Elderly Could Face ‘Rude Awakening’ : Nursing Home Insurance: Buyer Had Better Beware
Lil Simmons was looking for an insurance policy to protect her against the financial nightmare of old age: entering a nursing home and quickly going broke. She came up empty.
“I wish there was something good out there,” complained Simmons, 70, who talked with a dozen insurance agents as a volunteer investigator for Rep. Claude Pepper (D-Fla.) and Consumers Union. “But I wouldn’t touch any of those policies.”
As the elderly realize that Medicare almost never pays for nursing home bills, which average $22,000 a year, insurance claiming to offer this coverage is becoming a hot new product. In California alone, at least 70 companies are now selling long-term-care insurance, and the industry says that about 500,000 people are now covered nationally, up from 200,000 just two years ago.
But the buyer had better beware.
“There is a lot of misleading advertising, and a lot of older people who believe they have full coverage are in for a rude awakening,” said Jim Firman, president of United Seniors Health Cooperative. “I haven’t found one policy yet I would recommend to my mother.”
Among the most serious flaws:
--Policies rarely protect against inflation. A generous daily benefit in a policy purchased by a 65-year-old widow may shrink to a fraction of the actual cost of care when she enters a nursing home a decade or two later.
--Many policies are vague in their coverage of Alzheimer’s disease, a condition of irreversible deterioration that ends in death after lingering years of helplessness.
--Although most nursing home patients come directly from their own homes, most policies pay off only to patients who were hospitalized first.
--Many policies cover only skilled nursing care under a doctor’s supervision. But most nursing home residents, not seriously ill but too frail to manage for themselves, receive mostly custodial care--help with such basic tasks as eating, bathing, dressing and getting out of bed.
Sometimes the confusion is inadvertent. “It’s scary--a lot of the (insurance) agents don’t know the difference between skilled nursing care and long-term custodial care,” Simmons said.
But occasionally it is outright deception. “There is some indication that misleading sales and marketing practices are being used in this market,” the congressional General Accounting Office said last year in a report on the nascent industry.
Congress may move in with a federal program, although the gigantic potential costs make it unlikely that the government could do more than supplement private policies. A bipartisan group of senators last week unveiled a plan that would cost an estimated $15 billion a year.
No matter who pays, protection against nursing-home costs is not cheap. The policy premiums can cost anywhere from $600 a year to $2,000 or $3,000 a year, depending on the buyer’s age and the extent of the coverage.
Fearful of Losses
The insurance industry insists that the quality of its policies is improving rapidly. Insurance companies, fearful of losing money in an untested field where potential liabilities seemed enormous, at first offered as few benefits as possible.
“The first policies that emerged were very tentative and very experimental,” said Robert Waldron, a spokesman for the Health Insurance Assn. of America. “The policies that emerged since 1985 are much better.”
The new generation of policies covers Alzheimer’s disease and usually does not require prior hospitalization, Waldron said. But he acknowledged that the older policies are still being sold, and the only protection for buyers is to read closely before signing on the dotted line.
What makes such policies so attractive is the alternative. While the wealthy can pay their own way without hardship and the poor can use the federal Medicaid program (Medi-Cal in California), the great bulk of elderly people are between those two extremes and must draw upon their life savings or rely on relatives. Only by going essentially broke--assets of $1,800 or less--do the elderly qualify for Medicaid assistance.
Consequently, people over 65 spend more of their own money for nursing homes--$19 billion in 1985--than for hospital care. For the elderly, Medicare and private insurance pay the bulk of hospitals’ and physicians’ charges.
The financial burden of nursing home care is borne by a relative few. There are 28 million Americans over the age of 65, but only 5% of them are in nursing homes.
“It’s an ideal situation for insurance: a very large number of people exposed to a risk, but a very small portion who will ever actually have the expense,” said Robert Ball, former commissioner of the Social Security program.
Small Proportion
But only a small proportion of the elderly are actually covered by the available private policies. Ball said the insurance industry, worried that only the very old and frail might buy the policies and unsure of the ultimate expenses, has been “correctly cautious in selling this insurance, and the result is very little coverage.”
“Private insurance will expand,” Ball said, “but nowhere near enough to be a serious solution.” He favors raising payroll taxes to pay for a national insurance program similar to Medicare. Sens. George J. Mitchell (D-Me.) and John H. Chafee (R-R.I.) last week proposed just that. Their ambitious federal program of long-term-care insurance would extend Medicare benefits to nursing home care at a cost of an estimated $15 billion a year. The revenue would be raised by a combination of eliminating the annual cap on income subject to the payroll tax, making the elderly pay an extra $2 a month for their insurance against doctor bills and increasing the estate tax.
Even that plan would leave huge holes in insurance coverage. Families would have to pay for the first two years of nursing home care, and fewer than one-quarter of nursing home residents remain institutionalized longer than that. In the third and subsequent years, the government would pick up only 70% of the cost.
The bill would also set aside funds for the elderly who need help to remain in their own homes. The government would pay 80% of the cost of workers who help with the housekeeping and other chores for frail people who cannot manage independently but do not need to be institutionalized.
Mitchell and his colleagues hope that their plan, by offering government help with the longest and costliest long-term-care cases, would stimulate the insurance industry to fill the remaining gaps with affordable policies.
Aims at Partnership
“This bill is designed to establish a partnership between the public and private sectors with regard to long-term care,” Mitchell said in a letter to other senators.
Paul Kerschner, president of the National Foundation for Long-Term Health Care, predicted that a federal program, whether Mitchell’s or something very different, will eventually supplement private long-term-care insurance.
“An all-government program won’t happen, given the size of the deficit,” he said. But at the same time, he added, the insurance industry would ultimately welcome a program that would relieve it of the prospect of paying benefits indefinitely to those who stay in nursing homes for many years.
For now, however, the insurance industry opposes the Mitchell plan, insisting that it can fully manage the job of protecting the middle-class elderly.
“We think there is a good market for the private sector,” said Waldron, the health insurance industry spokesman. “We’re getting a lot of enthusiasm out there.” He noted that some corporations have begun offering nursing-home insurance to their workers and to the parents of their workers.
California may be one of the first states to experiment with a public-private partnership on long-term-care insurance. A campaign is under way for a statewide ballot initiative to increase the sales tax by 0.5% to raise about $900 million a year to be used to give Californians over the age of 65 a subsidy from the state to help pay for the insurance. If the organizers get enough signatures, the measure would be on the general election ballot in 1990.
Doubts persist about whether private insurers can do the job. Consumers Union, which surveyed 53 policies for the May issue of its Consumer Reports magazine, said:
“We’d like to report that private insurance policies can meet the increasingly urgent need for long-term-care coverage at a moderate cost. But many of the insurance policies we looked at were very expensive, severely limited in their coverage, or both.”
Inflation Caution
Rhoda Karpatkin, executive director of Consumers Union, said people under 60 should not buy long-term policies that do not adjust benefits for inflation. The magazine said a good policy should also have a daily nursing home benefit of $80, coverage for both skilled and custodial care facilities and a benefit for care provided at home as well as in an institution.
The insurance industry still has a long way to go just to convince the skeptical elderly that it has anything at all to offer.
“It’s scary to think about the cost of a nursing home,” said Lil Simmons, the elderly investigator of long-term-care policies. “I wish to God somebody would do something.”
