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The following is an adaptation of an article that originally appeared in
BEST'S REVIEW,
November, 2002.
Raising America's LTC IQ
Insurers must teach their clients the benefits of planning for long term care early, as well as the consequences of waiting.
By Scott Perry
Senior Vice President, Career Sales and Distribution
Bankers Life and Casualty Co., Chicago
An elderly person slips and falls and a life is changed in an instant. Someone who may have never experienced anything more serious than the common cold suddenly needs around-the-clock care.
For many older Americans, this scenario is all too familiar.
Since many senior citizens value their independence, they are reluctant to turn to family members for financial help, yet they are not financially capable of personally paying for long term care. Insurers and agents need to know if their clients are prepared. Study after study shows most Americans are not.
Three major factors contribute to the low long term care IQ in this country: the underestimation of risk, the underestimation of cost and the mistaken belief that Medicare or major medical plans will suffice.
Consider the first factor. Most people dramatically underestimate their potential need for long term care. According to a recent study by the Health Insurance Association of America, the general population perceives their risk to be about one in four or 25%. Conservative estimates, however, show that for every five older Americans, two will be admitted to a nursing home during their lifetime. This goes to the heart of the psychological argument that long term care is something only others need to be concerned about.
The factor that catches many Americans completely by surprise is the cost. In many states, the daily nursing-home rate is comparable to the cost of a stay in a luxury hotel. On average, an older American who enters a nursing home can expect to pay $46,000 per year for care*. And as baby boomers continue to age, the demand for nursing-home care will continue to inflate prices.
The third factor is the myth that Medicare adequately covers long term care needs. Medicare provides only limited coverage for short periods of time for skilled nursing-home care, leaving no benefits for the custodial needs associated with long term care. Much home-health care is not covered either because it doesn't meet Medicare's definition of medically necessary care. In fact, in 2000, Medicare only paid 15% of nursing home and home health care costs**.
Debunking the Myths
How can insurance providers help clients overcome these myths and misconceptions? The best answer to that question is education. Clients must become knowledgeable about the ways long term care can be funded, including state-sponsored programs such as Medicaid, private financing and long term care insurance. Insurers can help clients determine their best option through a simple cost benefit analysis.
The primary payment source for the vast majority of nursing-home patients is Medicaid, a joint federal and state program that provides health care to low-income individuals. Unfortunately, many people fall into this category because long term care expenses force them to spend down their assets to the poverty level. Although each state manages its own Medicaid program, federal law requires that in order to qualify, an individual's assets must be less than $2,000 (excluding the home). For couples receiving nursing-home care together, the amount is $3,000.
When middle-income Americans must spend down their assets it often leaves surviving family members with a financial dilemma. Although more liberal laws can protect a spouse's assets, the Omnibus Budget Reconciliation Act of 1993 requires states to try to recover the cost of Medicaid benefits from the estates of certain nursing-home residents. Unfortunately, family homes and businesses that should have passed on to future generations are being sold to pay back Medicaid costs.
On the opposite end of the spectrum, private financing might be the best option for individuals with personal resources that will cover three or more years of nursing-home care at an average rate of $46,000 per year. Because costs vary dramatically from one state to another, insurance professionals should encourage clients to investigate costs in their state.
Most middle-income Americans fall into the third category--those who need long term care insurance. The cost will vary according to a person's age and health and the benefits selected.
The Earlier the Better
Age is the single most important factor that impacts the cost of long term care insurance. The earlier people start planning for their long term care coverage, usually around age 60, the more affordable it will be. Early purchase accomplishes two things. First, it allows clients to space monthly premiums over a longer period of time, translating premiums into a smaller portion of monthly income before retirement. Second, it reduces the likelihood of not qualifying because of pre-existing conditions. Other factors that need to be considered include inflation and product availability. These things change over time and can cause some policies, especially those without inflation protection features, to become obsolete and fall short of the insured's needs.
Convincing people to consider long term care protection while they are relatively young can be a challenge. Americans have a natural aversion to growing older, evidenced by everything from anti-wrinkle cream to estate planning. The single best way to overcome this challenge is through education. People need to be made aware of the benefits of planning early, as well as the consequences of waiting. In terms of cost, waiting can mean the difference between quality coverage and just getting by. In terms of time, waiting can mean the difference between qualifying and being left behind.
The following steps can help insurers meet the challenges of selling long term care insurance:
Present specific costs for nursing-home and in-home care based on the client's city and state of residence. These costs vary dramatically by location, based on cost of living and supply and demand. By narrowing the focus to a smaller area, more realistic costs can be measured.
Encourage clients to budget long term care as part of their overall retirement planning. Compare the estimated monthly income from Social Security, 401(k)s and other pension plans and saving against estimated monthly expenses to determine the level of long term care protection the client needs.
Present all of the options, including personal resources and state-sponsored programs such as Medicaid. Long-term-care insurance is not for everyone, and only by developing a realistic financial forecast for the individual client can insurance providers deliver the best benefit for their customers.
Whenever possible, involve the client's family members in long term care planning. Having those closest to the client provide additional encouragement may help overcome some of the client's psychological hurdles to purchasing a policy.
Use personal stories as examples of how long term care planning helps maintain personal dignity and protect a client's loved ones.
Once a client recognizes a need for long term care insurance, investigate several policy options. Policies vary dramatically from one company to another. Look for companies that specialize in the senior market as their policies usually can be tailored to best meet specific needs.
Don't be afraid to follow up with clients who have passed on long term care insurance policies. Insurance professionals may not be able to overcome a client's psychological and financial concerns the first time, but it is worth checking back a second time to see if life circumstances may have changed, making the client more open to this kind of protection. The second time around, insurers may have the opportunity to provide clients with the protection they or a loved one may one day need.
Finally, keep in mind how important insurers' efforts are to help educate the American public, especially the baby boomer generation, about the need for long term care insurance protection. According to Janemarie Mulvey, senior retirement research associate at Watson Wyatt Worldwide, "not only will the number of elderly nearly double in the United States over the next 30 years, boomers will live longer than earlier generations, on average. The combination of higher costs and twice as many users is expected to push up long term care expenditures for the elderly from $110 billion in 2000 to $528 billion in 2030."
Who will pay these costs? A huge opportunity exists today to help future generations of senior Americans maintain their independence and financial security. Insurance professionals can make a real difference in the lives of so many. Don't miss out.
* Health Insurance Association of America, Washington, D.C., 1999
** 2002 CMS Statistics, U.S. Department of Health and Human Services
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