A Safety Net That Might Not Hold
Long-term-care insurance doesn't have many fans, but that may change
When Betty Hoff moved into an assisted-living facility in Fowler, Calif., two years ago, the 86-year-old thought she didn't have anything to worry about financially. She had a long-term-care insurance policy that would pay up to $3,000 a month for three years of nursing home, assisted living, or home care. Hoff has severe arthritis and can get around only with a walker or cane, which means she could no longer cook, clean, or do the laundry. But her insurer denied the claim. Hoff wasn't cognitively impaired, and the company said she didn't need help with enough "activities of daily living," or ADLs, to qualify for benefits.
The family turned for help to California Health Advocates, a nonprofit in Sacramento, and 18 months later Hoff's insurer began paying for her long-term care. But the experience has taken a toll beyond the $45,000 assisted-living tab Hoff paid while she and her family battled for benefits. "Worrying about this has made her weaker," says Hoff's daughter, Edna Turpin.
Keep it simple. That's not the way it's supposed to be. Long-term-care insurance is meant to put people's worries about old-age care to rest, not make them worse. If someone is cognitively impaired, as with Alzheimer's, or has difficulty performing certain daily tasks, the policy is supposed to cover care in a nursing home or other facility, or even at home, up to a certain dollar amount for a specified length of time. But the insurance is also expensive, with premiums that sometimes spike unpredictably. In addition, it's difficult to compare policies because they vary widely in every particular, from which services they cover to how benefits are calculated to what constitutes an assisted-living facility. No wonder long-term-care insurance is a tough sell. Fewer than 10 million policies have been sold in the two decades since it was first offered.
Now, however, insurers are rolling out simpler policies at more moderate prices that they hope will entice more people to buy. Lincoln Financial, for example, recently introduced a streamlined underwriting process. Instead of a full physical exam, blood work-up, and medical background check, a nurse conducts a 45-minute phone interview with the applicant, followed by a background check and cognitive testing. The whole process can be completed in a few weeks instead of a few months. Last month, John Hancock launched a policy that ties inflation protection to the consumer price index rather than the typical-and more expensive-5 percent compound inflation protection offered by many policies.
Congress has also stepped in to encourage people to buy these policies. It authorized the expansion of partnership programs that let people who buy long-term-care insurance policies and exhaust their benefits eventually qualify for Medicaid while still sheltering some of their assets (story, Page 73). Four states already have such programs-California, Connecticut, Indiana, and New York-and 22 states say they plan to put them in place in 2007, according to the Kaiser Family Foundation.
Whether these newfangled policies offer better protection is unclear, but one thing everyone agrees on is that long-term care is a looming problem that is only going to get worse as millions of baby boomers age. More than half of seniors will experience some degree of chronic physical impairment by the time they reach 85, the typical age at which people make a long-term-care insurance claim. Of course, not everyone winds up in a pricey nursing home, where the average cost of a private room in 2006 is $206 a day. For people turning 65 in 2010, more than half will never use one at all, and only 9 percent will use one for five or more years, according to the Urban Institute.