Long-term care insurance: When it's worth it, and why

Insurance agent Ed Mazur's Aunt Molly arrived at the assisted living facility she had picked out and abruptly announced she didn't want to stay.

"I don't like it," she told her nephew, who sells long-term care insurance at Sumner & Sumner Insurance in Willimantic. "It's all old people."

Feeling invincible and procrastinating about making a financial plan make many people reluctant to invest in long-term care insurance, say Connecticut brokers, insurers and state officials.

Long-term care insurance is a specific policy offered by private insurers to help people pay for services they might need in the later stages of life: care in a nursing home,
home-based help, assisted living or adult day care.

Cost also can be a barrier.

For example, a policy for a man age 55 to receive a $275 daily benefit for a three-year plan costs approximately $3,357 a year in premiums, said David Peck, a broker with the Smith Insurance Agency in Niantic. That includes a provision to cover inflation.

With spousal discounts, the rate drops to $2,098 a year for the husband, and a similar percentage discount for his wife, based on her age and medical history. Applying jointly carries discounts, even if one partner doesn't qualify, Peck said.

Yet, the median cost of a semi-private nursing home in Connecticut is $135,050 a year, or about $370 dollars a day, according to a Genworth 2012 Cost of Care survey. The median rate for home health aid licensed services is $21 an hour.

The reality is that about 70 percent of people over age 65 will need some type of long-term care in their lifetimes, according to the AARP. In Connecticut, 960,000 of the state's 3.5 million residents are Baby Boomers - ages 50-64 - according to the state Commission on Aging. That's about 27 percent of the population.

State Farm Insurance spokeswoman Missy Dundov said the company offers long-term care insurance because "the overall cost of care will most likely be greater than the cost of the premiums," she said.

"It's just such a large expense," said Peck. "Needing care is not a happy thought, but as a part of a retirement plan, you have to consider long-term care insurance as a means to preserving your retirement assets and providing the additional income, which will be needed to pay for extended care."

The younger you are, the better the rate. Couples can qualify for steep discounts in premiums. But certain medical conditions may keep you from qualifying.

"For those who can afford it, (and qualify), it's always going to help out to have the long-term care insurance," said Wade Jensen, an elder care attorney in Groton. "One of the major benefits now is the component for some policies to pay for home-based care. The elderly tend to really cling onto that in the later part of life."

That observation is borne out at Genworth Life Insurance Company, one of seven insurers selling both traditional long-term care insurance and the Connecticut Partnership for Long Term Care policies that provide added protection for a policyholder's assets in this state.

Richmond, Va.-based Genworth has 13,499 traditional policyholders in Connecticut. Another 15,352 have invested in partnership policies here, said Beth Ludden, the firm's senior vice president for long-term care products.

"The perception that long-term care insurance equals nursing home insurance is a myth," said Ludden. "The most consumer-desired benefit is the home care. About 75 percent of our claims are home-care related, so that's clearly what consumers want."

When buying a policy, key considerations include the length of benefits (either a fixed period of years or unlimited); the amount of daily benefits received; and whether you have inflation protection.

When tapping into benefits, typically there is an elimination period, during which time the policyholder pays for care. After that period ends, benefits of anywhere from $50 to $400 a day may be used to cover either institutional or home-based care, depending on the policy provisions and the insurer.

Many people who purchased long-term care insurance 20 years ago are now facing rate increases for the first time and may have to make decisions about reducing their benefits to be able to afford the policy, said Gerard O'Sullivan, program
manager for the consumer affairs unit in the state
Department of Insurance.

"The premium is not guaranteed," O'Sullivan explained. "The rates can fluctuate based on what the claims experience of the company is."

Inflation protection, which policyholders pay for, could help offset rate increases.

About two-thirds of the proposed rate increases for long-term care policies in Connecticut get rejected, he said. Of course that means about a third are approved.

In Connecticut, more than 30 insurers are licensed to provide traditional long-term care insurance. But people who don't have a lot of savings or assets usually will qualify for Medicaid. Those people don't need long-term care insurance, said Peck and O'Sullivan.

For those who do, an affordable option may be Connecticut's Partnership for Long Term Care, which dates back to 1992 and was the first such program in the country, said David Guttchen of the state Office of Policy and Management.

The partnership matches the value of policy benefits so as to better protect a policyholder's assets, an arrangement know as $1-for-$1 Medicaid Asset Protection.

"We strive to accomplish two things," Guttchen said. "Through our consumer protection standards, we enhance the quality of
private insurance. And second, through our Medicaid Asset Protection (MAP) feature, we strive to make our program more affordable, especially for the middle class."

With the MAP, if a partnership policy were worth $300,000, for example, once that money is exhausted, another $300,000 worth of assets would be protected. The policyholder can then rely instead on Medicaid for his or her care and not have to dip into the protected assets.

Any assets above that amount have to be spent before the person can claim Medicaid coverage.

The partnership "allows people to buy a more limited amount of insurance, which ultimately makes it more
affordable," Guttchen said.

Insurers in the partnership also may provide discounts for couples and for individuals with exceptionally good health. However, the state of Connecticut lacks tax incentives, which some other states with partnerships do have, Guttchen said.

"What's more significant is that there is very limited tax deductibility on the federal level. If there were more federal tax incentives, that would go a long way toward increasing the number of people who purchase private long-term care insurance," Guttchen said.

Partnership policies with any of the seven participating insurers - Bankers Life & Casualty, Genworth Life, John Hancock, Mass Mutual, MedAmerica, State Farm and Transamerica Life - meet stricter standards than traditional policies from licensed insurers in Connecticut who do not participate.

For instance, Guttchen said, the partnership guarantees the policy's benefits will go up by at least five percent, compounded for inflation, each year.

Partnership long-term care insurance sales have increased 14 percent from 2010 to 2011, Guttchen said.

"Sales in partnership states have been better than in states that don't have the program," said Ludden. "It's a win for both the state - because they have the assurance that people have protection before Medicaid kicks in - and consumers, because they have some
asset protection."

Guttchen noted that premiums from a single provider would be the same whether the insurance was part of a partnership plan or a
comparable traditional one.

For those who have assets to protect, consulting an insurance broker and/or financial adviser makes sense for either a partnership or non-partnership policy, said O'Sullivan, of the state
Department of Insurance.

"Understand what assets are at risk … and educate yourself" about your options, said Jensen, the elder care attorney.


Consider Buying If:

• You have significant assets and income

• You want to protect some of your assets and income

• You can afford premiums without financial difficulty

• You want to stay independent of the support of others

• You want the flexibility of choosing the setting you prefer

Don't Buy If:

• You cannot afford the premiums

• You have limited assets

• Your only source of income is Social Security or Supplemental Security Income

• You often have trouble paying for basic daily living needs

• You are on Medicaid


• Nursing home care

• Home health care

• Respite care

• Hospice care

• Personal care in your home

• Services in assisted living facilities

• Services in adult day care centers

• Services in other community facilities


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