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Premiums rising on new long-term-care
policies
By Jane Adler
From
The
Chicago Tribune,
October 10, 2004
The high cost
of nursing homes and assisted-living buildings makes long-term-care
insurance look like a good deal. Policy-holders pay an annual premium
and then, if extended nursing care becomes necessary, the insurance
company picks up the bill.
But consider yourself lucky if you already have a policy, experts say.
Long-term-care insurance rates are rising. Insurers are picky these days
about who can buy the policies. And consumers who want coverage must
often select a policy with reduced benefits in able to afford the
premiums.
"People should still look into long-term-care insurance," said Marilee
Driscoll, a speaker and writer who heads the Long-Term-Care Learning
Institute in Plymouth, Mass. "Most of us cannot afford to pay for
long-term care." There's little doubt nursing and home care costs are on
the rise. The average cost of a private room in a nursing home is
$70,080 per year, up 6 percent from the previous year, according to a
survey just released by the MetLife Mature Market Institute, an arm of
the insurance giant. The average length of stay in a nursing home is 2.4
years, translating into an average cost for the stay of $168,192.
In Chicago, the survey says, the average nursing home cost is $136 a
day. In north suburban Highland Park, the cost is $213 a day, or an
annual cost of about $78,000.
Though less expensive, assisted-living buildings in Chicago have an
average cost of about $44,000 a year, according to MetLife's 2003
assisted-living survey, the most recent available.
The cost of long-term-care insurance is rising and not just because
nursing care expenses are up. Insurance companies miscalculated the
amount of benefits they would pay out, making the insurance a money
loser for them, industry sources say. Some big insurers have exited the
business. The remaining carriers are now targeting younger people and
employer-sponsored plans, hoping that strategy pays off.
Whatever the causes, policy prices are up and sales have been hit hard.
Sales of individual long-term-care policies have declined 27 percent for
the year, according to industry research association Limra
International, Windsor, Conn.
Premium prices have risen about 20 percent to 30 percent in the last
year, said Murray A. Gordon, president at MAGA Ltd., a Deerfield-based
insurance brokerage company.
An individual policy (with no cap on the benefit period) today for
someone age 55 costs about $3,500 a year. At age 65, the annual cost is
$5,200.
Insurers also have tightened underwriting standards. Gordon said
insulin-dependent diabetics can't get the insurance. People age 65 and
up are now tested to preclude Alzheimer's.
"It is getting harder for consumers to get long-term-care insurance,"
Gordon said. Even Gordon admits he couldn't get a policy now because he
suffered a stroke, and stroke victims, even those with a complete
recovery, are uninsurable today.
For those who can qualify for insurance, Gordon says today's benefits
are "richer." Home care is now routinely covered. It accounts for about
44 percent of claims, industry sources say. Assisted-living and day care
are typically covered now, too.
The policies are still expensive, though there are ways to make them
more affordable. Insurers offer deductibility, or elimination periods.
This means the consumer pays for his or her own care for a certain
number of days before the policy kicks in. The longer the elimination
period, the cheaper the policy. A standard elimination period today is
90 or 100 days.
Capping the benefit term (the number of years the insurance company pays
benefits) also lowers the price, though by how much depends on a number
of variables.
Gwendolyn Osborne, 55, bought long-term-care insurance several years ago
through AARP. After caring for her ill father, she didn't want her own
son to face that burden.
Osborne chose a plan with a five-year cap on benefits. The daily rate to
be paid for care by the insurance company is also capped. "It's not
quite a bare-bones policy," said Osborne, who has asthma and worries
about her health. "But I'm taking a gamble because I don't know what my
care will cost."
Consumers could be gambling in another way, too.
"Premiums are not guaranteed," said Ben Lipson, an insurance broker in
Chestnut Hill, Mass., who wrote "Choosing the Right Long-Term-Care
Insurance" (John Wiley & Sons Inc., New York City, 2002). Lipson sold
long-term-care insurance for years, but he now considers it a risky
proposition because existing policy-holders could face rate increases.
Lipson said every year the premiums on new policies go up, but
eventually he thinks companies will also raise the premiums on existing
policies to cover losses. "Seniors who retire on fixed incomes face
increases in Medicare premiums, the cost of prescription drugs, medigap
insurance, real estate taxes and energy costs," Lipson said. "I don't
see how seniors can afford to buy this insurance when they can't know
what it is going to cost."
He advises consumers to take a look at alternatives such as a reverse
mortgage. Or, he said, "Stop worrying about passing along assets. Let
your kids take care of you."
Insurer MetLife plans to raise prices for new policies in 2005,
according to Celeste Cobb, vice president of individual long-term care
at MetLife, New York City. But, she added, the company has not yet
raised premium prices on existing policies, something that some other
carriers have done. "We don't want to do that," she said, noting the
industry is going through a period of change.
Consumers should plan on premium price hikes of 10 percent over a
10-year period, said insurance expert Driscoll. For all but the wealthy,
who may not need insurance, she recommends taking fewer benefits in
order to lower costs. "Don't buy a policy you can barely afford," she
said. "The policy should be comfortably affordable for you."
----------
Jane Adler is a Chicago-area freelance writer. If you have questions or
information to share regarding housing for senior citizens, write to
Senior Housing, c/o Chicago Tribune Real Estate Section, 435 N. Michigan
Ave., Chicago, IL 60611. Or, e-mail
realestate@tribune.com
