Betting the Ranch
By: Ellie Mcgrath
Such personal tragedy was what it took to get Axthelm, 53,
and her husband Lynn, 57, to join some 6 million other Americans who have
invested in long-term-care insurance. Their policies, written two years ago,
cost a total of $2,800 in annual premiums and provide for five years of
benefits should the couple need them as they get older. Explains Gabriele,
who has two grown children: "We don't want to have everything taken
away from us to get the help we need."
Aside from death, there are few prospects more frightening
than an old age in which your health is poor and your finances worse. The
number of LTC policies has doubled in the past five years, as people
recognize that Medicaid will cover them only after their assets have been
"spent down." LTC insurance is a relatively new type of policy
that, at its best, covers many types of extended care: at home with an aide
or a family member, in an assisted-living facility, at an adult day-service
center or in a nursing home. "With a private, long-term-care policy,
you'll get more freedom and options," notes Chris Tschummi, a
long-term-care consultant for the United Seniors Health Council, a nonprofit
group in Washington.
LTC insurance is not for everyone though. The rich can pay
for their own care. The poor can go on Medicaid. LTC is most attractive to
people of means--just not means enough to afford nursing-home costs, which
average $56,000 a year. The USHC recommends that LTC-insurance candidates
have at least $75,000 in assets in addition to a home, as well as $25,000 in
income for singles and $35,000 for couples.
While some 120 insurance companies offer LTC, the top 10 to
12 companies, which include John Hancock, Conseco and GE Capital, write 80%
of the policies. "The policies have moved away from the dreaded nursing
home toward community-based care," says Timothy Otto, president of M
and O Marketing, an insurance brokerage in Dearborn, Mich. "What most
people want is to stay at home."
That's exactly what Flora Zeman, 71, has been able to do.
After she moved to Tamarac, Fla., a friend's husband got Parkinson's
disease. "They had no coverage, and she had to give up her house,"
says Zeman, who bought a lifetime policy just before she turned 65. As a
result of diabetes, she now uses a wheelchair. Her LTC policy pays for a
home health aide for about nine hours a day.
The complexity in choosing a long-term-care policy (see box)
falls somewhere between learning how to program your vcr and deciphering the
tax code. Furthermore, it is extremely hard to predict future needs. Take
the case of Sarah and Jesse Besso of Fort Lauderdale, Fla., who are in their
80s. They are glad they took out LTC insurance several years ago, before
Jesse was stricken with a rare neurological disease. Their big regret: they
chose a two-year policy that is scheduled to end this summer. "We'd be
willing to pay to extend the policy if they'd give it to us," says
Sarah. "Now we know, but it's too late."
When to buy is also tricky. "Don't buy too soon,"
warns Martin Weiss, chairman of Weiss Ratings, a Florida-based agency that
evaluates insurance companies. If you buy a basic LTC policy (a $100 daily
benefit, four years of coverage) when you're 40, it will cost only about
$275 a year--but you could be paying that for 40 years. On the other hand,
the same policy will cost about $1,000 a year at age 65 and $4,100 at 79.
"The price curve really accelerates in the early 60s," notes
Weiss. If you wait too long, the price may be prohibitive--and you may have
a pre-existing condition that will preclude coverage. "The best age to
buy is about 59," advises financial planner Suze Orman, author of
You've Earned It, Don't Lose It.
Given all the frustration with managed-care plans, it is
natural to wonder how well LTC will perform. "If it's not working for
claimants, it doesn't have a chance," says Marc Cohen, Ph.D., vice
president of LifePlans, a research company in Massachusetts that conducted a
recent study on LTC claims, funded by the U.S. Department of Health and
Human Services. Out of the 700 claimants interviewed, 86% were satisfied.
"It's doing what it's supposed to," concludes Cohen. Those who
were having trouble collecting tended to have older policies designed for a
different health-care environment.
Until recently, more than 80% of LTC insurance was bought by
individuals at an average age of 67. That will soon change. Some 2,000
employers--from American Airlines to SmithKline Beecham, as well as some
state governments--are offering the insurance to employees, who buy, on
average, at age 42. LTC insurance will get a huge boost next year when the
Federal Government will offer policies to some 20 million eligible federal
employees, retirees and their families.
Still, LTC insurance remains a hard sell. "It's a subject people don't want to talk about," says Susan Feld, an agent for LTC Insurance Services of Bellevue, Wash. "I will ask a man, 'Do you realize that the chances of your wife's needing long-term care are 1 in 2?'" Compare that with the odds of making a catastrophic insurance claim on a home (1 in 1,200) or auto (1 in 250). When deciding whether to buy long-term-care insurance, the question becomes very personal: Are you feeling lucky?