Long-Term Health Care: Higher Costs, Less Coverage

(The writer is a Reuters contributor. The opinions expressed
are her own.)
By Kathleen Kingsbury
March 21 (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
Rief-Heskett's not having it: She recorded a You Tube video
(http://www.youtube.com/watch?v=0oIFdI0Fvts), 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
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
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."

(Editing by Linda Stern, Lauren Young and Andrea Evans)