It's Difficult To Insure Against Growing Old

November 25, 2007|By Jonathan Peterson | Jonathan Peterson,LOS ANGELES TIMES

Tom Binder wanted to prepare for the future - including the possibility that he or his wife could be stricken by a long, debilitating illness in the years ahead.

"I don't think it's a good bet that you're just going to drop dead," said Binder, 50, an art dealer in Santa Monica, Calif. "What if you suffer a stroke in your 60s or 70s, and through the miracles of medicine you live into your 90s?

"That was my worst-case scenario: that I would linger for many years."

To make sure that he could survive financially, Binder made a purchase that has become increasingly common for a generation that once focused almost obsessively on being young: He agreed to pay $4,500 a year for insurance to cover the costs of long-term care for him and his wife, Betsy Cantor.

Advocates of the insurance say it offers needed protection and peace of mind in an era of greater longevity and rising health care costs. Nonetheless, some experts warn consumers to proceed with caution.

"If you can afford it, it's a good thing," said Glenn Kantor, a lawyer who specializes in insurance issues in Northridge, Calif. "But there are lots of caveats."

Most policies reserve the option to increase premiums, and rate increases as high as 40 percent have shocked purchasers - in some cases forcing retirees to quit their plans or scale back coverage.

Some consumers also have complained of excessive waits for payment or that insurers have resisted paying legitimate claims.

Despite those potential drawbacks, proponents say good reasons exist for considering long-term-care coverage, especially for those without relatives willing to see them through a long bout of frailty.

Nursing home care can cost $75,000 or more a year, leaving once-middle-class people dependent on Medicaid, a program for poor Americans. And hiring someone for help at home with the most basic chores of living - bathing, dressing and eating - can ravage a lifetime of savings.

Long-term-care insurance can enhance people's options for the help they need to survive, at home or in an institution.

"If you want to get care at home, you can get it. You have choice and control," said Jesse Slome, executive director of the American Association for Long Term Care Insurance in Westlake Village, Calif. "People still look at this as a purely financial product," he said, "but the intangible benefits are worth their weight in gold."

Plans vary widely in cost, in how soon benefits take effect and how much money a person might have to pay out of pocket should care be needed. That means consumers need to pay attention to the fine print.

Most policies provide a set daily benefit, often in the range of $100 to $150. They also come with waiting periods before benefits begin, commonly 60 to 90 days.

Benefits are typically restricted to a set number of years and are triggered only by certain events, such as the onset of severe dementia or the inability to perform certain basic living tasks.

A typical policy purchased by a 60-year-old in 2005 cost about $2,000, but consumers can spend less or substantially more.

Consumer advocates strongly recommend that people buy inflation protection. You might not make a claim for 20 years or more, and over that much time the value of your benefits could be eviscerated by inflation.

Beyond that, unknowable developments - such as changes in medical technology and advances in treating chronic illnesses such as Alzheimer's disease - can make it impossible to be certain that a long-term-care policy bought today will meet a person's needs in the future, said John Rother, director of policy and strategy for AARP.

Complaints by beneficiaries - centering on rejected claims and slow reimbursements - have further complicated the decision, prompting Republican Sen. Charles E. Grassley, of Iowa, to recently ask large insurers for details on how they process claims.

Supporters of the industry insist that horror stories are rare exceptions. Overall, just 3.3 percent of claims are denied, said Mohit Ghose, a spokesman for America's Health Insurance Plans, a trade group. "The vast majority of claims are paid."

A flurry of rate increases in the 1990s and since 2000 also has caused controversy.

Industry advocates say such increases mostly reflected growing pains of insurers that were still learning about the real costs and risks of products introduced in the 1970s and 1980s.

Consumer critics say the price increases often followed "low-ball" premiums, cynically intended to draw in customers. Though insurers cannot raise rates on individual policies, they can raise rates for entire categories of policyholders - based on age, for example - and records show that a portion of the industry has done so.

Jonathan Peterson writes for the Los Angeles Times.

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