Mention long-term care insurance to most Americans and their eyes will glaze over.
Frankly, most people don't want to dwell on growing old and how they are going to pay for home-health care, a room at an assisted-living facility and/or a nursing home stay. Some believe (probably erroneously) that the good old U.S. government - and the twin shields of Medicaid and Medicare - has got them covered.
But for those who have worked a lifetime to build a modest (or even substantial) next egg, long-term care (LTC) insurance can provide asset protection and peace of mind against becoming a burden on their children, experts say. Medicare only provides for very short nursing-home stays, and Medicaid regulations require recipients to spend down their assets to a scant $2,000 (basically exempting only a house an automobile) before kicking in.
Middle managers and small-business owners are often prime candidates for long-term care insurance, experts say. And baby boomers - many of whom are now witnessing their parents struggle with long-term care costs - are in the sweet spot for acquiring coverage before they get too old and sick to qualify.
Meanwhile, many companies have stopped offering long-term care insurance as part of their group employee benefits packages. Chattanooga-base Unum, previously a leading underwriter of long-term care group policies, has gotten out of the business except for servicing existing accounts, according the M.C. Guenther, a company spokesperson. Some of the major players in LTC insurance are Genworth, John Hancock and Mutual of Omaha.
About 70 percent of people over age 65 will eventually need some type of long-term care, according to the U.S. Department of Health and Human Services. The population of people over age 65 in the United States is more than 45 million today and is expected to grow to 74 million by 2050, according to the U.S. Census Bureau.
Meanwhile, the cost of long-term care continues to climb. In 2015, the average cost of a year in a skilled-care nursing home in Chattanooga was about $89,000. At the same time, the cost of a one-bedroom apartment in an assisted-living facility here was about $41,000, according to Gail Lindsey, of Lindsey & Associates, a local company that specializes in matching customers to long-term care policies.
"Three out of four people are going to need some kind of care," Lindsey says. "Either you're going to die quickly, or you are going to need some sort of nursing home care."
The price of long-term care insurance is filled with variables including monthly limits on benefits, elimination periods before coverage begins (typically 90 to 180 days) and inflation protection on benefits (often 3-percent per year).
Lindsey said a 60-year-old Chattanooga couple in good health and of average height and weight can get a three-year long-term care policy paying up to $3,000 a month in benefits for $2,500 a year, or about $200 a month. That includes a three-percent per year inflation multiplier, she said.
Benefits typically kick in when people can no longer take care of themselves - for instance, if they need help bathing, dressing themselves and eating - or suffer significant cognitive impairment, such as Alzheimer's disease.
Unlike health insurance, applicants for long-term care coverage can be turned down for certain pre-existing conditions, so it pays to get coverage when you are younger. For long-term care policy applicants between 50-59, the percentage denied coverage was 21 percent in 2014, according to the American Association for Long-Term Care Insurance's 2015 Sourcebook. Meanwhile, the turn-down rate for applicants ages 70-79 was 45 percent.
Couples can often earn discounts of up to 30 percent when they apply together, and some policies allow them to share a pool of funds. About 40 percent of LTC policyholders have a three-year benefit, while about 50 percent have four years or more, according to industry sources.
For the past eight years, the state of Tennessee has also offered so-called "partnership" options that, in some cases, allow long-term care policy owners to shield assets up to the dollar amount of their coverage limits - so, if the time comes they need to rely on Medicaid, they can still protect some assets for their heirs.
Kip Diggs, a media specialist for State Farm Insurance in Tennessee, says, "Many factors are considered when underwriting a LTC policy, and each customer's circumstances are underwritten on a case-by-case basis." Diggs notes that most people who ultimately use their long-term care insurance will get more back in benefits than they pay in total premiums, "making LTC an appropriate and needed protection."
AARP says that there are three categories of people who should consider long-term care policies:
* "Families who want to protect their loved ones, lifestyle and assets."
* "Retirees and pre-retirees wanting to preserve the money they have worked so hard to save."
* "Individuals who may not have someone to care for them or significant assets to pay for long-term care costs."
Jesse Slome, a spokesman for the American Association for Long-Term Care Insurance, says the industry is in a state of flux. He said in the year 2000, there were about 700,000 long-term-care policies sold in America, and last year only about 105,000 policies were sold.
He attributes at least some of this shrinkage to rate increases, benefit reductions and fewer carriers issuing long-term care policies. He said a generation ago, when LTC policies were newer, insurance companies underestimated how many people would hold onto their policies over decades. He said that the low interest-rate environment since the Great Recession has also made it hard on insurance companies who count on investment returns to pay benefits and to turn a profit.
"It's a very tough business to be in," Slome says. "You have to be really committed to be in this market."
Slome says he sees consumers shifting some to short-term care policies, which offer up to one year of protection. He notes that 41 percent of people who enter a nursing home stay less than 12 months. Slome said even a small amount of coverage is better than nothing.
"I advocate a 'good, better, best' approach to insurance planning," he says. "The analogy I make is with buying an airplane ticket, you can choose first-class, business or coach."
Limited long-term care coverage was initially part of the Affordable Care Act but was abandoned politically due to higher than expected cost projections, Slome said.