The Question of Long-Term Care Insurance

Eleanor W. Underwood wanted to prepare for the unthinkable--the possibility of spending years in a nursing home. Her widowed mother had to enter one, and she knew her husband’s family had a history of heart problems. So, two years ago, Eleanor, then 64, and her husband, Burton, 70, bought long-term care insurance.

“You never think it’s going to happen to you, but you never know,” Eleanor Underwood says.

The policies, which cost the Wallingford, Conn., couple about $5,000 a year, will pay for long-term nursing home care and home health care, such as visiting nurses or home health aides.

The main purpose of the insurance is to preserve your assets, either for yourself, your spouse, or your heirs.

More and more Americans are buying long-term care insurance, but consumer advocates and even industry officials caution that it is not for everyone. Prospective buyers need to do their homework and make their own decisions, they say.

Rates for the policies, which are sold through agents and the workplace, can range from less than $1,000 a year per person to nearly $9,000 a year, depending on the policyholder’s age and amount of coverage. The average cost of a nursing home stay, though, is more than $40,000 a year nationally.

Consumers are realizing that Medicare won’t cover that cost. The federal program pays for nursing-home or home care only after a hospital stay and only for 100 days, and it requires patients to share the cost of the last 80 days. Medicaid, the state-federal program, requires consumers to spend most of their assets before it starts paying for nursing-home care.

So it’s not surprising that long-term care insurance--only a decade old--has risen from 815,000 policies sold by the end of 1987 to an estimated 5.2 million in 1997. Sales are expected to accelerate, boosted by demographics and federal legislation.

*

“Long-term care insurance,” cautions Consumer Reports magazine, “is one of the most complex types of insurance sold by an industry not known for the straightforwardness of its products or the veracity of its marketing. If you depend on an insurance agent to choose a policy for you, caveat emptor.”

Though industry officials disagree with the dig, Richard Coorsh, a spokesman for the Health Insurance Assn. of America, acknowledges, “Clearly, long-term care is not for everybody. It’s not for the very rich or the very poor. It tends to be of most benefit to middle-class people.”

People with scarce savings would qualify quickly for Medicaid, and have little use for the asset protection of long-term care insurance. The rich may feel they have enough money to pay for their long-term care without insurance.

Some key decisions to make in buying a long-term care policy:

* Policy length. Companies offer one- to six-year policies, and very expensive lifetime policies. Keep in mind that the average length of stay in a nursing home is about 2 1/2 years, and 90% of people who enter a nursing home between the ages of 65 and 94 stay fewer than four years, Consumer Reports says, favoring a four-year policy.

* Daily benefit level. Make sure the amount the policy will pay per day for nursing home or home care reflects current rates.

* Inflation protection. Consumer advocates strongly suggest policies that automatically increase benefits by a compounded 5% so that the insurance is not woefully inadequate in 15 or 20 years. This option, though, can add 40% to premiums.

* Elimination period, a kind of deductible. When your care starts, this is the number of days--typically 20 to 100--before insurance begins paying.

Benefits start when a patient is unable to perform a specified number of activities of daily living, such as using the toilet and remaining continent.

Experts also advise consumers to check with their agents on the financial health ratings of the company whose policy they plan to buy. In addition, consumers should read a policy before buying it and, after the purchase, make sure the benefit levels are what was discussed with the agent.

People with serious health problems, such as Alzheimer’s disease, Parkinson’s disease or multiple sclerosis probably won’t qualify for policies. Other medical problems may mean higher premiums.