DO YOU HAVE ENOUGH LONG-TERM-CARE COVERAGE

Kiplinger's Personal Finance
March 2001 | MANAGING | INSURANCE

Do You Have Enough Long-Term-Care Coverage?

By Kimberly Lankford

Arm Yourself While You Can: Those collecting on long-term-care policies wish they had better benefits.

People have been buying policies for years to protect against nursing-home and other long-term-care costs. But until recently few policyholders had reached the point of needing the services for which the policies pay, so no one really knew how well the insurance would work. Would policies pay out as expected? Would they leave glaring gaps? Which features would turn out to be most important?

Finally, we have some answers, thanks to a study of real-life experiences. If you're in the market for long-term-care coverage, the results can shine a bright light to help you decide how much insurance to buy and what to look for in a policy.

The most striking finding: People who are tapping their policies are happy with their coverage. Their main regret, common among policyholders of any kind when it comes time to make a claim: They wish they had bought more. In fact, the average nursing-home resident surveyed who had a policy had $1,144 in monthly noncovered expenses -- nearly $14,000 a year. Covered expenses averaged $2,141 a month. The survey also found that policies cover only about the first 36 of the 59 hours of home care the average policyholder receives each week.

LifePlans, a research firm, conducted two studies for the Robert Wood Johnson Foundation and the federal Department of Health and Human Services. One focuses on about 500 residents of nursing homes and assisted-living communities, the other on about 700 policyholders receiving home care. All were 65 and older.

The average nursing-home resident surveyed was receiving an $83-a-day benefit from his or her policy. On average, the policies had a 45-day waiting period between the beginning of care and the time benefits kicked in, and offered benefits for just over five years. Nearly half of the policies included an inflation-protection clause designed to ensure that benefits would keep up with rising care costs. Most of the seniors had paid premiums on their policies for five years before filing their first claim.

About 95% of the nursing-home residents were satisfied with their policies, but only about half said the coverage met their current care needs. Nearly three-fourths of the assisted-living residents said their needs were being met. And of those receiving home care, 86% were satisfied with their level of coverage.

Some policyholders reported that they had underestimated the cost of care or the impact of inflation. Among the nursing-home residents, even those with inflation-protection clauses were shelling out an average of $1,000 per month out of pocket.

What's not covered

One problem, according to Chris Cooper, a geriatric-care manager in Toledo, is that some expenses aren't covered by long-term-care insurance, even if the daily benefit promised by the policy is large enough to pay them. "Regardless of whether you're in a nursing home, assisted-living center or your own home, you'll have to hire additional people to work for you," says Cooper, who is also a financial planner.

He has seen clients pay for extra nurse's aides, transportation, financial planners, care managers, hairdressers, and people to clean, cook and take care of their property. In many cases, these services aren't covered by insurance.

To avoid this problem, Cooper recommends UnumProvident's Advantage 1 policy. Instead of reimbursing only approved expenses, UnumProvident pays a flat monthly benefit, regardless of your bills, as long as you need help with two activities of daily living or meet cognitive-impairment criteria -- the same conditions that trigger benefits under most long-term-care policies.

You can spend the money however you want -- for nursing care or other services -- or use it to offset lost income for relatives who are working less because they're caring for you. In fact, if you don't spend the entire benefit for care, you can save the rest.

The policy comes in two versions. The lower-cost plan requires that you receive care from a professional to receive home-care payments, although the payout remains the same no matter how much that care costs. A 60-year-old would pay $1,209 per year for a policy with a $120 daily benefit, 90-day waiting period and six-year benefit period.

For $2,404, the policy comes without the professional-care requirement; you'd get the full check even if a relative takes care of you. But it's worth the money only if you know someone who would take on the job.

What to look for

The LifePlans survey identified important wording to look for in home-care coverage. Many policyholders receive a varying amount of care each day; for example, a home health aide may only come three days a week. If you buy a policy that has a $100 daily benefit but pay $200 for the aide on the days she comes, you'll get only $300 per week and have to pay $300 out of pocket. But if your policy looks at a week's worth of expenses, which more are starting to do, the entire $600 would be covered.

There's a similar trap with some waiting periods. Some policies count only the days you receive care -- so if you have a 90-day waiting period and are receiving care three times a week, you won't get benefits for seven months. But if the waiting period starts the first day you receive continuing care, you will start getting benefits 90 days later.

Finally, make sure the waiting period isn't reset if you go from home care to nursing-home care. About 40% of the nursing-home and assisted-living residents surveyed had received home care first. If the waiting period starts from scratch when you move, you could end up paying thousands of dollars more before receiving benefits.

Reporter: Courtney McGrath