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Long-term insurance: Worth its weight?
Tom Binder wanted to prepare for the future -- including the possibility that he or his wife could be stricken by a long, debilitating illness in their sunset years.
"I don't think it's a good bet that you're just going to drop dead," said Binder, 50, a Santa Monica-based art dealer. "What if you suffer a stroke in your 60s or 70s, and through the miracles of medicine you live into your 90s?
"That was my worst-case scenario: that I would linger for many years."
To make sure that he could survive financially, Binder made a purchase that has become increasingly common for a generation that once focused almost obsessively on being young: He agreed to pay $4,500 a year for insurance to cover the costs of long-term care for him and his wife.
Advocates of the insurance say it offers needed protection and peace of mind in an era of greater longevity and rising healthcare costs. Nonetheless, some experts warn consumers to proceed with caution.
"If you can afford it, it's a good thing," said Glenn R. Kantor, a Northridge attorney who specializes in insurance issues. "But there are lots of caveats."
Most policies reserve the option to hike premiums, and rate increases as high as 40% have shocked purchasers -- in some cases forcing retirees to quit their plans or scale back coverage.
Some consumers also have complained of excessive waits for payment or that insurers have resisted paying legitimate claims.
Despite those potential drawbacks, proponents say there are good reasons for considering long-term care coverage, especially for those without relatives willing to see them through a long bout of frailty.
Nursing home care can cost $75,000 or more a year, leaving once-middle-class people dependent on Medicaid, a program for the poor. And hiring someone for help at home with the most basic chores of living -- bathing, dressing and eating -- ultimately can ravage a lifetime of savings. Long-term care insurance can enhance people's options for the help they need to survive, at home or in an institution.
"If you want to get care at home, you can get it. You have choice and control," said Jesse Slome, executive director of the American Assn. for Long Term Care Insurance in Westlake Village.
"People still look at this as a purely financial product," he added, "but the intangible benefits are worth their weight in gold."
But plans vary widely in cost, in how soon benefits may take effect and how much money a person might have to pay out of pocket should care be needed. That means consumers really need to pay attention to the fine print before they buy.
A typical long-term care policy offers various provisions, each of which can affect the cost and has the potential to confuse consumers, experts say.
Most policies provide a set daily benefit, often in the range of $100 to $150. They also come with waiting periods that must elapse before benefits begin, commonly 60 to 90 days. Benefits are typically restricted to a set number of years and are triggered only by certain events, such as the onset of severe dementia or the inability to perform certain basic living tasks.
A typical policy purchased by a 60-year-old in 2005 cost about $2,000, but consumers can spend less or substantially more, depending on the generosity of various provisions.
Consumer advocates strongly recommend that people buy inflation protection. You might not make a claim for 20 years or more, and over that much time the value of your benefits could be eviscerated by inflation.
Beyond that, unknowable developments -- such as changes in medical technology and advances in treating chronic illnesses such as Alzheimer's disease -- can make it impossible to be certain that a long-term care policy bought today will meet a person's needs in the future, said John Rother, director of policy and strategy for AARP.
The odds of needing long-term care are yet another wild card for consumers. About two-thirds of people 65 or older may require such help during their lives, researchers say. But about one-third will never need it. Of those who do need care, about 3 in 10 will require it for two years or less.
Out-of-pocket payments, Medicaid and help from relatives all remain larger sources of care for those who need it. There are about 8 million long-term care policies in force, covering a fraction of the nation's older population.
Experts say buying such coverage is a personal decision. The insurance may be less valued by those with modest savings to protect, and the richer you are, the greater likelihood that you can cover your own care costs.
"Who should buy this and who shouldn't?" asked Bonnie Burns, a training and policy specialist for California Health Advocates, a pro-consumer group. "Well, sorry, it's much more complicated than that."
Complaints by beneficiaries -- centering on rejected claims and slow reimbursements -- have further complicated the decision, prompting Sen. Charles E. Grassley (R-Iowa) to recently ask large insurers for details on how they process claims.
The displeased customers include Betty Hoff, an elderly widow who moved into an assisted-living facility near her Central Valley home after her health declined a few years ago.
Hoff was insured by Bankers Life & Casualty. Her son, John N. Hibben, said in an interview that the insurer repeatedly resisted reimbursing him for the monthly out-of-pocket costs of more than $2,000.
"It took about a year and a half before we got our first payment," he said. Ultimately, the company paid up, Hibben said, but "it was a hassle for about three years."
Bankers Life declined to comment on Hoff's case. But spokeswoman Barbara Ciesemier said in a statement that the company was "committed to the highest standards for ethics, fairness and accountability, and we agree that every long-term care policyholder deserves assurance that their claim will be handled in a timely manner and in accordance with their contract."
Bankers Life and its parent, Conseco, approved 98% of claims submitted last year, she said, adding, "In rare instances, we make mistakes, but we are working hard to improve practices."
Supporters of the industry insist that horror stories are rare exceptions. Overall, just 3.3% of claims are denied, said Mohit M. Ghose, a spokesman for America's Health Insurance Plans, a trade group. "The vast majority of claims are paid," he said.
In California, about 12% of claims were denied in 2005, according to the state Department of Insurance. The agency is studying why that rate exceeds the national average.
A flurry of rate hikes in the 1990s and since 2000 also has caused controversy. Industry advocates say such increases mostly reflected growing pains of insurers that were still learning about the real costs and risks of products introduced in the 1970s and 1980s.
Consumer critics say the price boosts often followed "low-ball" premiums, cynically intended to draw in new customers. Though insurers cannot raise rates on individual policies, they can raise rates for entire categories of policyholders -- based on age, for example -- and records show that a portion of the industry has done so.
For people living on fixed incomes, "a rate increase of even 10[%] or 20% can have a dramatic effect on their ability to continue to pay those premiums," Burns said.
In California, eight of 24 companies currently licensed to write long-term care insurance have hiked rates at some point since 1990, according to the Department of Insurance. Twenty-three other firms that no longer offer new policies also raised rates during that period.
The price hikes are not universal, however, and the three biggest providers of such coverage -- representing about 70% of the market -- have shown restraint.
Among the top three, for example, John Hancock and MetLife have never raised premiums on the long-term care policies they have issued. Genworth Financial, the industry leader, recently applied for its first increase, which will average 10% and affect just under half of its current long-term care policies.
Companies that made the biggest errors in pricing "have largely left the market," said Laura Moore, president of John Hancock's long-term care business.
Despite such issues, the industry may be finding an increasingly receptive market among baby boomers. The big insurers say the average age of their long-term care consumers -- once pushing 80 -- has fallen into the upper 50s.
"We're all experiencing the same phenomenon," Moore said. "People are starting to have experience with LTC situations with their parents, and they're saying, 'I don't want this to happen to me.' "
Younger consumers who opt for the insurance have certain advantages. They are more likely to get accepted for coverage than older counterparts. And when they get it, their premiums will be cheaper.
Researchers at Georgetown University found, for example, that one policy that cost 50-year-olds an average of $2,447 in 2005 shot up to $6,178 for applicants who had hit 70.
Beyond that, considerations of retirement planning and estate preservation are a key selling point with boomers, said Buck Stimson, president of Genworth Financial's long-term care insurance division.
Increasingly, such insurance is considered along with income needs, asset accumulation and estate transfer as an element in retirement planning, he said.
The industry is counting on people like Sharon Taylor, 45, to keep sales growing. When her husband died a year ago she confronted tough questions about surviving on her own and ultimately chose to buy a long-term care policy.
"At first you don't want to hear about it because it's creepy -- the whole thing," said Taylor, a Chatsworth resident who types closed captions for television. But "I don't want to be a burden on someone," she said, and "I'm not one to leave something like that to chance."