How to Get Good Long-Term Care Coverage

With the industry in turmoil, here's what to look for in a policy

Editor’s note: This article is part of a year-long project about aging well, planning for the changes aging brings and shaping how society thinks about aging. The long-term care insurance industry has seen its share of challenges in recent years, generating no shortage of negative headlines. But while such coverage isn’t for everybody, almost anyone planning for retirement ought to carefully consider whether they might need it.

After all, burying our heads in the sand about our future care needs is hardly a good alternative.

(MORE: SPECIAL REPORT: Transforming Life as We Age)

If you’re assuming you won’t need help in your later years, you may be miscalculating. Most long-term care is not actually medical in nature, but rather involves assistance with activities of daily living such as bathing and dressing.Some 70 percent of adults turning 65 will need help with such “custodial care,” including those with dementia who are otherwise physically healthy.

Where Medicare and Medicaid Fit In

Medicare doesn’t pay for custodial care and will only pay for nursing-home stays in limited, short-term circumstances. Medicaid pays basic long-term care expenses, but only for those who have exhausted their assets. What’s more, that government program is already under strain and shouldn’t be considered a fallback even for those who meet its stringent criteria, experts say.(MORE: Why Long-Term Care in the U.S. is Headed for a Crisis and What We Can Do)
What this all means is that most of us will need help toward the end of our lives and most of us will be on our own paying for that help, if we don’t have family or friends to do the work for us. And many financial advisers say relying on family shouldn’t be the sole plan for our old age.
Few Own a Long-Term Care PolicySo what are we doing to prepare for this eventuality? Only 7.4 million Americans are covered by a long-term care insurance policy.
Yes, long-term care insurance suffers from a bit of an image problem — as well as from some serious business challenges. Some carriers have exited the business in recent years. Many of the insurers that remain have started levying rate increases of more than 50 percent on their existing customers and reducing benefits for policyholders who opt not to pay those increases; charging women more than men for individual policies and trimming benefits on their newest policies.And yet there’s some good news for those considering a policy.
“The likelihood of rates going up on policies issued today is as close to zero as possible,” said Jim Glickman, president and CEO of LifeCare Assurance Company, a long-term care reinsurer and administrator, and a fellow of the Society of Actuaries. That’s because companies are pricing their new policies with much more conservative assumptions than those that informed prices in decades past.
Making the Most of a Tough Market
Here’s what long-term care options look like today: Some older policies offered benefits for an unlimited period, but those are much harder to find these days. (That’s one reason why some experts say that, despite their rate increases, older policies still offer a good value for consumers.)Typical policies today offer benefits for a period of three to five years. Women need care for an average duration of 3.7 years, while men need it for 2.2 years, according to the U.S. Department of Health and Human Services. These are averages, of course. Those with dementia often require much longer periods of care.

Long-term care policies often cover care provided in the home, but experts say it’s important to check the policy for details. Some policies require certain qualifications of those who provide care in the home, so they won’t reimburse a family caregiver, for example.

(MORE: 3 Innovative Ways to Age in Place)

A 55-year-old single male buying a new long-term care policy today can expect to pay $925 a year for $164,000 of annual benefits that last for three years, according to the American Association for Long-Term Care Insurance. A 55-year-old single woman would pay an average of $1,225 a year for the same coverage.
To counter the objection that all the money paid in long-term care premiums gets forfeited if the coverage isn’t needed, some companies now offer the option of a return of unused premium to heirs upon death. Yet these policies can cost two or three times as much as those without that benefit, Glickman said.
One benefit to keep in mind, especially at this time of year, is that the Internal Revenue Service considers qualified long-term care insurance premiums to be a medical expense for individuals. Those ages 51 to 60 who deduct medical expenses can include up to $1,360 per person in long-term care premiums for 2013; those 61 to 70 can deduct up to $3,640, and those 71 or over can deduct up to $4,550.
More Changes Ahead
While the long-term care insurance industry has stabilized after the financial crisis, unknowns remain. Carriers could still choose to exit the business. If that happens, experts say companies usually still honor their existing policies but decline to write new ones; a less common scenario would involve the company selling that book of business to another company.
Rising interest rates could prompt new players to enter the industry or lure back some of the carriers that had left, said Laurel Kastrup, managing director of KPMG Health Actuarial Services in Dallas.
It’s also possible that the industry will come up with new products in collaboration with the government, said Tom McInerney, CEO of Genworth Financial, one of the top writers of long-term care policies. One example could involve a product where an insurer would take the first loss position on policies, with the state taking over payments if the person lives very long.
Those who decide long-term care insurance isn’t for them should at least make a conscious decision to self-fund their future needs or consider another option, such as life insurance policies with a long-term care rider, experts say.As it stands, many people mistakenly think that Medicare pays for long-term custodial care. Either that, Kastrup said, or “people are somewhat in denial.”

Elizabeth O’Brien is a retirement healthcare reporter for MarketWatch. Contact her at Elizabeth.O’[email protected]

By Elizabeth O'Brien
Elizabeth O'Brien is a retirement healthcare reporter for MarketWatch. Contact her at Elizabeth.O'[email protected]@elizobrien

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