AKAMAI MONEY

By Deborah Adamson
Advertiser Staff Writer

Q. I saw a quote on long-term-care insurance and it was almost $400 a month. I said, "That's ridiculous." Some people have discouraged me from doing it. Can you tell me more about long-term-care insurance? — Ed Loo, 79, Kalihi.

A. Long-term-care insurance isn't cheap. But for many people, coverage is something they should consider.

First, let's define it. Depending on your policy, long-term-care insurance pays for care at a nursing home, assisted-living facility or in your own home when you're ill or incapacitated for at least 90 days. Health insurance pays for acute or immediate medical care.

If you have a heart attack, your health insurance pays for bypass surgery. But if you later have a stroke that leaves you incapacitated — unable to feed, bathe or otherwise take care of yourself — a good long-term-care insurance policy would step in and pay for care.

Contrary to conventional wisdom, Medicare generally doesn't pay for long-term care. Medicaid, which is administered by the state for the poor, does shoulder nursing home costs, but generally you have to be left with $2,000 in assets to qualify.

Medicaid mainly pays for institutional care — and you are sent to a bed that's available. You don't have a choice. There is a Medicaid program that pays for home care, but the waiting list is two years, said Deborah Jackson, president of ElderCare Hawaii, which helps families with long-term care needs.

Becoming disabled by age is expensive: the average nursing home in Hawai'i costs about $7,000 a month, according to the Healthcare Association of Hawaii.

Rates for long-term-care insurance depend on your age, health and options you choose.

For a 65-year-old in good health who doesn't take insulin, chooses a benefit of $150 a day for nursing home and home care for five years with a 90-day elimination period, and has an inflation option of 5 percent compounded annually, the cost is $3,000 a year. If the spouse is the same age and in similar health, the total cost for the couple would be $3,500 a year, said Laudra Eber, president of Long Term Care Hawaii Inc. in Honolulu.

It's easy to get scared by the high cost of aging. But here's the reality: the average stay in a Hawai'i nursing home for people receiving skilled-nursing care was 74 days in 2000, according to the Healthcare Association of Hawaii. For intermediate care, the length was 496 days, or about 16 months.

Most people who enter a nursing home don't need long-term care for longer than five years, Eber said.

Moreover, she said people generally don't need to look into long-term-care insurance until they're at least 60 years old. At that point, they are looking towards retirement.

You're never guaranteed that you'll get approved for long-term-care coverage because much depends on how healthy you are at any age. An exception would be if your employer or labor group pays for it for all active workers.

Shop carefully

If you are looking to buy long-term-care insurance, make sure to shop around because there are many variations in the market and they can be complex.

"It's without a doubt the most confusing and difficult insurance purchase you'll ever make," said Marilee Driscoll, author of "The Complete Idiot's Guide to Long-Term-Care Planning." "Prices differ widely, contracts differ and coverage differs."

Look for stability

Here are two rules of thumb:

• Choose a financially stable insurer with a long track record. Genworth and John Hancock are two of the largest writers of long-term-care insurance in the market, Driscoll said. The two insurers, as well as Allianz and MetLife, have not raised premiums on existing policies, Eber said.

• Premiums will go up, so plan for that contingency. Otherwise, you could end up unable to afford the policy at some point — and you could lose both the coverage and the money you've paid for it if you don't buy a non-forfeiture option. Count on premiums to increase by 10 percent every 10 years, Driscoll said.

The first step in calculating how much coverage you'll need is to determine your daily benefit, she said. That's the amount the insurer pays for care everyday.

Let's say nursing homes cost $6,000 a month in your area and you can handle paying $1,000 by yourself without difficulty from your pension, other retirement income and Social Security. You're left with a $5,000 monthly shortfall. Divide that figure by 30 days to come up with the daily benefit you'd need — $167.

Second, buy inflation protection. The cost of nursing homes will continue to rise, and you don't want to be caught short.

Third, choose an elimination period. Insurance companies allow you to choose whether you want them to pay right away once you qualify for long-term-care coverage or wait generally 20 to 100 days before they start opening their wallets. Of course, the longer the wait, the lower the premium.

Popular choices are 90- and 100-day options, Driscoll said. However, that means you believe you'll have money to pay for care for at least three months. At current nursing home prices, that's $21,000.

Fourth, choose a benefit period. That's how long you want the insurer to pay for your care. Many people choose two to five years, based on the average nursing home stay, Driscoll said.

Watch the small print

Some caveats: Take note of the restrictions in your policy. Don't rely just on the insurance agent or promotional brochures.

Choose a policy that lets your doctor — or a third party — determine whether you need long-term care, not the insurer's physician.

Choose a policy that lets you get care in any setting, including your home.

Choose a policy that doesn't require hospitalization first before receiving long-term-care benefits.

When your elimination period starts, file a claim with the insurer right away. If it's denied, you have time to appeal before the elimination period ends.

Got a consumer or personal finance question? Contact Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.