Buying Old-Age Insurance

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by Kelly Greene
Tuesday, May 1, 2007

The government wants to make it easier for you to buy long-term-care insurance.

A federal law enacted last year has given states leeway to start programs that ease some of the worry of purchasing long-term-care policies, which pay for lengthy stays in nursing homes and assisted-living facilities or for care at home. These services generally aren't covered by Medicare or other health insurance.

Up to now, the problem with long-term-care insurance has been this: Unless you buy lifetime coverage, which is too expensive for most people, your benefits could run out too soon. Then you would have to tap into savings and spend all but a few thousand dollars of your assets before you could qualify for long-term care through Medicaid. After years of paying costly insurance premiums to provide for long-term care, you could still end up penniless.

Consequently, many people have steered away from long-term-care coverage. But now the government is offering a deal: If you buy a policy and then use up the benefits, it will step in and help provide your continuing care without taking all of your savings.



That is the basic idea behind the Partnership for Long-Term Care, a public-private long-term-care insurance program now being used in five states -- California, Connecticut, Idaho, Indiana and New York. The other states have leeway to start similar programs, and at least 25 are expected to do so in the next few years, says Mark Meiners, a health-policy professor at George Mason University in Fairfax, Va., who is advising state Medicaid programs and insurance departments.

Under the partnership program, you buy a private long-term-care policy that has received your state's stamp of approval. If those insurance benefits run out, you can apply for Medicaid to help cover any additional costs -- and keep assets equal in value to the insurance benefits received.

For example, if you bought a policy with $100,000 in benefits, then used them up, you could keep $100,000 in personal assets and still qualify for Medicaid coverage. Without a partnership policy, your state Medicaid department could require you to spend down your assets before you qualified.

To find out if your state plans to offer the partnership program, go to the American Health Care Association's Web site -- ahca.org/brief/ltcpp -- or call the organization at 202-842-4444.

Even if your state doesn't offer the program, it could still be time to consider purchasing long-term-care insurance. Here are five points to consider while shopping around:

Inflation protection. This option, though costly, is a must-have. Because long-term-care insurance pays a set amount per day, it is important to make sure that amount can still cover the same portion of expenses you originally intended when it is needed. The general consensus among financial planners and insurance agents alike is that just about everyone needs inflation protection that compounds at 5% a year.

Years of care. The choices range from two years to a lifetime, though premiums for a policy with lifetime benefits can cost up to 40% more than one with three years of benefits.

In fact, three to five years of coverage is plenty for most people. Only eight in 100 claimants with a three-year benefit period exhausted their coverage, according to a 2005 actuarial survey of 1.6 million active policies for the American Association for Long-Term Care Insurance, a trade group. And if you buy a partnership-qualified policy, you know up front how much of your own savings you would get to keep, making it less risky to buy a shorter-term, and cheaper, policy.

Coverage amount. Your actual coverage amount, often referred to as your \"daily benefit,\" is another crucial piece of the puzzle. Matthew Tuttle, a financial planner in Stamford, Conn., asks his clients where they plan to be living around age 80. That way, they can figure out the average cost of care in a specific geographic area.

The average daily cost for a shared nursing-home room nationwide was $183 in 2006, or $66,795 a year, according to MetLife Inc. research. But the average cost in New York City was nearly twice that, $333 per day, or $121,545 a year.

The insurer's health. Ratings services analyze the financial strength of long-term-care insurers, and you can get most of the ratings free online. (Some good Web sites are http://www.ambest.com/, http://www.moodys.com/ and http://www.standardandpoors.com/.)

Insurers aren't allowed to single you out for a premium increase, but they can ask state regulators for permission to raise premiums for an entire class of policyholders. The largest insurers keep close tabs on one another's premium increases, making it difficult for them to raise rates. That's why many independent agents recommend using a large insurer.

Your own health. Shopping around is most important when you are extremely fit and can command the best rate -- or when you have significant health issues. If you are in good shape, seek out companies that go to great lengths to evaluate your health. And if you have had health problems, don't consider one rejection to be universal.

Write to Kelly Greene at kelly.greene@wsj.com

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