Long-term care insurance not catching on

Nearly 2.7 million Ohioans will be 65 or older by 2030, and most of them will require some long-term care. But experts say many seniors won't have enough money to pay for expensive nursing home stays, and few have hedged their bets with insurance.

Long-term care insurance, a coverage option that popped up a few decades ago, has not caught on with the aging American population.

"It's a huge issue," said Bob Applebaum, a professor of gerentology at Miami University. "You've got a lot of people who just aren't planning for what's going to happen to them."

About seven in 10 senior citizens will require a stay in a nursing home, which can cost upwards of $100,000 a year. Many will rely on government programs to pick up the tab, or they will exhaust their life savings.

Applebaum, director of the Ohio long-term care research project at Miami's Scripps Gerontology Center, said only 6-to-8 percent of Americans 60 and older are covered by long-term care insurance. The policies help pay for custodial care, such as extended nursing home stays that are not covered by Medicare.

"Most people aren't prepared for long-term care," Applebaum said. "Some of it is financial, some of it psychological. People just don't want to go there."

Ohioans paid $347 million in long-term care insurance premiums in 2013, and people are becoming familiar with the product because they're seeing "the reality" of their parents' struggles with health-care costs, said Tom Varner, a Michigan-based insurance salesman.

"It's the elephant in the room, the biggest financial risk people face," Varner said.

Living longer

Insurance companies began introducing long-term care policies because of increased life expectancies -- the number of Ohioans 85 or older is projected to double in 25 years -- and a more mobile society that has produced families that don't always care for each other in old age, Applebaum said.

But because this form of insurance has few customers, it can be expensive. Premiums vary depending on age and the health of the insured.

Varner quoted a Blue Cross Blue Shield policy for a couple in their mid-50s at $1,800 a year. The policy would provide $4,500 a month in benefits for 2.8 years for each person. It provides "shared care" so one spouse can use what the other does not.

"You're looking at $100 a month to $300 a month (for a premium)," he said. "Most people don't insure for the full cost of a nursing home."

According to the Genworth Financial "Cost of Care" report released in April, the median cost for one year of nursing home care nationally is $87,600. That cost has risen 4 percent in each of the past five years.

For many, health care will represent their largest retirement expense. Fidelity Benefits Consulting estimates that a 65-year-old couple retiring this year will need $220,000 to cover such costs. That does not include nursing home care and applies only to retirees with traditional Medicare coverage.

Consumer expert and radio personality Clark Howard said a smart option is a policy that provides five years of care and includes inflation adjustments.

"A benefit that looks great right now, maybe 15 or 20 years from now will look absolutely terrible and won't cover much of your cost," Howard said. "You pay more for inflation protection."

Because long-term care insurance has received such a mild reception, some insurance carriers have stopped offering the coverage. Applebaum said Met Life no longer offers it, and Genworth -- the dominant carrier in Ohio -- reported a large financial loss on the policies.

"It's much tougher to buy than it used to be because insurers underpriced it when they were selling it so heavily in the late 90s," Howard said. "The people who bought it back then are in assisted living, nursing homes, drawing on the policies, living longer than the insurers thought."

Shielding assets

To make long-term care insurance more attractive, Applebaum advocates tying it to life insurance. He also said there are long-term care annuities that can pay out as care benefits.

Ohio participates in a long-term care partnership program that allows policy-holders to keep assets equal to the value of their policy.

"If you buy $100,000 of private long-term care insurance, (the state will) allow you to shield $100,000 of assets," Applebaum said. "The idea is, at the worst, you'll use your $100,000 in benefits, and at best you won't go through it all so you won't end up on Medicaid and it will save them some money."

According to the Ohio Department of Insurance, Medicaid pays about one-half of America's bills for long-term care. The state has more than 30 government-run nursing homes.

One thing to consider when exploring long-term care options is family history. About 31 percent of all long-term care costs are associated with Alzheimer's patients or those with some other form of dementia.

Policies are cheaper for young people, but those consumed with careers and families generally don't think about what they'll face when they're 80.

"Most people can't imagine themselves needing long-term care insurance, so they try to buy it when they're 75 or 80 and the premiums get quite expensive," Applebaum said. "You can have premiums that are $4,000 to $5,000 a year, and for a lot of people who are old or on fixed incomes, they can't afford that."

When Applebaum speaks to groups, he asks how many people think they will be severely disabled at some point in their lives. He rarely sees a hand in the air, which neatly illustrates why long-term care insurance is an afterthought to many.

"If you don't think you're going to be severely disabled, then even as a 50- or 60-year-old are you going to spend $300 a month on a long-term care insurance policy when maybe you could be driving a nicer car or eating more nice dinners?"

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