It goes without saying that health-care costs have been growing at an accelerated pace. More and more older individuals are struggling to meet their health-care premiums and to pay for the cost of uncovered services. This is especially true for long-term care costs. In Massachusetts the average cost for a nursing home is $379 a day for a semiprivate room. Assisted-living facilities cost on average about $6,000 a month. Services provided by a home health aide average $28 an hour. These are shocking figures for many seniors who could not pay for these costs out of pocket.
Contrary to many people’s understanding, Medicare does not pay for most long-term care costs. MassHealth, the state’s health-care program for low-income individuals, will cover most long-term care costs for the elderly and disabled. However, a senior who enters a nursing home must spend assets down to $2,000 and pay a monthly portion of his or her income before MassHealth will pick up costs. For seniors who are above MassHealth’s income and asset standards, this absence of coverage can be addressed by purchasing a long-term care insurance policy. In some cases the purchase of long-term care insurance can prevent MassHealth from placing a lien on an individual’s home. These insurance products are a benefit for those who can afford them but come with some serious caveats:
- Long-term care insurance policies have all experienced large rate increases. When the policies were first introduced, insurers made faulty assumptions about benefits utilization and life expectancy of policyholders. As a result most companies have lost a significant amount of money on claims. This in turn has triggered multiple large rate increases over the past decades. Many insurers who originally marketed policies have dropped their products to stem their losses.
- Many policyholders have dropped their coverage after paying premiums for years. The precipitous increase in premiums has hit many seniors hard. Approximately one-third of individuals with policies at age 65 let their policies lapse, most because they cannot afford the premium increases. This can result in the loss of thousands of dollars that the policyholder has paid prior to using the policy.
There are a number of questions a potential purchaser of long-term care insurance should ask:
- What is the history of rate increases for the policy you are considering?
- Does the policy have a nonforfeiture provision? This allows a policyholder who cannot afford premium increases to opt for a lesser benefit level in lieu of cancellation.
- What is the level of benefits covered by the policy? It is important to know if the policy covers in-home care and for how long benefits will be provided. Many policies offer an inflation protection benefit that allows inflationary increases to the level of covered benefits.
- Does the policy have an elimination period? Similar to a deductible, this is a period of time after a policyholder goes on claim before benefits will be covered.
- Does the policy have a cap on total benefit payments? Most policies cap benefits at a dollar figure after which there is no further coverage.
- Is there another product that might better meet the policyholder’s needs? There are now “hybrid” products such as life insurance with a long-term benefit or retirement annuity option.
To answer these and other questions, a potential purchaser should consult with a licensed insurance agent or financial planner. These experts can explain some of the issues that are important to consider. It is also important to consider whether, given an individual’s financial situation, it would be better not to purchase a policy and pay out of pocket for any long-term care costs. Finally, the dollar level of a premium is calculated based on a purchaser’s health status and the age of the purchaser. Once again it is important to value the cost of a policy’s premium against the number of years that premium will be paid.
Deborah Thomson is co-chair of the Harvard Council on Aging.
