People don't like to think about what will happen if they become too ill or infirm to manage on their own. Experts say that partly explains why sales of long-term-care insurance policies are so anemic; only about 10 percent of seniors have such coverage.
Given the complexity of these policies, experts agree it's tough to decide whether they're right for you. The policies have many moving parts: After a waiting period, they generally pay a set daily benefit for a certain number of years. They typically cover care in a nursing home, an assisted living facility or at home.
They also tend to have high premiums. A 60-year-old might pay $200 a month for a policy that pays $150 a day for a maximum of three years, according to a 2009 study by Avalere Health, a research and consulting firm, and the Kaiser Family Foundation. (Kaiser Health News, which produces this column, is a program of the foundation.) Purchasing at a younger age can help trim premium costs.
But since people typically don't make a claim until they're 80 years old or so, that can be a long lead time, especially when you've got college tuitions to pay or may be worried about losing your job.
Recent turmoil in the long-term-care insurance market adds further uncertainty. MetLife, one of the largest carriers, announced it will no longer sell the policies starting next year, and John Hancock, another major issuer, has asked regulators for premium increases averaging 40 percent for 850,000 policyholders.
In the future, people may be able to take advantage of the Community Living Assistance Services and Support Act, or CLASS Act. This is a program created under the new health-care law to help people with functional or cognitive impairments pay for nonmedical services to help them stay in their homes. The money can also be used to cover nursing home care.
Premiums and benefits have yet to be set, but one estimate, by the Congressional Budget Office, suggested a cash benefit averaging $75 a day. Enrollment won't begin until 2012 at the earliest, however, and people will have to pay premiums for at least five years before they're eligible to receive benefits.
What's a consumer to do in the meantime?
Unfortunately, existing government programs aren't much help to middle-income people. Medicare provides only limited nursing home and home health care coverage. Medicaid, the health insurance program for low-income people, pays for about 70 percent of nursing home patients. But in order to qualify, people must generally have no more than a few thousand dollars in assets.
"People need to think about it very holistically," says Anne Tumlinson, senior vice president for long-term care at Avalere Health. For many people, that's going to mean patching together a safety net that consists of savings, caregiver help from friends and family, support from local community services and perhaps long-term-care insurance.
Care isn't cheap. In 2009, the average cost for a home health aide was $21 an hour, according to the Department of Health and Human Services. A private room in a nursing home cost $219 daily on average, though there are wide variations depending on location. A one-bedroom unit in an assisted living facility was $3,131 per month, on average.
Two years ago, when her mother was in the last stages of Alzheimer's disease, LuMarie Polivka-West's parents sold their home and moved to an assisted living facility in Tallahassee. After her mother's death last year, Polivka-West and her two brothers moved their father, now 96, to another assisted living facility a bit closer to LuMarie's home.
LuMarie and her two brothers help supplement their dad's $1,600 monthly Social Security check and the money left from the sale of his home to cover his living expenses, including the $3,400 monthly charge at the assisted living facility. As a nurse practitioner, her younger brother is able to manage their father's medications, saving him the $600 a month that the assisted living facility would charge for this service.
The family discussed buying long-term-care insurance at one time but decided against it, partly because of the cost.
"My parents planned well, but they lived longer than expected," says LuMarie. Her father's assets will run out in two to three years. "We'll help maintain Dad in the assisted living facility as long as possible," she says.
About 10 years ago, Charline Hines and her husband also discussed buying a long-term-care policy. But they made the opposite decision: They bought one. Hines says the policy was useful when her husband was dying of Parkinson's disease a few years ago and had to go into a nursing home near their home in Grand Prairie, Tex.
But Hines, 78, just received a notice that her premium was going up in January, from $2,772 a year to $3,132. Now she's seriously considering dropping the policy.
"I feel it's time to just let it go," she says.
For people who are considering buying a policy, call a few local facilities to get an idea of costs in the area. Since the average stay in a nursing home is about 2.5 years, many experts advise buying a policy that will provide benefits for about that long. Inflation protection is also key, to keep pace with rising costs. A policy with 5 percent compound inflation protection is the gold standard.
Look for a company with strong financial ratings and a history of stable rates. New York Life and Northwestern Mutual, for example, have never raised premiums on existing policies. Those companies are the exception, however. If you buy a long-term-care policy, expect that premiums will go up.
"I'm telling people now that they need to build a 50 percent rate increase into their planning," says Bonnie Burns, a specialist with California Health Advocates, an advocacy organization.