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| Davidow Articles
To buy or not to buy? The dilemna of long-term-care insurance Ten years ago, Martin Bayne was chief executive of a successful long-term-care insurance brokerage in upstate Clifton Park. He also was co-founder of a nonprofit long-term-care advocacy group and ran a Web site on long-term insurance, earning him the nickname, "Mr. Long-Term Care." Today, Bayne, 55, is in an assisted-living facility in Albany, suffering the effects of a 10-year battle with Parkinson's disease. And he is dependent on a $1,000-a-month contribution from his former business partner to stay in the facility. What Bayne thought was the best long-term-care
insurance policy he could buy in 1992 has not worked out, as
planned, said the former Zen Buddhist monk. Bayne's long-term-care
insurance covers 80 percent of his $5,000-a-month costs, but
he's responsible for a 20 percent co-pay—a common feature
in policies' sold at that, time. He also receives Social Security
disability benefits, Medicaid, and Medicare payments. Still,
the $1,000-a-month co-pay, as well as another $25,000 a year
for medicine and personal health-care aides, has become an
impossible financial "Even with my policy, I can't afford to stay here," Bayne said. "I had the Cadillac of insurance policies, and if it weren't for the generosity of my business partner, I'd be in the street." Bayne's situation highlights the predicament facing many people who buy long-term-care insurance to cover the costs of serious illness later in life. Not only are the premiums high, but it's hard to know what kind of coverage they'll need so far into the future leaving some with disappointing benefits when they finally file claims. Long-term-care insurance covers individuals who have chronic sicknesses or disabilities that prevent them from caring for themselves. A typical policy will pay for three to six years of care (many policies now provide benefits for home care as well as nursing homes and assisted-living facilities). Premiums increase with the age of the purchaser. For example, a 55-year-old married individual might pay $2,100 annually for a four-year plan; a comparable policy at age 65 would cost about $5,800 a year. Many experts say there's a need for long-term-care insurance, with 43 percent of people age 65 or older requiring care in a nursing home during their lifetime, according to the Healthcare Financing Administration. The cost of staying in a nursing home in the New York metropolitan area is among the highest in the nation, averaging $285 to $300 a day, more than $100,000 a year. Home care is not cheap, either, with rates averaging $15.50 an hour. In response, to people's need to deal with the finanCial risk of long-term care, the insurance industry began aggressively selling long-term-care policies in the late 1980s and early 1990s. But the young industry stumbled out of the gate, often making bad assumptions and mispricing early policies. Many companies left the business, premiums have risen sharply, and legal battles between policyholders and insurers have erupted over claims during the past few years. Value is questioned Only about 6 percent of the 32 million Americans over the age of 65 currently have long-term-care insurance, according to a recent article by estate planner Stephan R. Leimberg and Carol G. Einhorn, a gerontological nurse practitioner. The reason for such a small percentage: Policies are simply too expensive, according to a 2003 study by Consumer Reports and the Kaiser Family Foundation, which analyzes health-care issues. "It's a product that was created tcffill a real need, but it's not perfect," said Amanda Walker, associate editor at Consumer Reports. "I can't tell you how many letters we've gotten saying people can't afford it." Planners advise clients who can afford it to buy a policy in their 40s or 50s when they are still healthy and the policies are least expensive. There's not much difference in rates between 50 and 55 years old, but rates climb substantially once one hits 60, according to Steven C. Kleinman, president of Diversified Strategies Agency, a financial and estate planning firm in Jericho. By the time people are in their 70s and likely have health issues, policies can cost as much as $10,000 a year. Rosanne Grande, a certified financial planner and certified senior adviser at R. W. Roge & Co. in Bohemia, bought long-term-care insurance when she was 42. The policy costs her only $1,465 a year now. As long as you have a good plan for your retirement finances and you're healthy, there's no reason not to get it then," said Grande, now 49. Financial advisers note that there are alternatives to long-term-care insurance, but they can be daunting. For example, you can choose to "self-insure," which means relying on your own financial resources and hoping against hope you won't deplete your nest egg to cover long-term care. Alternatively, you could fall back on Medicaid, which requires spending down assets to qualify. Or, you can cone sider a reverse mortgage if you don't mind tapping into your home's equity. Given the alternatives and the risks, many financial advisers argue that people over 50 should seriously consider long-term health insurance, as long as they are healthy and can afford it. "I would never recommend self-insuring. It's way too risky," said Jennifer Cona, an elder law attorney at Genser Dubow Genser & Conain Melville. "I always raise long-term-care insurance as an option." Kleinman has a similar message: "People often ask me if they can afford the coverage. I say, 'Can you afford not to have it?'" Who might benefit For people with assets of $200,000 or less, long-term-care insurance is inappropriate, according to Consumer Reports, since those with relatively small financial resources likely will qualify for Medicaid. Furthermore, experts say, people with limited resources can do themselves harm by buying inadequate long-term-care insurance, even though some agents sell policies on the basis that it's better to have something than nothing. Actually, it's better to have nothing, said Mark Merlis, an independent health policy analyst in New Hope, PA., who wrote the Kaiser Foundation report. If the daily benefit amount is low and nursing home costs are well in excess of the benefit amount, someone with modest income and savings can quickly deplete their savings and be forced to sell their home before they qualify for Medicaid. "You can have the insurance and still become impoverished," Merlis said. Steven Stern, an elder law attorney with Davidow Davidow Siegel and Stern in Islandia said he's seen situations where such insurance payments are significantly complicating clients' Medicaid __________. _____ New York, one qualifies for Medicaid only if one's healthcare costs exceed one's income (and provided the applicant has assets of less than $4,000). If the long-term insurance payment boosts one's monthly income above the Medicaid reimbursement rate, you would lose your eligibility. Again, said Stern, "It's better to have nothing. Either you get. long-term-care insurance, for real or not at all." One way, to rein in high health-care costs without taking undue risk is to consider the New York State Partnership Program, said David Hull, president of the long-term-care division at financial planning firm Economic Planning Group, in Uniondale. Under terms of the program, if an individual buys a long-term-care insurance policy with a three-year nursing home benefit and six-year home-care benefit, once the private insurance is exhausted, New York State guarantees nursing home care for life with unlimited asset protection. The normal income rules still apply. The savings can be substantial. Instead of buying two policies with lifetime benefits that cost more than $7,700 a year/a couple in their 50s could buy similar policies under the state program for $3,153, or less than half as much, according to Hull's calculations. Barbara Meyer, a 66-year-old retired teacher now living in Jamesport, bought a long-term-care policy under the program last year. "The main thing is it's a little less, expensive over the long run," Meyer said. "It is still costly—nothing is ideal," she noted, but her father had to spend down assets to qualify for Medicaid 10 years ago, and she does not want to put her family through a similar ordeal. "I want to be in charge," she said. "You have to weigh the costs against what you want to protect." Even with such policies, consumers have found themselves less protected than they expected—especially when companies challenge, their claims. Take the case of Harold Carrington, 77, a northern California resident who bought a long-term-care policy from John Hancock Life Insurance Co. in 1995. In 2001, after paying premium for six years, Carrington developed Alzheimer's disease. His brother Ray placed him in a nursing home and filed a claim on his behalf—which John Hancock denied, contending Carrington knew of his beginning dementia when he applied for insurance and did not disclose it. Earlier this month, the case was settled for "a fair and equitable" amount, said Carrington's attorney, Paul Roller. . " John Hancock declined to comment on the case. It's difficult to determine how many claims are being contested by insurance companies, experts say, and those involved are often reluctant to discuss their cases. For instance, an attorney in New York City, who asked that his name not be used, is fighting a similar battle over his mother's claim. His mother has been diagnosed with probable Alzheimer's and her"'insurance company is claiming this was a pre-existing condition she failed to disclose on her application more than 10 years ago. "Insurance companies will try anything to avoid paying," said the attorney, whose mother's case is coming to trial soon. He argues that a pre-existing condition of Alzheimer's cannot be proved because a definitive diagnosis is not possible until someone dies. The American Council of Life Insurers, which represents long-term-care providers, declined to comment on the specifics of these cases. But Lynn Boyd, the council's senior director for long-term care, noted that cognitive impairment, which includes Alzheimer's, is an "automatic' trigger"for claims payments on long-term-care policies under regulations supported by the council. Boyd added that her group believes lorig-term-care insurance can playa key role in helping Americans prepare for retirement. Whatever that role, financial planner Kleinman advises consumers to consider buying insurance only from companies that have been in business for.at least five' years and are highly rated by services like A.M. Best. So far, Harlan Schiff, 73, a retired business owner who lives in Brooklyn is happy,with his decision to buy long-term-care insurance five years ago. "I thought, 'Why not, while I am still feeling good?' " he said. And while' he's not thrilled with the cost of the policy— "no one likes paying"—he feels it's worth it. "It gives me peace of mind," he said. "I felt it was good protection of my assets for me and my children." Meyer, the retired teacher, is more cautious in assessing her policy. "We think we covered all the right bases;" she said, "but it's only when you need long-term-care that you actually know."
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