Buying insurance to cover a long-term nursing home, assisted living or home health care stay has become as unpleasant as some mid-torso health procedures.
In response, insurers are offering new long-term care options. Some of them sound attractive, but all of them warrant careful consideration – even outside advice – before buying. This is especially true for women buying policies on their own.
Long-term care insurance is in critical condition. Some insurers have stopped offering policies altogether. Others have hit existing policyholders with double-digit rate increases. Insurers justify these changes by saying care costs are higher, seniors are living longer and policyholders aren't dropping coverage as they expected.
What they don't say: They set their teaser rates too low in the first place, hoping to attract consumers. Plus, the bonds that they invest premiums in are returning record-low yields, which makes it hard to cover payouts. So they're running scared.
"They did not come into this marketplace naively," said Jim Pittman, a certified financial planner with Insurance Consulting Services Inc. in Portland. Naive or not, many insurers have changed their view of the products.
The Oregon Insurance Division is entertaining requests from two dozen insurers for rate increases of between 6 and 238 percent. Unum, for instance, wants an 88 percent increase over three years on two policies that aren't even sold anymore. Turns out they were just too generous. On average, nearly 500 Oregonians with these policies will see their average $1,600 annual premium nearly double unless they agree to curb their benefits, Unum's filings show.
Recently, Genworth Financial Inc. , the leading long-term care insurance provider, has introduced gender-based pricing, among other less desirable changes. Since women live longer and are far more likely to file claims, single women will pay more going forward – as much as 40 percent more, said Rick Dimick, a Genworth long-term care specialist in West Linn.
Genworth's rate increase has not yet been approved in Oregon, and it will not apply to couples who buy policies together. But it's in place in Washington, and the rest of the industry is expected to follow, Dimick said.
It's no wonder consumers are looking for alternatives. What follows, then, is a list of them. Some are insurance policies. Others aren't.
I'm not recommending one over another. Your situation – your family, health, finance and preferences – differs from the next person's. Take your time shopping, discussing and thinking about this decision with your family before choosing a strategy.
Half of all seniors will spend nothing out-of-pocket for long-term care, according to 2005 research from Penn State and Georgetown universities, while about one in 20 will spend $100,000 or more.
"Everybody's situation is going to be different," said Gail Woods, senior policy adviser at the insurance division. "There isn't one product that's going to be an answer for everyone."
Forget paying an insurance company. Set aside a portion of your retirement savings or an asset to pay for your own long-term care.
Jessi Howe, a certified financial planner at Silver Oak Advisory Group in Portland, suggests some clients designate an investment property or primary home for their long-term care insurance fund. A single person opting to move into a care facility could sell their home to pay for it, Howe said. "If they were opted for home care, a reverse mortgage may be a better way to access the funds."
Pros: You save money – and can pass that asset to heirs – if you never need the care. You also have flexibility in spending it.
Cons: You need a lot of equity or savings, and you risk leaving nothing
to heirs. Genworth's annual survey pegs the current cost in Oregon of part-time adult day health care at $2,000 a month; home care or assisted-living care at $4,000 a month; and nursing home care at up to $7,700 a month. Most of those costs have been increasing at a rate of at least 4 percent a year.
Fall back on Medicaid
Many do. In 2007, Medicaid covered nearly half of the nation's long-term care expenses, according to the Congressional Research Service.
Pros: The government pays. No need to save or buy insurance.
Cons: You generally have to spend down all but $2,000 of savings and limit income to $2,022 a month, though a healthy spouse can hang on to some assets and income to avoid poverty. Your choice of facilities also will be limited.
Rely on family
Researchers in 2007 projected that three in 10 seniors would get more than two years of care from family.
Pros: It's less expensive and you might get better care.
Cons: It's taxing on family members, and you might not get better care. You know better than anyone else.
Annuity with long-term care or accelerated benefits rider
For a lump sum, you can buy an annuity that will grow at a guaranteed rate and pay out upon your death, said John Lenz, an insurance specialist at Lenz Financial Group in Portland. But if you need long-term care, you can tap the annuity for up to two years of benefits. You can later buy additional years of long-term care benefits, drawing down the death benefit. The State Life Insurance Co. calls its product Annuity Care.
Cons: Benefits aren't inflation adjusted, and you must purchase additional benefits before claiming them. Plus, annuity rates currently are low. And not everyone has a $50,000 to $100,000 lump sum to spare.
Before buying insurance, read the Oregon Insurance Division's website at bit.ly/LTCinfo Or, contact a state consumer advocate at 888-877-4894 or firstname.lastname@example.org
Life insurance/long-term care hybrids. Again, for a lump sum, you can buy a whole life-insurance policy with long-term care benefits if you need them. The best known products are Lincoln Financial Group's MoneyGuard and Genworth's Total Living Coverage. Genworth's, for example, offers a guaranteed payout at death, regardless of whether long-term care benefits are used. You can buy inflation-adjusted benefits and receive your money back if you change your mind, as long as you've held the policy for two years.
"This is more like an option contract," said Robert Haley, a certified financial planner with Advanced Wealth Management in Portland. "If you never use the long-term care, your heirs will receive back more than what you put into the policy. Yet you're getting coverage all along the way."
Pros: No future premium increases. Your family gets some sort of payout at the end. Individuals who already own whole-life policies with large cash values can do a tax-free exchange for one of these hybrids and avoid the capital-gains tax hit they'd take if they surrendered their original policy, Haley said.
Cons: You're gonna pay for it. An analysis provided by Pittman's consulting firm shows that hybrid policies essentially cost more than a traditional long-term care insurance policy with the same benefits and a whole life policy purchased separately. That's even after assuming the long-term care policy's premium is increased 20 percent every five years.
"There are a lot of interesting features to this product," said John Hardiman, a market analyst with the state insurance division. "All of them have their charges. The costs should be broken out and compared to alternatives before an educated decision could be made."