Hedging Against Long-Term Health Problems

People may think that Dr. Robert Cassella can easily afford long-term nursing care, but the Dallas surgeon said even his high income can’t withstand the soaring costs of such care.

That’s why Cassella, 67, purchased long-term-care insurance. A big incentive was what happened to his doctor friend, whose father, a farmer, had a heart attack.

“He lived six months in the intensive-care unit,” Cassella said. “It absolutely took away everything they owned, including the farm. They lost it all. I didn’t want to get into that situation.”

Cassella is among a growing number of consumers who have purchased long-term-care insurance to protect their assets from being decimated by long-term-care costs.

But more important, they want to be able to afford the kind of care they want in their old age, experts said.

“The No. 1 reason people buy long-term-care insurance is for independence and freedom of choice, and not having to burden their children,” said Thomas Collica, managing general agent at American Group Insurance Services in Dallas.

Long-term care differs from traditional medical care. Traditional medical care treats physical problems directly to try to cure or control them. Long-term care only helps maintain a person’s ability to function, perform normal daily activities or maintain a normal lifestyle.

Health insurance pays for hospitalization and medically necessary expenses, but not for many long-term-care services, such as nursing home care, home health care and adult day care.

Experts said that despite America’s growing aging population, long-term-care insurance is an overlooked but crucial component of a person’s financial plan.

“Long-term care is becoming a bigger and bigger issue as we baby boomers age,” said Dennis Carpenter, president of the Dallas/Fort Worth Society of the Institute of Certified Financial Planners. “The fastest-growing part of the population is age 85 and over.”

But long-term care isn’t cheap. The average cost nationally of a policy is $1,700 a year, Collica said.

The cost of a nursing home stay in Texas may range from $30,000 to $50,000 or more a year, according to the Texas Department of Insurance. That’s a year’s salary for many.

“The cost of nursing home services has risen 5 to 7 percent a year in the last three or four years,” said Richard Garner, senior vice president of long-term care at CNA LTC in Chicago, one of the largest sellers of long-term-care insurance.

And “as the percentage of older Americans rises, costs are projected to increase even further,” the Texas insurance regulators said.

“Sixty percent of people over age 65 will require long-term care at some point,,” said David Rhodes, a certified financial planner in Dallas.

Experts said most people will have to take personal financial responsibility for long-term care instead of relying on outside sources such as the federal government.

For one thing, Medicare, the federal health-care insurance program for the elderly and the disabled, doesn’t pay most long-term-care expenses. Medicare covers the cost of some skilled care in approved nursing homes or in a person’s home, but only in certain situations.

Most consumers also can’t expect help from Medicaid, the federal-state program that helps pay for health care for the poor.

Before buying a policy, consumers should first decide whether they need long-term-care insurance.

Generally, if a person’s net worth - the amount by which assets exceed liabilities is less than $75,000 - he probably wouldn’t need long-term-care insurance, because he would quickly deplete his funds to pay for long-term care, thereby qualifying for Medicaid, Rhodes said.

And those with a net worth of $2.5 million to $3 million wouldn’t need long-term-care insurance unless they wanted to pass those assets to their children when they died, in which case long-term-care insurance would be worth the buy, he said.

However, younger consumers who expect their assets to grow may want to purchase long-term-care insurance so they won’t have to use those assets to pay for long-term care, Rhodes said.

“It’s what the asset base is going to be at the time of need for nursing home care,” he said. “If you project that assets are going to grow,… (longterm-care insurance) is a good asset-protection vehicle.”

Those who need long-term-care insurance should first get an idea of how much long-term-care facilities in their area charge, experts said.

Then they should get the broadest insurance coverage possible by making sure that a policy covers home health care, nursing home care, adult day care and care in an assisted living facility, experts said.

“Twenty-four-hour home health care would cost more than nursing home costs because of the individual attention,” Garner said.

Inflation protection is crucial, especially for younger people.

“For anyone under age 65, we recommend purchase of a compound inflation rider, which generally increases the benefit 5 percent a year,” Garner said.

The cost of that feature depends on a person’s age.

“It might even double your premium if you purchase it at younger ages because it’s a much longer time between the time you buy it and the time you use it,” he said.

Consumers should make sure that a policy isn’t too restrictive by requiring them to meet too many conditions before benefits are paid.

Also important is checking out the reputation and financial soundness of an insurance company.

Experts said consumers shouldn’t overpay for long-term-care insurance.

“The rule of thumb is you should not spend more than 5 percent of your gross annual income on long-term-care insurance,” Rhodes said.

One way to save is to figure out the share of long-term-care costs a person wants his insurance to pay and how much he can afford to pay with his own money, and for how long, Garner said.

Another money-saving method is not to buy lifetime coverage if it’s not necessary, experts said.

“Ninety percent of people would not need long-term care for more than five years,” Collica said.

Those who have long-term-care insurance have peace of mind, knowing that it frees other funds they’ve earmarked for long-term care, experts said.

“Every year, about half a million people deplete their life savings to pay for long-term care,” Rhodes said.

For Cassella, who bought his policy from Rhodes and certified financial planner Ted Snow, it came down to leaving his wife with security.

“I don’t want to see her out under a bridge somewhere,” he said.