Last updated: Mar 02, 2016
kathryn-votava
"The earlier you purchase a policy, the healthier you are and the more likely you are to qualify for insurance."
(KATHRYN VOTAVA)
Many people rely on family and friends to provide care for them when they can no longer do it themselves. But at some point, the care required can be too much for these informal networks to handle. That's where long-term-care insurance comes in. Caregiving expenses are usually not covered by health insurance, and they can be staggering—a semi-private room in a nursing home, for instance, can run about $70,000 a year, and in-home care can reach as high as $350,000 for round-the-clock help. We asked Kathryn Votava, PhD, assistant professor of clinical nursing at the University of Rochester in New York and president of Goodcare.com, a company that analyzes health-care costs, for advice on how to shop for the best long-term insurance policy.


Q: What does long-term-care insurance cover?

A: Depending on what kind of policy you choose, it will pay for a nursing home, assisted-living facility, community programs, or for someone to come to your home to care for you. It can offset some of the costs—notice I said some. Most people think that if they have a long-term-care insurance policy, they're covered completely. Not only is the average policy not enough to cover the cost of this type of care, but people don't take health-care inflation into account. And you will still need to pay for your Medicare Part B, Medigap plan, prescription drugs, and doctor visits just as before. Those expenses don't go away and long-term-care insurance doesn't cover them.

Q: How much coverage should I get?

A: The average policy covers $149 a day. Now, if you live in some parts of Texas or Louisiana, that might cover your long-term-care needs. But in a place like New York City, the average is more than twice that. Get an understanding of what the costs are in your area. The two big surveys of nursing-home prices are from Genworth Financial and MetLife Financial. That will give you a ballpark figure, but even those underestimate how much it actually costs. I'd call a good nursing home or home health-care agency that you might like to use eventually. Find out what the daily cost might be, for example $300 a day, and buy the coverage that's closest to that daily cost. When it comes to 24-hour care at home, you will find that a long-term-care insurance benefit will not come close to covering that level of cost, because extensive in-home care is costly. Remember that once you have exceeded two to four hours a day, seven days per week of in-home care, you will probably be paying more for long-term-care than if you were in a nursing home. Therefore, if you need more than two to four hours per day of in-home care, your long-term insurance benefit may provide more long-term-care if you are in a nursing home.


Q: How long should my coverage last?

A: You can purchase a policy that pays a set dollar amount per day for either some period of time or as a continuous lifetime benefit. I advise people that the most economical choice is to purchase a plan that provides benefits for five years. Only about 20% of people stay in a nursing home for five years or more. That's the minimum coverage you should have. If you have more money to spend, then certainly buy coverage for a longer time period or a bigger benefit so that if you're certain that you want in-home care, you will have more money to pay for it. Take the money you'll save on the shorter coverage period and buy a shorter waiting period, benefit for home care (as many policies pay out only 50 cents on the dollar for long-term-care at home), and compound-inflation protection riders. Don't give up coverage on the front end for something you are much less likely to collect on the back end. Once you have the minimum coverage, if you have more money to spend, then you can buy coverage for a longer time period.

Q: What additional features are worth paying for?

A: Get a compounded inflation rider. A "simple" inflation rider does not keep up with inflation nearly as well. One basic problem is that health-care inflation runs at 8.1% a year; the maximum inflation protection you can usually get in a long-term-care insurance policy is 5%—thats the best you can do. While that 5% rate will not keep up entirely with health-care inflation, it will give you a better chance of being able to afford your long-term-care when the policy pays out. I also like to see people have a 30-day waiting period or less—thats the amount of time from when the insurance company determines that a person is eligible to use their long-term-care benefit to when the company begins to actually pay out for the benefit. All policies have some waiting period. People often get a 90-day or a 100-day waiting period because it lowers their premium, but you could end up paying thousands of dollars during the time you're waiting for coverage to start. Finally, I recommend a nonforfeiture-of-benefit rider. Typically, you're only eligible for the insurance benefits as long as you pay your premium. But the nonforfeiture rider lets you maintain some value in a policy even if you decide not to continue paying for it. That could be very important if the insurance company you're with decides to go out of this business and sells your policy to someone else who jacks up your premium so much you can't afford it anymore. The non-forfeiture rider means you will get some amount of the policy benefit—not all, but some—depending what you paid in over time. One last thing: Make sure the insurance company you choose has a solid track record. Call the National Association of Insurance Commissioners at (866)-470-6246 and get the phone number for your state health-insurance department. Then contact your state insurance department to find out if there are any reported problems with an insurance company you are considering.


Q: When should you buy the insurance?

A: At the latest, I'd say late 40s or early 50s. It's still affordable then. The premium is based on your heath status first, then your age. Generally speaking, the earlier you purchase a policy, the healthier you are and the more likely you are to qualify for insurance. People who have serious, chronic conditions may find their rates to be really high or they may even be uninsurable. The costs vary greatly from policy to policy, state to state, and person to person. Usually someone in his or her late 40s or early 50s will pay about $3,000 to $6,000 a year. That's for a very good policy. Someone in his 60s could pay several thousand dollars a year more for the same policy.

Q: When does the coverage start?

A: In order for the policy to kick in, you must have a certain level of need. Most providers define that as not being able to perform at least two of what are called "activities of daily living," in insurance-speak. Those are: bathing, eating, dressing, toileting, and transferring from bed to chair. So, you might have a hard time giving yourself a bath, and it might take you all day to do and then you're completely exhausted, but to the insurance company you're not compromised enough to use the insurance for that. The exception to that rule is folks with dementia. They may be able to perform those tasks, but they need supervision, so the insurance company will often pay out for their care.

Q: Can you run into problems collecting your insurance?

A: It's gotten better. Some of the companies that were the most difficult to deal with were on shaky financial ground, and they've gone out of business. Remember, the person who comes to do the assessment of whether you're able to perform the activities of daily living works for the insurance company, not for you. They'll be looking at your case through that lens. If you run into trouble getting them to pay benefits, you might want to enlist an advocate, like a geriatric care manager, if more than a simple follow-up phone call is necessary.