Long-Term Care Policies Carry No Rate Guarantees

Armand Gelpi thought he was being prudent 10 years ago by buying an insurance policy to cover the cost of long-term nursing care. As a retired doctor, Gelpi knew that in-home assistance, or a stay in a nursing home, could ravage his and his wife’s savings.

But instead of struggling with the cost of healthcare, Gelpi is now struggling with the cost of his policy.

His insurance company notified him last summer that his premium would jump a stunning 30%. At age 81, Gelpi was left with a difficult choice: pay a premium that amounts to 12% of his gross income or let the policy lapse at a time in life when he’s most likely to need it.

“This just doesn’t seem ethical to me,” Gelpi said. “This is a terrible time to take advantage of people.”

Long-term care policies are often sold with an implied promise of level premiums. A common pitch urges consumers to buy when young to “lock in” a low rate. But in fact, there is usually nothing to prohibit future premium hikes.

And rate increases are relatively common. The California Department of Insurance, for example, lists 26 long-term care insurers that have hiked premiums in the last decade by 5% to more than 45%. Among insurers actively writing business in the state, about one-third have raised rates since 1990, the department reports. Some insurers, including Gelpi’s, have done so several times.

Two years ago, California passed a law that requires insurers to provide substantially more information to regulators before being allowed to hike rates, but the law applies only to new policies. So it doesn’t help people like Gelpi, who bought his policy a decade ago.

Moreover, the law doesn’t ban future rate increases, even on new policies. It just requires more justification for them. Because the typical purchaser of long-term care insurance is buying the policy a decade before he or she is likely to use it, regulators acknowledge that it may be years before it’s clear whether the law is effective.

By the same token, some experts contend that the need for long-term care insurance has never been greater, largely because Americans are living longer and maintenance care is becoming increasingly common and increasingly expensive.

Unlike health insurance, long-term care policies cover the cost of personal service rather than medical help. In other words, a health insurance policy will cover the cost of a nursing home stay if it’s required for medical reasons. But health insurance does little for those who have Alzheimer’s disease or dementia and simply require help with activities of daily living, such as bathing, dressing and eating.

If that maintenance care must be provided in a nursing home, the cost can become devastating, said Ed Long, executive director of Torrance-based Health Care and Elder Law Programs, a nonprofit group that advises seniors on healthcare and legal issues. Nursing homes typically charge $50,000 to $60,000 annually, he noted.

How likely is a nursing home stay? According to an extensive 2003 study by the Kaiser Family Foundation, about 44% of the population over age 65 was expected to need nursing home care sometime in their lives. The average length of stay for those going into nursing homes was 2.4 years, the foundation found.

However, its report noted that about half of those going into nursing homes spent less than a year there. The other half spent considerably more time, and about 20% of the nursing home population required stays lasting five years or longer.

Medicare will pay nursing home costs only if the patient -- and his or her spouse -- is impoverished, Long noted.

“The cost, if you need this care, is tremendous,” said Guy Bertsch, vice president of product development at Unum Provident, a long-term care insurer based in Portland, Maine. “You get long-term care insurance for the same reason that you insure your home or your car. It’s too big of an expense to handle yourself.”

Most long-term care insurance policies also cover home healthcare -- by far the preference of seniors -- and assisted living. Instead of being triggered by a medical need, these policies generally pay off based on the patient’s losing two of six activities of daily living, Bertsch said.

However, unlike insurance for a house or car, long-term care policies are normally purchased for a need that’s decades away. And because the premium is based on the policyholder’s age when securing the policy, the cost of switching insurers or policies from year to year is impractical.

The bottom line: Consumers marry their long-term care insurers. If they get an insurer that’s not committed to stable rates, or buy a policy that isn’t flexible enough to handle their care needs, they’re stuck.

As a result, many experts suggest that consumers give far more thought when weighing possible long-term care policies -- and even consider carefully whether insurance is warranted at all.

Long said individuals should consider both their financial and personal resources before buying a policy. Those who have half a million dollars that could be used for long-term care may opt to self-insure, paying the cost out of savings rather than through a policy.

Those who have healthy spouses, close-knit families and lots of friends also may weigh the chances that those people may be willing to care for them, alleviating the need to hire costly professionals for long stretches.

Women, on the other hand, tend to outlive their husbands, so it may make comparatively more sense for a woman to get the insurance, Long said.

If coverage is needed, consumers should carefully check the insurance company’s history and the terms of the policy, Bertsch said. State insurance departments generally have records on which long-term care insurers have histories of rate increases. Some companies have never raised rates on existing customers, he said.

“It’s no guarantee, but it’s as good an indication as any,” he added.

Moreover, because care options may change, policies that offer fairly broad coverage -- simply paying a set amount per day, no matter what type of care is needed -- may be wiser than those that are more restrictive, he said.

Some new policies also offer bells and whistles that can return past premiums if the policy is canceled or provide a death benefit if the long-term care is never needed, said Wilma Anderson, president of Senior Care Associates in Littleton, Colo.

Others levy heavy premiums in the early years for a guarantee that the policy will be paid up in later years. Although these policies are usually more expensive, they might be an option for the very risk averse, she added.

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Kathy M. Kristof, author of “Investing 101” and “Taming the Tuition Tiger,” welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof @latimes.com. For previous columns, visit latimes.com/kristof.