Baby boomers are facing a dilemma: At a time when long-term-care insurers are shrinking coverage, more boomers than ever are recognizing the need to protect their retirement savings from potentially devastating costs. Big players have withdrawn from the market, and those that remain are scaling back benefits, tightening eligibility and hiking premiums, especially for women.
See Also: Long-Term Care Special Report
Still, individuals in their fifties and sixties who want coverage do have some options. They can engage in strategies—from sharing benefits with spouses to reducing inflation protection—that can help them cover part of their costs in the future while keeping premiums manageable.
As boomers help their aging parents, many are experiencing firsthand the overwhelming costs of long-term care. And they want to protect their own children from these crushing responsibilities if they end up needing care themselves. "People who have had a personal experience either with a family member or a friend's parent are saying this could be an issue down the road," says Leonard Wright, a certified public accountant in San Diego, Cal.
Indeed, the costs can be exorbitant. The median rate for a private nursing-home room is $230 a day, or $84,000 a year, according to an annual report by insurer Genworth. (Find the cost of care in your community at www.genworth.com/costofcare.) The median cost of a home health aide is $19 an hour. A stay in an assisted-living facility costs a median $3,450 a month.
Stephanie Lee, a certified financial planner at East Rock Financial Services, in San Francisco, where the annual median cost of a private nursing-home room is more than $200,000, says she raises the issue with every client. She explains that they should either buy insurance or set aside savings to cover expenses.
Couples who do not want to pay premiums for care they may never need should reserve $200,000 to $400,000 or more to cover potential care, Lee says. The amount "depends on what return they can expect on their investments, the inflation rate of long-term care for the area, and the length, type and timing of care they anticipate."
To decide on which route to take, Lee first looks at the amount of care that the couple wants to cover—say, three years in a nursing home. Then she looks at the amount of guaranteed income—Social Security and pension benefits—that could cover long-term-care costs as well as other expenses. The couple would either need enough savings or long-term-care insurance to fill in the gap. "They may decide that spending $2,500 per year on premiums for 30 years is preferable to setting aside $300,000 for care," she says.
In her calculations, Lee usually assumes that the first spouse who becomes ill will need home health care for three years, while the other spouse will need nursing-home care for three years. She also discusses the possibility of moving to a less-expensive community.
Becky Snow, 58, of Las Vegas, has experience with the high cost of care. Her father was diagnosed with Alzheimer's disease seven years ago. He lived with her for three months and then moved to a nursing home. "I took over everything because he couldn't do any of that himself," Snow says. "He was single, and I knew nothing about his financial situation."
Her father's pension didn't cover the full nursing-home tab. "We had to gradually sell off everything he owned to pay for his care," she says.
After he died two years ago, at 79, Snow started to think about what would happen if she needed care. She was divorced in 2012. She asked her 33-year-old daughter, a paramedic, to handle medical decisions if she needed help, and told her 27-year-old son that he would be in charge of her finances. "I wanted to make sure my son knew my financial situation so he could step in and not be in the dark like I was," she says.
Snow bought a Northwestern Mutual long-term-care insurance policy in 2013 and used her father’s experience as a guide when choosing how much coverage to get. She calculated the income she'd get from Social Security and other sources and how much she could afford to pay from savings. She bought a policy that will pay a daily benefit large enough to cover the balance. Because her father, like many Alzheimer's patients, needed care for five years, she bought a six-year benefit period as an extra cushion. "I hope I never have to use it, but I need to be prepared," she says.
Buying a policy is an increasingly tough decision as insurers impose higher premiums, especially on women. Features once standard are now very expensive or have been replaced with skimpier alternatives.
Women pay more. Becky Snow bought her policy just before most insurers started to charge women higher premiums than men. Genworth, the largest long-term-care insurer, announced the change about a year ago, followed by big players John Hancock, Transamerica and Mutual of Omaha. Most other companies have already moved or are expected to move to gender-distinct pricing in the next year. The reason: Women generate more long-term-care claims than men, and their claims tend to be more expensive, says Beth Ludden, vice-president of long-term care at Genworth. They are often their husbands' caregivers, but they may later need to pay for long-term care for themselves.
Many single women now pay about 50% more than single men, says Claude Thau, a long-term-care insurance consultant in Overland Park, Kan. Regulators in some states have not yet approved the changes for some insurers. (Genworth, for now, still offers unisex rates in California.) "I told my female clients that they should consider locking this in before [more insurers] switch to gender-based pricing," Lee says.
Get price quotes from several insurers. Women should also check out any policies offered by their employer because they may still use unisex rates.
One way that a married woman can save money is to buy with a spouse. Most insurers offer discounts of about 30% to couples, Thau says. Genworth, for example, charges a 55-year-old man in the best health category $2,190 a year for a policy with a $150 daily benefit that rises 5% compounded per year, a 90-day waiting period and a three-year benefit period. That policy would cost a woman $2,966 a year. But with the discount, each spouse would pay $1,854.
Couples can hedge their bets with shared benefits. For example, if each spouse gets a three-year shared-benefit policy, they have six years in coverage between the two of them. Spouses can split the coverage any way they want. Sharing benefits tends to boost premiums by about 15%—but women could end up with more than half of the coverage if they provide caregiving to an ill husband.
Women also should consider hybrid policies. John Ryan, a Greenwood Village, Colo., specialist in long-term-care insurance, recommends that single women compare the cost of traditional long-term-care insurance with a policy that combines long-term care and life insurance. "I've never been a real fan of combo policies, but with the new higher rates for women, the combos are looking a little better for them," Ryan says. Women tend to pay less than men for life insurance so that brings down the costs.