ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, October 28, 1996 TAG: 9610290006
SECTION: MONEY PAGE: 6 EDITION: METRO
SERIES: Updating Your Insurance
SOURCE: MAG POFF STAFF WRITER
AT first glance, insurance to pay for long-term care may seem to be of interest only to the elderly. A study by the Virginia Society of Certified Public Accountants found that 87 percent of the people in nursing homes in the state are 65 or older. And 75 percent of them are women.
But, said Lee R. Parsons of Parsons and Associates at Troutville, a consultant in long-term care insurance coverage, the cost is cheaper the younger you buy a policy.
Parsons often suggests buying coverage of $90 a day, with protection of costs adjustments based on inflation, no waiting period and coverage over three years.
Buy such a policy at the age of 60, he said, and an individual will pay $846 a year from one of the eight companies he represents. A spouse would get a 10 percent discount and pay $761.40.
Wait until you are 75 to buy the coverage, Parsons said, and you will pay $2,610 a year. The spouse's policy will cost $2,349.
But who needs such expensive insurance?
Parsons said the usual guideline is that people with assets of $50,000 or more, excluding the value of your home, need insurance to protect those savings against the cost of long-term health care costs.
The very wealthy can probably afford to insure themselves against the possibility of needing long-term care at home or in a nursing home. Even so, Parsons said, he has sold policies to people with $2 million in assets because they want to conserve an estate.
If, on the other hand, you have no assets, Parsons said, "that's what Medicaid is for." Indeed, the CPAs found that Medicaid, a welfare program, pays the bills for about 70 percent of people in Virginia's 280 licensed nursing homes.
The Medicare program for the elderly does not cover long-term care.
The Institute of Certified Financial Planners said the average cost of nursing home care is $40,000 a year. But the planners said Congress just made it easier to buy insurance against this high cost.
The new law, the planners said, applies to policies issued starting next Jan. 1. Parsons, however, said the law also covers existing policies if they meet the criteria of the Health Insurance Portability and Accountability Act.
To take a deduction, the planners said, you must itemize your total medical expenses. This now includes long-term care insurance in addition to health insurance and direct medical costs. As in the past, you can deduct only those expenses that exceed 7.5 percent of your adjusted gross income.
Say your adjusted gross income next year is $40,000. In such a case, you can deduct medical expenses, including long-term care insurance, that exceed $3,000.
But Congress set limits on the amount you can deduct for long-term care insurance, depending on your age. If you are 40 or younger, the cap is $200 a year. Additional age restrictions are $375 for people 41-50; $750 for those 51-60; $2,000 for those 61-70; and $2,500 for those 71 or older. These limits will be indexed annually, meaning they'll rise with the rate of inflation.
In addition, the planners said, the new law allows any qualifying out-of-pocket expenses not covered by insurance to be eligible for deductions. Previously, expenses for custodial care that did not involve medical treatment generally were not deductible. This affects a significant area of nursing home care, particularly the care of Alzheimer's patients, the institute said.
To qualify for a deduction, a policy must cover "activities of daily living." Parsons said people considering long-term care insurance should be certain they have this extent of protection regardless of taxes.
That means the policy must cover the ability to perform certain basic functions such as dressing, eating, toileting, bathing and transferring position such as from a bed to a wheelchair. You should have a policy that includes all five activities and provides benefits for an insured who is unable to perform at least two of them for a minimum of 90 days.
Parsons said some policies replace bathing with continenance, which is a more difficult test to meet.
Policies give some other choices. You can, for instance, reduce the premium by opting for a waiting period before benefits begin. Parsons usually recommends that his clients choose payments beginning with the first day of covered disability.
Another choice is the length of time that payments last, which can extend for the rest of your life. Parsons' advice is to select three years, which is the average length of a nursing home confinement. At the end of the policy's coverage, you'd be on your own to cover costs of long-term care.
He tells his clients to choose a benefit of $90 a day, which is the average cost of a semi-private room in a nursing home in this area. That equals $32,850 a year.
Parsons said most people, except for the very old, should buy the right to increase that benefit every year by the rate of inflation.
You can choose a policy that covers all, or any few, of three levels of care: in home, assisted living (adult day care) and nursing facilities, Parsons said. The last also breaks down into skilled, intermediate and - the most used - custodial care.
Most people would prefer to be maintained in their own homes, so the policy should cover this. Parsons said there used to be two home-heath care agencies in the Roanoke Valley; now there are 10.
The number of companies offering policies has also proliferated, Parsons said, jumping from 20 in 1984 to 118 today. He said 39 are licensed in Virginia.
Parsons cited three reasons for this increasing reliance on long-term care insurance.
One is improved medical technology. People live longer, he said, so they are more subject to debilitating diseases. At the same time, people have procedures such as hip replacements that require a period of recuperation. Parsons said 37 percent of patients entering a nursing home stay for a year or less because they are recuperating.
A second reason is the aging of the American population with today's knowledge of proper nutrition and exercise. If you live long enough, Parsons said, you are likely to end up needing care.
Finally, he said, families are spread out geographically. His own mother, for instance, lives in Long Beach, Calif. That means people can't rely on extended families for long-term care.
Besides, Parsons said, most of his clients buy policies because they don't want to be a burden on their families even if their relatives live close at hand.
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