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On expensive LI, boomers ponder long-term-care insurance

Logan and Kim Phillips discuss their long-term-care health

Logan and Kim Phillips discuss their long-term-care health insurance policy at their home in East Islip on Saturday, Sept. 5, 2015. Credit: Audrey C. Tiernan

It's expensive to grow old and frail on Long Island.

As the Island's baby boomers age, more of them face decisions about their care. One option is long-term care insurance coverage, which helps pay for home health aides, assisted living, nursing homes and end-of-life hospice care. It's expensive and imperfect, but the alternative, running out of money, might be even worse.

Home health aides typically cost $51,480 a year in Suffolk and Nassau counties, according to insurer Genworth Financial. Assisted living costs $67,500 a year on average, and nursing homes average $155,125 for a semiprivate room.

For Long Islanders planning retirement elsewhere, annual costs can be considerably lower. In Orlando, Florida, for example, aides cost $42,328 a year, assisted living $40,119 and nursing home care $88,513, according to Genworth, of Richmond, Virginia.

In the Charlotte, North Carolina, area, an aide is $41,321, assisted living $36,000 and nursing home care $79,935.

Gaining peace of mind

Baby boomers Kim and Logan Phillips of East Islip want to retire on Long Island, where they grew up. When their insurance agents, Susan Malise and Sandra Reilly at the LTC Planning Group of New York in Franklin Square and Bay Shore, suggested purchasing coverage for long-term care, they took the plunge.

For both the Phillipses, coverage costs $3,400 a year, with a special discount available at the time through AARP, said Kim, 56. Her husband, 59, is a ship captain in the merchant marine; she is a homemaker.

"The peace of mind that came with doing this is worth it for us at this point," said Kim.

An average policy provides about $150 a day in benefits for four to five years, according to America's Health Insurance Plans, a trade group for health insurers.

A factor in the Phillipses' decision: Both come from families with above-average longevity. And they don't want their six children burdened by the costs of taking care of their parents.

But most people don't buy long-term care insurance, according to a study published in November by Boston College's Center for Retirement Research, and there's wide disagreement over whether the coverage is a necessity or worth the cost.

Do you need it?

The answer depends on a family's wealth and income and on factors people cannot know in advance, including how long they will live and in what kind of health.

Nationally, a couple aged 60 will pay between $2,170 a year and $3,930 a year in premiums, on average, according to the American Association for Long-Term Care Insurance, an insurers trade group.

Premiums vary by insurance company, by locale and whether the consumer purchases basic coverage or coverage that includes inflation protection and higher coverage amounts. Premiums in New York for a couple that buys inflation-protected, higher-level coverage at age 50 average $2,900 a year. For a couple 10 years older, the average cost of premiums is almost $4,400 a year, the association said.

Premiums must be paid until an insurance payout begins. Stop making payments, even after years of paying, and you lose coverage.

Premiums for the coverage are rising, pricing many people out of the market; nationally, the cost for new policies jumped by 8.6 percent last year over 2013, the long-term care insurance association said.

One reason for the cost increases: People are living longer. An American male can expect to live to 76.4 years, and women to 81.2 years, according to the National Center for Health Statistics. Those who make it to 65 can expect to live to their mid-80s, according to the Social Security Administration.

Even with the steep premiums, some insurance companies, including MetLife Inc. and Prudential Financial, are no longer writing new policies. Profits on the policies have been low or nonexistent. Some companies badly underestimated the number of policy holders who would keep up the premium payments and eventually seek benefits, said Jesse Slome, executive director of the Association for Long-Term Care Insurance.

About 10 companies still sell new policies, Slome said, with Milwaukee-based Northwestern Mutual Life Insurance and Financial Services the market leader.

Beware of premium hikes

The slim profitability has led to hikes in premiums for new and existing customers. Ed Leviten of Westbury said Metropolitan Life has raised his rates twice since he bought his long-term care policy 12 years ago, when he was 60. The first increase was roughly 9 percent, he said, and the second, beginning in February, will be 48 percent, raising his annual premium to $10,628. It covers him only; his wife, he said, is a nonbeliever in insurance and declined coverage.

"If I drop the policy, I'm looking at all those dollars over all those years going out the window with absolutely no benefit whatever," said Leviten, the retired owner of an electrical supply company. "What am I going to do? They have me over a barrel."

A MetLife representative said it increased premiums "due to cumulative changes in actuarial assumptions since the time these policies were initially priced."

Slome said that insurers have to prove first to state governments that higher-than-expected claims justify the premium increases. And he says rates on newer policies are less likely to increase because they reflect insurers' accumulated knowledge about claims.

For people who ultimately need substantial long-term care, though, the policies can pay back many times over. Corporate employee benefits consultant Ken Ambos of Bay Shore said his parents paid a total of $30,000 in premiums over 10 years for long-term care coverage and in their final years used more than $100,000 in benefits.

Ambos, 53, said their experience helped convince him to buy coverage for himself and his wife several years ago. "You don't buy house insurance when your house is on fire," he said.

Only about 13 percent of older Americans have long-term care insurance, according to the Boston College study.

"In many cases I'll advise clients to look into it," said certified financial planner Ray Mignone of Little Neck, Queens. "But over the last three years or so rates have gone up so much I don't see many people buying new policies."

Even without the coverage, retirees might not be entirely on their own when they need care.

Medicare, for example, covers medically necessary skilled nursing home care for up to 100 days after a hospital stay, albeit with deductibles and copays.

And there's Medicaid, a federally funded, state-run medical cost assistance plan that includes long-term care and many other medical needs.

Hold off if you're single?

The Boston College study, which focused on nursing home care, recommends that "most single individuals not buy insurance given the availability of Medicaid." More than three quarters of nursing home residents are single.

In New York, a couple older than 65 can have adjusted gross income (after deductions) up to $14,500 a year and assets of $21,750, not including their homes, and be eligible for Medicaid, according to the New York State Department of Health.

Experts say many retirees with assets above the threshold can use the legal method of transferring assets to children or others. In most cases, however, there is a five-year "look-back" period covering such transactions. And not all nursing home facilities accept Medicaid patients, said AARP.

Roughly 70 percent of Americans older than 65 will need long-term care, according to the U.S. Department of Health and Human Services.

But the Boston College study concludes that, while 44 percent of men and 58 percent of women over 65 will need nursing home care at some point, the average man will stay a lifetime total of less than a year, while the average woman will stay just over a year.

"The picture that the insurance companies always like to paint is that of a person who gets Alzheimer's and lingers for years and years and years," said senior research economist Anthony Webb, who co-authored the study. "The good news is that most people who go into [nursing home] care actually don't spend that long in care."

Other financial sources

In addition to Medicare and Medicaid, other financial sources for long-term care include personal investments.

Retired school administrator Ed Goldstein, 82, of Baiting Hollow, said he started looking into the coverage for his partner, a retired teacher 16 years younger than him, and put a deposit down on a policy. They later changed their minds. Premiums, he said, would have been between $4,700 and $7,700, and they could rise in the future. Further, he said, "the chances of ever needing it were overblown as to average length of [nursing home] stays."

The couple decided instead to put $6,000 a year into a mutual fund. "It's doing great," Goldstein said in an email.

Others note that long-term coverage will protect assets for a spouse or heirs and preclude dependence on any government programs.

Lewis Damrauer, 75, a retired consulting engineer from Dix Hills, was thinking along those lines five years ago when he purchased coverage for himself and his wife, a 73-year-old retired schoolteacher. His premiums are about $9,000 a year. While those premiums might seem scary, he said, "somehow, the alternative was a little frightening, too."

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