Industry Comes of Age
Long-term Care Coverage Gets Costlier; Need For It Likely to Rise
by Anu Raghunathan
Monday, October 6, 2003
Beverly Tobian's long-term care insurance bill rose by one-third recently.
Ms. Tobian, a 78-year-old Dallas resident, bought long-term care insurance to prepare for a time when she might not be able to take care of herself. Her monthly premium increased from $265 to $355.
"At the moment, I am able to afford it," she said. "But this was an exorbitant increase."
Ms. Tobian is not alone. Long-term care insurance costs are rising as the relatively young industry matures, more customers file claims, and companies realize the market is not as profitable as they thought it would be. And the industry faces more challenges as the baby boomers age.
The business has grown from covering 1.7 million people in 1992 to 5.2 million in 2001, the last year for which figures are available. And while cumulative premiums collected by the industry rose from $3.2 billion as of 1992 to $40.4 billion as of 2001, or 1,163 percent, the claims have been rising faster. The cumulative claims went from $957 million as of 1992 to $14 billion as of 2001, or 1,363 percent, according to the National Association of Insurance Commissioners.
In addition to higher prices, consumers are faced with fewer choices as companies withdraw from the market.
And insurers are becoming more selective. Insulin-dependent diabetics, for example, may find it more difficult to get coverage.
"There are changes going on as companies gain more experience," said Nancy Morith, a long-term care planning consultant who teaches at the American Institute of Financial Gerontology.
"You have to choose a big, strong, diversified company and not go with Flying Duck Insurance Company of South Whatever," she said. "You don't want someone who just entered the market."
How it works
Long-term care insurance provides for care in your home or at a nursing home or assisted-living facility if you lose your ability to perform two or three of six basic functions, including bathing, eating and dressing.
But a company can delay coverage on pre-existing conditions, and it can exclude mental and nervous disorders. As a rule, it must cover people with Alzheimer's disease, but a company might not cover you if you're already suffering from the disease.
Insurers examine various risks when writing a long-term care insurance policy. Alzheimer's matters more than cancer, and arthritis is more risky than a history of heart attacks.
"It's a different risk," said Joyce Ruddock, vice president for long-term care at MetLife Inc. "It's all about your ability to function on a day-to-day basis."
Experts say many consumers dismiss long-term care insurance because they mistakenly assume that their health insurance or Medicare covers them. Health policies don't offer long-term care coverage, and Medicare offers only limited benefits. As for Medicaid, you're typically eligible only if you meet the low-income requirements.
"Your health policy is only for your medical condition -- it'll pay for your doctor, but it will not pay for a nursing home," said Sharon Luker, a Plano-based financial planner who specializes in selling long-term care insurance.
The way Ms. Luker sees it, the insurance must be considered as part of retirement planning, because the costs can be enormous.
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