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  • Ignore Long Term Care Coverage Now, Pay Later

    Long-term care insurance should be an easy choice for people with aging parents and younger children. 

    Parents can buy it for themselves to cover the costs for a lengthy nursing home stay, for assisted living or for a health aide at home a few hours each day.  Adult children of parents whose income is limited could buy policies for their parents in order to cover the expense of their parents future care.

    Should be easy, but consumers aren’t purchasing the coverage.  According to the New York Times, there were fewer new individual buyers of the insurance in 2009 than in any year since Limra, a market research firm, began tracking the data in 1988. It was also the first year that the number of existing policies did not increase.

    Why aren’t more people buying Long Term Care Policies?  Some of the rationales are outlined below.  It involves a lack of trust in the insurance industry, and some of it is based on “wishful thinking” about our futures and mortality: 

    1. Medicare will cover your expenses.  According to a 2009 Prudential survey, 37 percent of people think that Medicare will cover their long-term care costs.  Not true. Medicare may pay for a nursing home stay under certain circumstances, but it won’t cover long-term care there. The same thing is true with at-home care.

    2. You won’t need Long Term Care.  “Hey, I am healthy now, what are the odds I will need care?”    Milliman, a consulting firm for the  long-term care insurance industry, thinks your odds are higher than you think. For people age 65 and older who have long-term care insurance, there is a 45 percent chance of making a claim, though it ranges from 30 to 56 percent depending on gender and marital status.  They also estimate that once you have made a claim, the chances that you will continue needing care for more than three years is at least 13.9 percent. There is a 4.3 percent chance of it exceeding five years.

    3. You can pay for your own care.  MetLife recently released new survey data suggesting that the average rate for a private room in a nursing home was now $229 a night, or $83,585 a year, on average, though it can range widely by geography. Average costs for home health aides are $21 an hour.  Assuming future increases in the cost of health care at 5% per year, the cost may exceed $1.5 million in 20 years.  If you have savings that could cover this expenses ( a big IF nowadays), what will be left for a surviving spouse?

    4. You can count on Medicaid.  Medicaid will pay for nursing home costs, and depending on your state, some other types of long-term care, too. But first, you have to qualify, and that usually means spending most of the money you have.  If you qualify there may not be the same choices available to you for your care.  The best or closest nursing home facility may not take Medicaid patients,  or have room for any when you need it. Program restrictions will only grow over time, given the precarious state of the federal and state budgets that pay for it.

    5. Your Children will take care of you.  This is of course, assuming that they do not have their own families, lives and jobs.  If your children can take care of you, it will be financially, emotionally and physically draining. 

    6. Your Children will pay for your care.  See #5 above.

    7.  The Government will take care of you. One part of the landmark health care bill earlier this year is something called the Class Act. In effect, it sets the government up in the long-term care insurance business.  The earliest you can enroll is  2012, and the plan may not pay much more than $75 or $100 a day for claims (and only after a five-year period of paying premiums first), though that will be indexed for inflation. Still, since it will be easier to qualify for this coverage than for private insurance, where a medical exam is often necessary, it may be tempting for people to wait and enroll in a couple of years.   Lets hope the program won’t be delayed or changed by a different administration or Congress.

    8.  The Premiums are too expensive.   In the first half of 2010, individuals buying through an insurance agent or financial adviser paid a $2,180 annual premium for plans that pay claims that are not taxable to the policy holder. As many of us are struggling there may be higher priorities than long term care. See #9 below.
    9. The Premiums will only increase.    John Hancock and MetLife have requested a 40% increase in their premiums.  Met Life will suspend selling the coverage as of 2011.  A MetLife spokeswoman said that the company actually had not anticipated the costs. “While we are sensitive to any rate increase that impacts our policyholders, assumptions used to initially price many long-term care insurance products have changed,” Karen Eldred said in a statement. She added that the company misjudged interest rates, life expectancy and the number of people who would drop their policies. 
    Perhaps the increase was necessary in part because long-term care itself is so good. People are staying alive longer than companies predicted, and they’re continuing to pay their premiums for longer periods of time, too, in order to remain eligible for that care. 

    The requested price increases from John Hancock and Met Life suggests that some companies had no idea how to set prices on many of their policies. If they have it wrong today too, you could sign up for a $2,500 premium at age 60 and end up paying two or three times as much for it when you’re 85 and on a fixed income.

    It is easy to understand delaying a purchase of long term care coverage, especially in today’s rough economy.  But there is no sound reason to not make the purchase sooner rather than later.  What may be an easy choice today may become one of your difficult regrets later.

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