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Long-term health care coverage isn't for everyone

Numerous factors need assessment

When most people plan for their retirement, it's with visions of care-free travel or taking up that hobby they never had time for in their working life.

But while many of those who reach age 65 can count on living another 20 years, one in four will spend a year or more of their retirement in a nursing home -- at an average cost of $46,000 a year.

Medicaid may pay for that care, but not until you have depleted nearly all your nest egg, including most of your lifetime assets and your children's inheritance. And even after meeting the "spend-down" requirement, the federal-state program for the poor in Ohio doesn't offer many care options. The choices are either a nursing home or, if you have family back up and meet other criteria, a home health program.

A somewhat pricey solution for some people may be long-term care insurance -- policies that will pay for your personal care, whether it's in a nursing home of your choice, a more home-like assisted living facility, adult day-care center or your own home.

As the insurance industry itself admits, long-term care coverage isn't for everyone. The cost alone makes it prohibitive for 80 to 90 percent of seniors. The average premium for good policies is around $2,600 a year when purchased at age 65, and about $8,500 if purchased at age 79, according to the American Association of Retired Persons.

On the other hand, "if you pay $4,000 per year for premiums, this may not be much if, two years later, the insurance company is paying you $40,000 per year" for your long-term care, says Michael J. Millonig, a Centerville attorney specializing in elder law.

The time to buy, of course, is when you are younger and a better risk for insurers -- a 40-year-old can buy coverage for around $600 a year. But at that age, many people have other, more pressing financial needs, like putting their children through college.

WHO SHOULD BUY

The need for long-term care insurance depends on your age, health status, overall retirement goals, income and assets. It also depends on how much choice you want in your long-term care.

Assisted living facilities, which offer a more home-like alternative to nursing homes, charge anywhere from $2,500 to $4,000 a month. Home care can cost anywhere from $55 to $200 a visit. Adult day care runs $30 to $150 a day. While most good insurance policies will pay for these options and more, Medicaid will pay only for home care, and in limited cases.

According to Consumer Reports, you don't need the insurance if you can set aside roughly $160,000 at compound interest solely to pay for long term care. That's enough for about four years of nursing home care.

Some analysts also say you should have at least $40,000 to $60,000 in assets to pay for potential premium increases and out-of-pocket expenses not covered by long-term care insurance.

On the other hand, if you expect your income and assets to be low enough in retirement that you would quickly "spend down" those funds to become eligible for Medicaid, then buying insurance to protect your wealth makes no sense.

To be eligible for Medicaid, individuals are limited, in general, to $1,500 in assets such as savings and stocks. The spouse can remain in the home and also is entitled to a car of any value and 50 percent of their combined assets free of spend-down requirements, with a minimum allowance of $16,392 and a maximum of $81,960. However, couples in a nursing home are limited to $2,250 in assets.

Leading long-term care insurance companies will generally sell policies to people between the ages of 40 and 80. As long as you are not in failing health and can take care of yourself, you can probably purchase coverage. Most policies exclude coverage of pre-existing conditions for the first six months of the policy.

For more details on whether you need long-term care insurance, both the AARP and the National Association of Insurance Commissioners (see listings below) provide financial worksheets to help you make that decision.

WHAT TO LOOK FOR IN A POLICY

How much you pay in premiums depends on the amount of daily coverage and the benefit period of the policy. Consumer Reports recommends buying at least as much daily coverage as the average cost of nursing home care your state. In Ohio, that's about $115 a day.

Companies offer a choice of benefit periods, anywhere from one up to six years of coverage. Nearly 90 percent of seniors who enter a nursing home stay less than four years. Women, however, are more than twice as likely as men to stay five years or longer -- 11 percent of women 65 and over versus 4 percent of men.

Analysts say you should not consider any policy that fails to provide adequate protection against inflation. Consumer Reports says to buy only a policy with at least 5 percent inflation protection. Why? If nursing home prices escalate at an 8 percent rate, a home that costs $113 per day (the current Medicaid average) will cost $527 a day 20 years from now.

Make sure the policy allows coverage for any facility that provides personal care. Beware policies that restrict coverage to "skilled facilities" or "Medicare-certified facility," Millonig says. In fact, policies that provide significantly more coverage for skilled nursing care than for lower levels of care are illegal under the Ohio Long-Term Care Insurance Act of 1992.

Millonig also recommends that the terms cover Alzheimer's disease or cognitive impairment and require only a physician's diagnosis in those cases. Language requiring "demonstrable organic-based disease" is unacceptable, since Alzheimer's and other forms of dementia often can not be demonstrated by any lab test or scanning device.

Benefits are usually triggered when a person loses the ability to function independently in the community -- that is, the inability to perform Activities of Daily Living (ADLs) such as bathing, eating and walking without help.

Buy a policy with the least restrictive "benefit triggers" -- usually the loss of two or three ADLs. Cognitive impairment alone should be a sufficient reason for benefits to kick in. Policies that require "medically necessary care" are unacceptable, Millonig says.

Policies usually specify that coverage begins a certain number of days after the first day of nursing home care. Millonig recommends a 90- to 100-day waiting period since a lower number will increase premiums.

Under Ohio law, a policy cannot require that a person be hospitalized first in order to receive benefits, or that they must stay in a skill nursing home before they qualify for personal or custodial care.

Nor is it legal to cancel or deny renewal of a policy because you got older or have new health problems. However, the insurer does have the right to raise your premiums if this is done for all policyholders in the state.

Good features also include a waiver of premium -- meaning premiums no longer have to be paid once you enter a nursing home, Millonig notes.

Don't buy home-care coverage if it seems unlikely you will have the family or volunteer back-up to make it work.

BEFORE YOU BUY

The National Association of Insurance Commissioners offers these tips in its Shopper's Guide to Long-Term Care Insurance.