Long-Term Care Insurance Now Better Than Ever

The issue of long-term care has become a vital component in the nation’s health care debate as America’s population grows older, sicker and more likely to need costly long-term help.

However, the chance of the federal government coming to the rescue with the billions needed to pay for extended care for the elderly is practically nil, experts say. That’s because Congress is already balking at raising taxes for other federal spending programs. Ponying up for long-term care just isn’t in the cards, according to Washington insiders.

But there is some good news for elderly Americans who are worried about the cost of nursing homes and home-based health care. Insurers are offering the best long-term care policies in history--often as the result of state legislation mandating such improvements.

In California, for example, long-term care regulation went into effect this January that required virtually every insurer in the state to revamp. Significantly, all long-term care policies sold in California must now pay for home-based care--even if that care is provided by a friend or relative--as opposed to simply paying for care provided in nursing homes and by licensed care providers.

Another 48 states have also enacted reforms, ranging from relatively minor changes to massive shifts that require insurers to provide a plethora of bells and whistles to every policyholder.

All of this is a sweeping departure from the long-term care policies sold only a few years ago.

“There has been fairly dramatic change in the last two or three years in both the quality and the variety of products available,” says David L. Potter, a second vice president at UNUM Life Insurance Co. in Portland, Me. “Because of new competition, the prices are getting more competitive too.”

Not surprisingly, sales of these policies have also skyrocketted in the past few years, according to the Health Insurance Assn. of America. Since 1987, the number of policies sold has grown by an average of 31.5% per year to roughly 2.4 million in 1991. 1992 statistics are not yet available, but HIAA expects the growth to continue at roughly the same rapid clip.

Still, where roughly three-quarters of the nation’s senior citizens have so-called Medigap insurance, which extends and expands Medicare coverage, only about 4% have long-term care policies, says Stephen A. Moses, director of research for LTC Inc., a Kirkland, Wash.-based insurance agency.

The fact that more than 95% of this market remains untapped is one of the reasons why some insurers are voluntarily going beyond state laws to improve their policies. If they don’t, they’ll never tap the potential of this huge--and growing--market, insurers acknowledge.

But to understand how far the industry has come, you have to know where it has been. And that takes a little explanation.

The long-term care market has a language all its own that starts with definitions of care. Old long-term care policies typically paid for just one thing--skilled nursing care that followed a hospital stay. Skilled-care nursing homes are equipped with doctors and nurses on staff, who are necessary because the patients need regular medical attention.

However, that definition shut out people with cognitive ailments, such as Alzheimer’s disease and senile dementia. It also meant that you couldn’t use your long-term care policy when your arthritis got so bad that it made dressing and eating impossible without help.

Those problems require something called “custodial” care, which simply means help with day-to-day activities. As it turns out, this is what’s needed by some 90% of those who need long-term care, says Rae Lee Olson, vice president of Vita Insurance Associates Inc. in Mountain View and chairwoman of the California Assn. of Life Underwriter’s legislative committee.

Now most long-term care policies are triggered by something called “ADLs”--activities of daily living. These activities include bathing, dressing, transferring, ambulating, continence and feeding.

If you lose your ability to do a certain number of these things, your policy should pay for help, regardless of the reason that you lost these abilities, Olson says.

Does that mean you can buy any policy and be assured it will serve your needs? Hardly. There are still some poorly designed and highly restrictive policies. And even some good policies may not serve your needs if you don’t know what to consider.

Furthermore, these policies are expensive, often costing more than $1,000 per year. If you have limited resources and assets, it might not make sense to buy one at all because Medicaid will pay your nursing home expenses.

However, if you have significant assets that you want to save from catastrophic long-term care costs, this type of insurance may be just the ticket. Each person must carefully evaluate their needs and then examine policies and prices to find a reasonable fit.

A good place to start your comparison shopping is with National Assn. of Life Underwriter’s long-term care survey. It’s free and was just updated last month. Send a large (9” x 12”), self-addressed, stamped (75 cents) envelope to: NALU, Dept. PR-KK, 1922 F Street, N.W., Washington, D.C. 20006.

Glossary of Care Terms

It’s hard to compare long-term care insurance policies if you don’t understand industry jargon--and few people do. Here are explanations of the terms you need to know.

Elimination period: The number of days that you must pay for your own care before your insurer pays. These are also sometimes called “deductible periods.” Generally, you can lower your annual premium by accepting a longer elimination period.

Benefit period: Most policies pay for a finite amount of time. The benefit period is the amount of time they’ll pay.

Maximum daily benefit: The most the insurer will pay for your care per day. These amounts range from about $40 to $200.

Medical necessity: Your doctor says you need it.

ADLs: Activities of daily living include bathing, dressing, transferring, ambulating, continence and feeding. Most policies say that if you lose your ability to complete a specific number of these activities, the insurer will pay for long-term help.

COLAs: Cost of living adjustments, also known as “inflation protection.” These increase your daily benefit by a fixed percentage each year, or by an amount that’s tied to the consumer price index. Getting a COLA rider can be expensive, but it could be worthwhile for someone who is relatively young--perhaps in their 50s or 60s--when they buy the policy.

Waiver of premium: When you are collecting benefits, you don’t need to pay premiums to keep your policy in force.

Bed reservation benefit: The insurer will pay to hold a nursing home bed for you if your stay is interrupted for a hospital stint.

Non-forfeiture: You get back part of your premium payments if you cancel the policy before using it.