Insurers Offer Policies for Nursing-Home Care

One year, 3 years or 20 years? The unpredictability of the duration and the ultimate cost of long-term nursing care has always been the ominous “What if?” cloud hanging over everyone approaching retirement age.

And it has only been recently that the health-insurance industry has seriously turned its attention to filling this Grand Canyon-size hole in conventional health coverage. Today some companies offer nursing-home-care policies over periods ranging from two to 10 years.

“The field is only about a year old and is certainly badly needed,” said Mark S. Pash, a Toluca Lake-based financial planner of Pash International Ltd. “It definitely should be a part of the financial planning of everyone over the age of 50, because it is surprisingly reasonable, given the potential expenses involved.”

Misunderstanding is virtually universal, Pash said. People are either under the impression that present Medicare does cover nursing-home care, or that the proposed change will , or that the so-called “Medicare-gap” supplemental insurance, which has become so popular in the last few years, takes care of it.

What Medicare does cover is the cost for skilled nursing care for the first 20 days (but nothing for custodial care), and then, for the next 80 days, the patient has to pick up a co-payment of $61.50 a day. After that, beginning with Day 100, the patient and his/her family, are on their own.

Most Medicare-supplemental health-insurance policies--which, according to Pash, everyone on Medicare should have--pick up most, if not all, of that 80 days of co-payment in the hospital that Medicare doesn’t cover.

Almost without exception these supplemental plans cover--or partially cover--only the standard Medicare deductibles, the gap between Medicare’s “reasonable” costs and the costs for care and services, and some miscellaneous services (such as outpatient treatment), which Medicare doesn’t address. Nursing-home care is left on the outside looking in.

Unfortunately, the recently proposed change in Medicare designed to shield the elderly against “catastrophic” illnesses doesn’t come to grips with nursing-home care. It concerns itself with putting an annual dollar, out-of-pocket ceiling (from $1,500 to $2,000) on hospital and doctor bills and would offer unlimited government-paid hospital care. But nursing-home care--averaging $22,000 a year--falls through the crack.

Until relatively recently there was only one real option: exhausting the family’s resources. And here, according to a recent Massachusetts study, 63% of single people and 36% of married ones do just that within 13 weeks and end up on Medicaid (Medi-Cal in California). And this, of course, is the true last-ditch “solution”--available only when family assets have almost been exhausted.

In California, however, a couple’s community property can be split so that the assets of the partner in the nursing home can be spent down to qualify him or her for Medi-Cal, while the assets of the partner outside the home can be preserved.

Among the big companies that have entered the long-term-care-insurance field are Amex Life Assurance (an American Express company, but a pioneer in nursing-home care when it was Fireman’s Fund), Continental Casualty Co., Aetna Life and Annuity, AIG Life, Transport Life, Medico Life and Acceleration Life. A few group coverages are available, too, such as the plan offered by Prudential/AARP (American Assn. of Retired Persons).

“How much supplemental nursing-home coverage is required,” Pash said, “depends almost entirely on income. If the couple has a retirement income of $40,000, for instance, then they’ve got a problem if those custodial costs are going to be $30,000 a year. But, with an extra $15,000 or $20,000 nursing-home coverage, most people can cut it.

“With my clients, I approach this as necessary coverage for major, not minor, emergencies. This means that I go for coverage that kicks in at about 100 days, but for as long a period as possible in the nursing home. Most policies have a top of four to six years, but at least one company is writing a 4-year policy with two 3-year renewals and another three years of home convalescence--10 years in all.”

Like all health-related insurance plans, the long-term, custodial, coverage now available varies wildly in the extent of that coverage and in cost, based on age, deductibles and options.

A major factor influencing this is the daily benefit chosen. With the average daily nursing-home cost now standing, nationally, at about $65, you can buy policies that offer daily coverage from $10 to $100 and from two years of coverage to one offering 10-year coverage.

With Amex, according to Melinda McMullen a spokeswoman for the San Rafael-based company, the daily coverage ranges from $30 to $100, and while the annual premium range is $200 to $4,000 a year, the average for all ages is $750 a year.

And, because such policies are typically available to people in their early 50s to those in their early 80s, “the sooner the better” is the obvious key in terms of premiums.

For instance: With Aetna, a 55-year-old will pay an annual premium of $210 for $50-a-day coverage for four years, plus two additional years of in-home care. Cost for an 80 year old: $1,625. The other advantage of going into such a policy as early as possible: The younger you are, the less likely you are to have a pre-existing condition that would disqualify you. Such diseases as Parkinson’s and Alzheimer’s are automatic disqualifiers. And a medical examination is required.

Almost universally these long-term health-care policies are guaranteed renewable for life once you have qualified, but, in shopping for one, make sure there isn’t any fine print that gives the company the option of canceling for anything except non-payment of premiums--not age, declining health nor number of claims.

Because the field is so relatively young, Pash said, virtually all companies writing such policies retain the right to raise premiums for entire classes of people. This is a hedge until more experience is acquired by the industry.