By David Wilkening
REGION – If you want the protection of buying long-term care insurance, it helps if you have a lot of money. Say more than a million dollars in assets. Otherwise, it might be out of your price range. The bad news here: There’s a chance that you will someday need what it provides. The good news is that there are alternatives.
Whatever the cost, long-term care insurance is “definitely not for everybody,” admitted Tobe Gerard, known for her expertise in the topic. Her Natick-based insurance agency includes the specialty of providing for long-term care.
“Financial planners and attorney advisors often recommend it for people who have one million and a half in assets and own their own home or condo. Some advisers put the figure at $5 million in assets,” she added. Yet at the same time, 70 percent of people over the age of 65 will require some form of care and support later in life.
Initially marketed to Boomers
Long-term care insurance came on the scene in the mid-1970s. It was heavily marketed to aging baby boomers heading towards retirement. It provided policy holders a guarantee of care without having to sell their homes or other assets to pay for it. It generally covers nursing home and at-home care costs. It is similar to life insurance in that premiums are based on age and health. Major selling points are giving individuals options over their health care, and alleviating stress and cost for other family members.
But with rising medical costs, it’s generally agreed that insurance companies suffered huge losses largely because of pricing decisions that were inaccurate. Insurers underestimated how long policyholders were living to need nursing home care, for example.
That led to steadily escalating prices. One Boston couple, for example, found their comprehensive long-term care insurance plan this year escalated to four times what they paid for it in 2004―leading to annual premiums of almost $19,000.
Will you need long-term care?
But what about if you can function in everyday life and don’t require a nursing home or care at home? And what if your needs are only short-term? One of the biggest unknowns for retirees is whether they’ll eventually need long-term care and how long it may be needed.
Many people may end up requiring little or no longstanding care, according to research from the Center of Retirement Research at Boston College. About 20 percent of 65-year-olds did not need any long-term care during the rest of their lives, the study found. Another one in five needed only minimal support (which in many cases is often provided by relatives). At the same time, though, the study found about 25 percent needed significant care for more than three years. Another 38 percent fell somewhere in the middle, needing moderate care, the study found. It also found that one strong indicator of whether long-term care was needed is whether a person is in good health during his or her 60s.
The study defined “minimal needs” as those going on for less than a year; moderate needs lasted one to three years while “high intensity” were needs that were not resolved within three years. Research economist Angie Chen in a Forbes Magazine interview pointed out that there’s not a “huge market” these days for long-term care insurance; there aren’t a lot of insurance companies selling it, and a lot of people don’t qualify.
“For people who are at 65 and in poor health, they might expect to have to use more resources from their savings or their 401(k) or their home equity to pay for eventual future care needs,” she said. “Some get help from family members; the combo from the two is how people get their care needs met. It’s not actually through insurance (alone).”
When to start thinking about a plan
Financial planners and researchers such as Chen advise the wisest course for anyone older than 50 is to start thinking about a plan. “If you are over 60, you should do something about it,” he said. “If you are going to use insurance coverage as part of the solution, you have to remember that the older you get, the greater the probability of not qualifying, and the greater the cost.”
But there is a positive side. “Having a plan can be quite liberating,” Chen affirmed. “It relieves the anxiety of trying to figure out what will happen. It gives us confidence that we are going to be able to address our other priorities, such as traveling, spoiling the grandchildren or planning a legacy.”
For people over 65, health insurance rarely pays for the cost of long-term care. Medicare doesn’t generally cover it. Medicaid is the program for anyone over 65 that pays for the medical and long-term care for the less affluent. So people in that situation don’t need insurance because their needs are met by the government.
“The challenge with government coverage (Mass Health) is that it is paid for by taxpayers, and that is a budget line that taxpayers may want to squeeze in the future,” Chen said. “In fact, Congress regularly attacks this and other entitlements. Is funding safe for now? It appears so. But will it be safe 10 years or 30 years down the line?”
She and others often recommend a “layered” approach” in planning, which would include self-savings and the use of using accumulated assets to pay for medical care. Home equity is one typical example of using that money for future medical expenses.
“The layered plan approach addresses the fact that we have an idea of what long-term care insurance costs on average, but we don’t know what it will cost us individually. The layered approach as part of a retirement plan helps limit the effect of uncertainty and makes sure that there is money for other goals such as travel or a legacy for the children or grandchildren,” Chen noted.
Long-term care insurance policies that might be less comprehensive in their coverage and more limiting in possible need areas at lower prices might also be part of a plan.
Financial planners also suggest considering deferred annuities as another option. Putting money into a deferred annuity near retirement age can be an efficient way to fund long-term care. This strategy involves investing money in annuities that are paid out as monthly income at a future date when it can be used to fund medical care or other purposes.
“Each person comes with different resources, goals, and attitudes towards the long-term care insurance issue,” concluded Chen. “I address it as part of a retirement or retirement income plan. Eventually it is up to all of us to decide how to best address the issue. There are many scary things to learn about long-term care insurance, but I prefer the focus to be on the positive of having a well-planned financial life.”