Talk about money: Insurance bought early can defray long-term care costs

“The idea of living a long life appeals to everyone, but the idea of getting old doesn’t appeal to anyone.”
 – The late Andy Rooney, broadcast journalist
One of the worries about getting old is that in your final years you might not be able to care for yourself. It’s expensive to move into a nursing home, and so is paying caregivers to come to your house. If you can’t afford it, you’ll have to move in with your kids, and no one wants to be a burden to their kids.
The solution for many is to buy long-term care insurance, which pays a set amount each day at a future date to pay for the care you’ll need if a doctor certifies that you are unable to care for yourself.
But the cost of that solution is soaring. A recent report in the Wall Street Journal said double-digit percentage increases are common, with the cost of some policies jumping 77 percent. Insurers say they must raise rates because they are losing money on policies issued years ago.
The main reason they are losing money is that interest rates are low. Companies are required to keep most of their reserves in high quality bonds, said insurance broker Dan Nicholas of Scotts Valley.
When insurers calculate how much they’ll charge, they estimate how many people will file claims in future years and how much they’ll earn on their reserves in the meantime. With interest rates low, investment returns are lower than expected, so insurers are raising premiums.
Another factor is that companies failed to realize how desperate many Americans are to protect themselves against runaway nursing home costs, according to the Journal.
Insurers predicted that 5 to 7 percent of people who bought the coverage would cancel their policies each year without tapping into benefits. Instead, that number has been about 2 percent. If insurers had planned for that, they would have charged more. Now they’re playing catch-up and raising premiums.
So, what’s a consumer to do?
A room in a nursing home can cost about $250 a day, said insurance broker Barbara Hanson of Felton. If you meet certain conditions, Medicare may pay 100 percent of your cost for the first 20 days, she said, then you may need to pay out of pocket. That’s over $7,500 a month, or $90,000 a year.
That expense can deplete a patient’s savings quickly. Once you’ve exhausted nearly all of your assets, Medi-Cal will start paying for your long-term care. But you will have to share a room, and Medi-Cal won’t pay for home care, Hanson said.
“People are happier in their own homes,” Hanson said, adding that long-term care policies pay for nursing home care or home care. 
Nicholas bought a policy when he was age 52 for $88 a month that promised to pay $130 a day for a maximum of three years. That amount goes up 5 percent a year. Now he is age 65, the cost has risen to $104 a month and his daily benefit is up to $250 a day.
If he hadn’t bought the insurance and wanted to buy a policy now with a daily benefit of $250, it would cost about $500 a month, he said. Among the ways to reduce that cost would be to buy a policy that pays a smaller daily benefit or one that rises only 3 percent a year instead of 5 percent, Nicholas said.
The details of how these policies work and when Medi-Cal will step in are too complicated to address in this space. For more information, both Nicholas and Hanson recommend www.longtermcare.gov.
– Mark Rosenberg is an investment consultant for Financial West Group in Scotts Valley, a member of FINRA and SIPC. He can be reached at 831-439-9910 or mr********@*wg.com.