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What next for long-term care after CLASS act folds?

The federal government threw in the towel on creating a public option for long-term care coverage last week, and that would seem to be definitive for now.

In defeat, Health and Human Services (HHS) Secretary Kathleen Sebelius was doing the right thing in admitting the concept’s flaws and cutting the government’s losses of the proposal, which was a lesser-known component of the new health reform law. It was an attempt to expand the number of Americans with long-term care coverage by providing a basic, inexpensive LTC option deployed mainly through the workplace as an opt-out choice in benefit plans.

Republicans were overjoyed with the decision, obviously, since they have always seen CLASS as a budget trick to pump up the health law’s revenue and make the law seem less expensive than it is. (CLASS had been projected to generated $86 billion in revenue in the early years from premium payments made by policy holders whose coverage had not yet vested.)

But there is still the problem to solve about how we’ll care for our frail elderly in the years ahead, and it’s unclear what the path to a solution will be. After the shouting subsidies, we’re still left with an inadequate, patchwork system for funding long-term care in the U.S.

The Center for Retirement Research at Boston College (CRR) says about one-third of Americans turning 65 this year will need at least three months of nursing home care sometime during their lives.

Medicare covers only a small portion of long-term care needs, and the cost of a semi-private room averages $79,000 per year. CRR calculates that the mean lifetime exposure to long-term care costs for a 65-year-old couple is $260,000, with a five percent risk of a $570,000 expense.

Meanwhile, Medicaid remains the nation’s largest LTC funder, paying for more than 40 percent of all care. And the market for private LTC insurance continues to limp along, the victim of collective national denial and expensive policies.

Long-term care insurance gets a makeover

Less than two decades ago, Meryl Comer and her husband Dr. Harvey Gralnick embodied the American Dream: He was a physician, while she had built a career as an Emmy-winning reporter, producer and broadcast journalist. Everything looked perfectly in place for their careers to soar, their nest egg to grow.

Then came the news any couple would dread: Gralnick was diagnosed with early-onset Alzheimer’s Disease at 57. Soon he couldn’t recognize Meryl, and the couple went into financial free-fall as Comer took over his round-the-clock care.

“Here we have two people without income, and all the financial planning we have in place has disappeared,” Comer recalls. “It’s a straight financial bleed. With dementia, you’re easily looking at $9,000 a month.”

How does she make it, then, considering the couple had no long-term healthcare plan? “I don’t,” she says. “I’m going broke. The house will go next.”

Comer, who serves as president of the Geoffrey Beene Foundation Alzheimer’s Initiative, has become an outspoken advocate of long-term care insurance — an option barely understood, if not downright ignored, by most American consumers, including an alarmingly large percentage of Baby Boomers.

With long-term care policies, the costs of assisted living facilities, in-home care and private nursing homes are covered, in many cases with inflation protection. But since not many people are signing up for policies, the companies that offer them are trying to make them more palatable. On Monday, Genworth Life Insurance Company launched Privileged Choice Flex, a long-term care solution that allows consumers to more easily choose an insurance plan that best suits their lifestyle and budget.

“It’s been 24 months in development and it will be another eight months before it’s fully available across the United States,” says Matthew Sharpe, Genworth’s long-term care product manager. “It takes a long time. We had three different products in the marketplace and combined them into one offering.”

As cost of care rises, families bear the burden

Months after Terri Corcoran married in 2000, her new husband began to show signs of fatigue and memory loss.

By 2004, Corcoran’s husband, a former laser scientist in his early 70s, had been diagnosed with a rare genetic brain disorder. This once-independent person could not speak and needed help eating and using the bathroom.

With his children unable to offer day-to-day help, Corcoran, 60, became her husband’s lifeline.

Last year, she spent $78,000 of their savings on his care. She also retired from her job.

“I have to care for him full-time,” she said from their Virginia home. “Now I feel like I’m the CEO of a corporation built to do nothing but that.”

While the circumstances of Corcoran’s marriage may not be common, her role as an elder caregiver is.

An AARP study published last week showed that, in 2009, one in four U.S. adults helped to care for an elderly family member or friend. That volunteer work, according to the study, was worth an estimated $450 billion.

Alzheimer’s: Early planning critical to financial health

Jean Dorrell knew something was wrong when the birthday card her father usually sends two weeks ahead of schedule didn’t arrive in the mail.

“This past year he forgot my birthday and he forgot my brothers’ birthdays, so we realized he was slipping pretty fast,” says Dorrell, a certified financial planner and founder of Senior Financial Security in Summerfield, Florida.

An Alzheimer’s diagnosis is a devastating blow, one that requires immediate action to ensure the financial resources built over a lifetime can sustain a person through this progressive and fatal disease.

The costs associated with Alzheimer’s can be just as debilitating as the symptoms. In 2004 — the latest data available — the cost of caring for a Medicare patient with Alzheimer’s or other dementia was $42,072 compared to $13,515 for patients without these conditions. (Those figures have been adjusted for 2010 dollars).

And the costs are climbing: Healthcare, long-term care and hospice payments for Alzheimer’s and dementia are projected to increase from $183 billion in 2011 to $1.1 trillion in 2050 (in 2011 dollars), the AA report states.

Despite the hefty price tag for care, the financial services industry seems ill-prepared to deal with the needs of this particular group. Even though 84 percent of financial advisers have come in contact with a client who suffers from Alzheimer’s, 96 percent don’t feel ready to assist, according to a 2009 study from Fidelity Investments. Kevin Kautzmann, a certified financial planner with EBNY Financial LLC in New York, says that’s got to change. ”While there is a prevailing fear within the industry of accusing a client inappropriately and getting fired for it, if the issue is handled with respect and sensitivity, clients and their families respond very well to the fact that their financial adviser is genuinely concerned about their loved ones,” Kautzmann says.

When should families start to plan? It’s critical to start early, says Beth Kallmyer, senior director for constituent services at the Alzheimer’s Association. “It’s important [that] the person with the disease is involved in that planning,” she says. “In the early stages of the disease, the person who has Alzheimer’s can ensure their wishes are going to be carried out, which is empowering,” Kallmyer says. And later on, the family will have a framework to do what their family member wants when they can no longer make decisions.

Eldercare: How to develop a long-term care plan

Senior citizens get a bad rap for being cheap. But there’s no way to stick to a low budget when it comes to eldercare: It costs $77,745 annually to live privately in a nursing home. That’s a jump of $17,520 per year compared to 2005, according to the Genworth 2011 Cost of Care Survey, which sees prices continuing to rise.

Navigating your way through the individual-care maze and determining how you will pay for eldercare can be daunting. Wendy Boglioli, Olympic gold medalist and long-term care advocate, is on a mission to help aging populations live the life they’ve always envisioned. She spoke to Reuters about fostering a passion for preparation and developing a long-term plan for successful aging.

From Olympic athlete to long-term care expert and Genworth spokesperson — tell me about your journey from the podium to elder advocacy.

My parents were my Olympic coaches until I was 18. My father had became really ill about nine months before I went to the Olympics and when we came back, his health went downhill. I saw what it did financially and physically to my mother and my siblings — I’m one of seven children — to find placement for my dad in a nursing home, to determine costs and to research help for my mom. It was absolutely devastating for our family.

I couldn’t believe how many people were going through the same thing and that’s what lead me on the path to long-term care. I always say my father trained me to the meter of an Olympic gold medal but he failed to plan in the area of needing care for his life and my mother’s. Now, almost 30 years after his death, we recently put my 90-year-old mother in a nursing home. No family is immune to it. This experience has given me the passion to help people.

What are the first steps individuals should take when exploring, and planning, their long-term care needs?

I think, first and foremost, if you’re not healthy than get healthy. It’s a relatively easy fix on the physical side for most Americans.

Obama moving to address flaws in public option for long-term care

Remember the public option?

Progressives fought for a government-sponsored insurance program in the healthcare reform law, and failed — with one exception. A little-noticed provision of the Affordable Care Act created a public option for long-term care insurance. The Community Living Assistance Services and Support plan (CLASS for short) aims to fill the country’s yawning gap in long-term care (LTC) protection by offering modestly-priced coverage that emphasizes more flexible, community-based care over nursing homes.

But the success of CLASS is by no means assured. The law mandates that the plan be self-funded through enrollee premiums, but critics charge it won’t be financially sustainable and will create a long-term drag on the federal deficit. President Obama’s deficit commission recommended reform or repeal of CLASS last December; Republicans in Congress are pushing for the latter option.

Now the Obama Administration is acknowledging the problems, and pledging to make adjustments. Health and Human Services Secretary Kathleen Sebelius told attendees at a recent Kaiser Family Foundation forum that her department is addressing financial sustainability issues as it writes the rules and regulations for CLASS ahead of its anticipated 2013 rollout.

But the key issue isn’t really CLASS or no CLASS. Expenditures for long-term care will explode in the next several decades as the country ages, so the question is how to foot the bill most efficiently?

Medicare covers only a tiny portion of LTC needs. About one-third of Americans turning 65 this year will need at least three months of nursing home care sometime during their lives, according to the Center for Retirement Research at Boston College (CRR); the cost of a semi-private room averages $79,000 per year. CRR calculates that the mean lifetime exposure to long-term care costs for a 65-year-old couple is $260,000, with a five percent risk of a $570,000 expense.

Currently, 40 percent of all care currently is funded through Medicaid, which in most cases requires beneficiaries to spend down assets to poverty levels in order to qualify. Meanwhile, privately-offered LTC insurance remains a mass-affluent product with low market penetration. And many consumers who can afford private LTCI are scared off by the lack of premium predictability, as demonstrated by recent news about double-digit premium hikes. Some key insurance underwriters have had trouble making LTC products work and have exited the market.

Women outlive men, but don’t plan for it

Half of American women will live past age 85, but almost none of them are planning for it. You can count on it, because the actuaries say so.

A new study from the Society of Actuaries (SOA) finds that 92 percent of female retirees, and 89 percent of pre-retirees, haven’t done the financial planning necessary to live comfortably for their full lifespan. Women outlive men by an average of four years (see chart), so they have a critical need to plan for inflation, health expenses and long-term care needs. The study notes that inflation averaged 3.5 percent from 1980 to 2009; medical inflation — which affects seniors disproportionately — averaged 5.8 percent over the same period.

“Inflation is a greater risk for those who live longer,” says Anna Rappaport, one of the actuaries who wrote the report for SOA. “Women also tend to need more resources for long-term care. Their greater longevity means they tend to be ill for longer periods, and they’re less likely to have a family member available to care for them.”

How can women diminish the risk of outliving their resources? Rappaport recommends that they focus on:

Social Security. “Four in ten elderly women will rely exclusively on Social Security. It’s everything for so many of them.”

Working longer. “Many think they can solve the problem by working longer, but four in ten will retire earlier than they planned due to a job loss, illness or the need to provide care to another family member. You can’t count on it.”

4 ways to cope with soaring rates on long-term care

If you have long-term care insurance or have been shopping for it, 2010 has been a year of unnerving sticker shock. Major insurance companies have been seeking rate hikes as high as 40 percent on existing policies, and many carriers are reevaluating their products and pricing. One major carrier – Metlife – decided to stop writing new policies altogether.

The long-term care (LTC) insurance industry is under pressure, but it’s still a product worth keeping in your retirement plan. One-third of Americans will need LTC at some point in their lives, according to the Center for Retirement Research at Boston College, with a semi-private nursing room costs hitting $77,000 per year.

Medicare covers only a small portion of long-term care needs. The federal government will launch a new public option for LTC in 2013 under the new health care reform law — the Community Living Assistance Services and Supports Act (CLASS). But the benefits under CLASS will be modest, and the program might not survive an expected assault on health care reform in Congress.

“No one wants to see rate increases, and they are unfortunate,” says Dawn Helwig, a principal with Milliman, an actuarial consulting firm that works with the LTC insurance industry. “But the alternatives for policyholders aren’t great. You either self-fund, which will take a lot of cash. Or you get rid of assets and qualify for Medicaid and that care is inferior and not somewhere you want to go.”

How can policyholders and prospective buyers cope with LTC rate shocks? Here are four strategies to consider.

1. Don’t re-shop your coverage. If you’ve had your LTC coverage for a while, the premium almost certainly is much lower than what you’d pay on a new policy at an older age–even with a steep rate hike thrown in.

What’s more, the risk that coverage will be denied due medical condition rises with age. Just 9.5 percent of buyers under age 50 are denied, according to the American Association for Long-Term Care Insurance (AALTCI). But 14 percent of applicants in their 50s are denied coverage, and 23 percent of those in their 60s are turned down.

Is the long-term care insurance market sick?

This might not be what the insurance industry had in mind when it proclaimed November to be National Long-Term Care Awareness Month: MetLife, one of the industry’s biggest players, decided to drop out of the market.

MetLife said earlier this month that it will stop writing new long-term care policies (LTC), although the company affirmed its commitment to stand by current policyholders. And another huge underwriter, John Hancock, recently suspended sales to employers who offer LTC insurance as an employee benefit, although it continues to sell policies to individuals.

Industry experts are quick to point out that the list of LTC underwriters changes from time to time, and the insurance carriers that do exit continue to service their existing customers. Plenty of household names remain in the LTC market, including John Hancock, Prudential, New York Life, Northwestern, Mass Mutual and State Farm.

But the MetLife and Hancock developments come against a backdrop of other signs of problems in the LTC market.

LTC sales have been hit harder than any other segment of the insurance business. Sales fell 24 percent in 2009, but bounced back 11 percent from that level in the first ten months of 2010, according to LIMRA, an industry research and consulting group. LIMRA reports that seven million LTC policies are in force — less than five percent penetration of the total possible market.

Unpredictable premium hikes are a key problem facing the industry. LTC policies require that customers keep current on premium payments from the time of purchase up until the point when a claim is made, but there’s no guarantee that rates won’t rise. Insurance companies need the approval of state insurance commissions to put through rate hikes and several have sought double-digit hikes this year. For example, Hancock has asked state regulators for permission to boost rates on most of its existing customers by about 40 percent.

The rate hike requests are driven, in part, by the current ultra-low interest rate environment, which makes it difficult for insurance companies to earn an adequate return on the investment portfolios that help fund policy payouts. Insurers need a 10 to 15 percent increase in premiums for every one percent drop in interest rates, according to the American Association for Long-Term Care Insurance.

The best time to buy long-term care insurance

Toddi Gutner is a contributing writer for The Wall Street Journal and is a former associate editor for BusinessWeek. The views expressed here are her own.

Andy Schupack and his wife hadn’t given long-term care (LTC) insurance much thought until they realized what could happen without it. Some relatives had to do a reverse mortgage for financial resources and others had to move in with family members when they got older, but neither ended up getting the proper care as they aged. To avoid ending up in a similar situation, Schupack, 57, decided to explore long-term care insurance.

He isn’t alone. About eight million Americans have LTC insurance; some 325,000 are new policyholders who bought their coverage in 2009. That number is only expected to rise as the 77 million aging baby boomers begin to look out into the future and consider the care they will need during the last years of their lives. Even so, the industry is changing as insurers, including MetLife, are exiting the business — and experts are concerned that policies will disappear or become unaffordable to keep.

For consumers like Schupack who have decided they want long-term care coverage, questions remain about when is the best time to buy it, for how long should coverage exist, what your policy should include and even whether buying a policy is the right decision at all. Unfortunately, the answers aren’t easy, but there are guidelines that can help make the decision less challenging.

The typical time to buy is between 50 and 60 years old. “This is when you’re getting to the end of your working years and you can pay off the premiums by the time you are 65,” says Nick Erin, a long-term care specialist at Mass Mutual. “Most companies have a 10-year pay period.”

Many websites have cost/benefit calculators that can help you figure out the right time to buy.  In some cases, however, “people don’t really need the product,” says Erin. LTC insurance is for income protection and sometimes “Medicaid is a more viable option for people who don’t have an estate,” he says.

As you would expect, your health will also determine your insurability and your cost. A 50-year-old who develops a chronic mid-life health problem like multiple sclerosis can be locked out of a policy. “I get one call a week from people who waited too long to get coverage,” says Rhonda Gimbel, an insurance agent for LTC Professional Insurance Group. The problem is people don’t look at the planning properly. An estimated 20 percent of applicants are turned down due to health reasons.