Really no other options

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Long-term care insurance has problems, but still best choice available for most

Insurance might not be the perfect solution to long-term care for the elderly, but it is currently the only solution available.

Long-term care insurance is supposed to pay for treatment in a nursing home, assisted living facility or for a home health nurse when seniors become too ill to take care of themselves.

And it does have some benefits.

It allows people to plan for their long-term needs based on their income and how long they think they might need the care. And with daily nursing home costs increasing — just like the rest of medical care — having this insurance could save assets and inheritances.

“It’s another asset plan,” said Kevin Kaveney of Northwestern Mutual. “But it isn’t for everyone.”

Wealthy people might not need it, he said, if they have enough money in savings and other retirement plans. And the very poor can rely on Medicaid to cover the costs of nursing homes.

While people in the middle — who have worked hard to build a nest egg — are those who can benefit from long-term care insurance, this segment of the insurance industry is fairly new, and consumer protection analysts say in many cases — it’s buyer beware.

Long-term care insurance started about 15 years ago, and several companies underestimated the amount of money it would take to pay for long-term care. As a result, many of those insurance companies are insolvent or on very shaky ground.

Another problem is that some people start paying for the policies too early — only to find premiums rising beyond their ability to pay as they age or become ill.

Kaveney said the trick is to ensure every policy is tailored to meet individual needs.

It sounds simple: pay premiums now for coverage to be used in the future for custodial care — but it isn’t.

For example, long-term care insurance pays a daily benefit, but drugs, supplies and special services aren’t covered by the insurance. That can add 20 percent to the $180 a day current cost of daily care in Colorado.

But according to the Centers for Medicare and Medicaid Services, that daily cost could rise to nearly $300 in the future — and most policies only pay for half the costs, leaving the other half to be covered in other ways.

Despite its problems, long-term care insurance remains the only viable option — better than a simple savings account. The American Association for Long-Term Care Insurance said that 180,000 people received benefits, and about $8.5 billion in claims were paid. About 8 million people currently have long-term care insurance.

“Clearly, many people still wait too long to start the planning process only to discover they can’t get coverage no matter how much they are willing to pay,” said Jesse Slome, executive director of the industry trade group. “Long-term care insurance is not the lottery. This is not something you really want to win — but having protection in place can certainly pay off.”

The association said that the largest open long-term care insurance claim surpassed $1.2 million in paid benefits. The claimant purchased a policy at age 43, and three years later started using the coverage.

Claimants do not pay premiums once the coverage starts.

The association said that 30.5 percent of all claims start after age 70 and 60.6 percent start after age 80. That’s why Kaveney recommends clients buy coverage during their 50s, but warns that increasing poor health — that doesn’t require a nursing home — could lead to an increase in premiums.

“Another thing to consider: how many years you want to be covered,” he said. “Most people are only in nursing homes for two to four years — so having more coverage than that might not be necessary.”

The association backs up Kaveney’s assessment. A study of more than 250,000 people with long-term care insurance said that the 50s was the prime time to start a policy.

“The cost of long-term care insurance is directly linked to interest rates, the anticipated likelihood of claims, as well as care costs,” Slome said. “When interest rates decline as they have in recent years, insurers need to increase premium costs.”

Slightly more than half of individuals in their 50s who applied and were accepted for coverage last year received preferred health discounts that reduced the cost of insurance by 10 percent to 20 percent annually.

Long- term care insurance doesn’t kick in merely as someone ages. People who are unable to perform two of six daily tasks: feeding themselves, bathing themselves, going to the bathroom, are examples — can start receiving the benefit.

The five most common reasons for long-term care insurance claims are Alzheimer’s disease, stroke, arthritis, circulatory issues or injury.

“One in eight persons age 65 and over has Alzheimer’s,” Slome said. “The number of new cases is expected to increase to 450,000 a year by 2010 and to 615,000 new cases a year by 2030. It’s time for individuals to start planning for care.”

And planning for future care can pay off with taxes now, Kaveney said. The Internal Revenue Service increased deductibility levels for long-term care insurance policies purchased during 2010. The maximum deductible limit for an individual is now more than $4,000.

The 2010 deductible limits range from $330 for someone who is younger than 40 to $4,110 for someone who is older than 70.