can pay for your care yourself privately. If you do not have a lot of money you end up on Mass Health (Medicaid) and the State pays for it."
According to U.S. Department of Health and Human Services data, people who reach 65 years of age have a 40 percent chance of entering a nursing home. Ten percent of those entering a nursing home will stay there five years or longer. Citing this federal data, Mr. Roy said that ""most people do not end up in a nursing home so why bother with the insurance?"
LTC insurance policies are costly but less so if you are younger when you make the purchase. If purchased in one''s 50s, a New York Life policy, for example, would carry an estimated monthly premium of $200 or $2,400 a year (paying out $250 a day for services). If you were to wait until you were in your 70s to purchase such a policy the annual premium would be about $13,000.
"Keep in mind that if you were in a facility for a year you''re looking at $90,000 in expenses," says Steve Jordan, CLU, Jordan Insurance and Financial Services, Edgartown. Although an independent insurance broker, Mr. Jordan most strongly recommends a New York Life Insurance LTC policy.
According to Enid Kassner, who heads up the AARP public policy institute, in the beginning 50 to 60 companies sold LTC policies. Today, 75 to 80 percent of policies are being sold by 10 to 12 companies. AARP currently "has a relationship" with Genworth Insurance (formerly GE Capital) and had one with MetLife in the past.
Currently there are 21 insurance companies licensed to sell LTC policies in Massachusetts, according to the Commonwealth Division of Insurance. In 2008, the most recent reporting period, the Division received 27 written complaints on long-term care insurance (out of approximately 1,600 overall insurance complaints). The majority of long-term care policy complaints were about claims issues, according to Division officials.
Ms. Kassner says that policies are now becoming more expensive than they were in the 1980s. "In the early years, the companies did not know how to price the policies and there were some bad apples that intentionally underpriced them because they just wanted to sell a lot."
Before purchasing a policy, "consumers need to read the fine print," Ms. Kassner suggests. "The policy should tell them the total number of dollars that will be paid out. And consumers need to look at the cost of care where you think you are going to use the benefits." Because care in Massachusetts is more expensive than other places in the nation, Ms. Kassner also recommends that consumers purchase a policy with higher benefits.
Often, though, purchasers will select a policy with lower daily reimbursement benefits so that the monthly premium is lower, according to Island insurance brokers. And increasingly insurance shoppers are expressing interest in policies with the intent of using the coverage for in-home care in later years.
Usually the mid-life purchasers of long-term care insurance are planning on paying monthly (or annual) premiums for 20-25 years assuming the policies will not be needed until they reach their senior years. However, these policies can be utilized at any age.
For example, Foster Greene, of West Tisbury, purchased his first policies, covering himself and his wife, Diane, in the early 1980s when his employer began offering John Hancock Insurance LTC plans. About 15 years later when his wife's employer offered LTC insurance they purchased two more policies. Mr. Greene assumed that he would be paying premiums decades before, if ever, needing to utilize the policies.
However, Mr. Greene's wife was diagnosed with Lou Gehrig's disease (ALS or amyotrophic lateral sclerosis) in 2004 at 60 years of age.
"I would never have been able to do what I did for her without [LTC]," Mr. Greene said." I had people coming in to help with everything five days a week in the last year [of her life]... I got back far more than I ever paid in."
John Hancock Insurance is one of two companies (the other being Genworth) that Donald Sostek describes as "progressive," when explaining the real challenges that consumers face when attempting to utilize the benefits of an LTC policy. Mr. Sostek is the director of Sostek Home Care, Newton, that provides home health care workers for its clients using a "consumer directed model" wherein the consumer directly pays the caregiver and pays a fee to Sostek for finding the worker, assisting in record keeping, advocating for the consumer with insurance carriers and providing 24/7 emergency assistance when needed.
For example, a Sostek in-home care provider will be paid $16 an hour ($160 for a 10 hour shift) and the firm charges $22 for that 10-hour shift for a total of $182. "So if the (LTC) policy reimburses $200 a day you are covered," Mr. Sostek explained.
However, according to Mr. Sostek, perhaps half of the potential clients with LTC policies who come to his firm must be referred elsewhere for help because the consumer's insurance policy will not reimburse the client if using Sostek personnel. Often the insurance policies restrict reimbursement to "employer model" firms where the helper works for the agency, not the consumer, and is paid by the agency, not the consumer.
"The more progressive insurance companies will allow you to hire on your own...to hire the person you want working for you," according to Mr. Sostek, whose firm provides only live-in assistance for clients on Martha's Vineyard.
Sostek Home Care provides what regulators call "unskilled caregivers," including certified nursing assistants (CNAs) and certified home health aids (CHAA), and is licensed by the Massachusetts'' Department of Labor. Firms that employ "skilled" health care providers (including registered nurses and licensed practice nurses) are licensed by the Department of Public Health (DPH). LTC insurance policies may only require that firms providing in-home help be "licensed," while other more restrictive policies may require a DPH license.
The Vineyard Nursing Association (VNA), which provides both in-home skilled and unskilled care, is DPH licensed (as well as certified by the federal Medicare program) using the "employer model" that places its employees with clients on a daily shift (but not live-in) basis on the Island.
"I bought my policy at 55 or 56 thinking I might someday need it for a nursing home," says the VNA's Executive Director Bob Tonti. "But now I know that I would want to use it for home health care."
When it comes to home care, "the LTC insurance polices can be very specific about who they want to work with," says Mr. Tonti. "More and more people who hope to stay at home are going to need this insurance help."
According to Mr. Sostek and others, including AARP, policies written within the past ten years have become more flexible in the policy restrictions. However, Mr. Sostek still calls the process for getting reimbursement "just horrible."
"The process to access the benefits of many policies is very cumbersome and difficult." Mr. Sostek warns. "I have seen seniors who are about to throw up their hands and not even try to complete the process of getting reimbursed because it is so tough to navigate. The insurance companies could do a much better job of facilitating the process."