Nancy S. Buck, a 62-year-old divorced woman from Aurora, Colorado, wants to purchase long-term health care insurance because she doesn't want to be a financial burden on her children. But right now, that's not possible, since she's self-employed, earns only $20,000 a year (too much to qualify for Medicaid), and can barely afford the $450-a-month payment for basic health insurance.
Buck is hoping to get a full-time job with health insurance, but until then she's trying to stay healthy until she reaches 65 and qualifies for Medicare. Long-term health care insurance "sounds like a good and responsible plan. But planning for the future is difficult when living in the present is precarious at best," she says.
As difficult as it has been for single women like Buck to afford long-term health care insurance, it's about to get harder. Over the past year, several insurance companies have announced plans to hike premiums by 50 percent. One company, California’s state-run CalPERS, is planning an 85-percent premium hike. Genworth announced plans for a 50-percent rate hike on policies for older people. It's also the first company planning to institute gender-specific pricing, which would charge women more than men because they live longer. Other insurance companies, including John Hancock, are also considering gender pricing. Another trend driving costs: One out of three Americans will develop Alzheimer’s or dementia, a disease that will cost the country $203 billion this year.
LOW INTEREST RATES
The main reason for the premium hikes is that interest rates have remained so low, companies have been unable to build up sufficient reserves to keep the funds healthy, says Anthony Webb, a research economist at the Center for Retirement Research at Boston College. He says when interest rates are high, insurance companies can invest the premiums and build up reserves to pay out claims in the distant future. So insurance companies are looking for other revenue streams and gender pricing is one of them.
Insurance companies have always charged men and women the same rates, though women live longer than men and are more likely to need long-term care. Webb says that while men have only a 27-percent probability of needing nursing home care, that number is 44 percent for women.
There’s no regulation that prohibits insurance companies from charging different rates to men and women, says Gopi Shah Goda, senior research scholar at the Stanford Institute for Economic Policy Research – so she’s not surprised it’s happening. Insurance companies, on average, spend two thirds of benefit payouts on women, says Jesse Slome, executive director of the American Association for Long-Term Care Insurance. He expects all insurance companies to follow Genworth's lead and file sex-distinct rates, with women being charged 20-40 percent more than men.
Genworth will be taking other measures to safeguard profits. For one thing, they’ll soon require all new applicants to undergo a paramedic health exam, similar to what is required for qualifying for life insurance, in order to take on lower-risk clients. In the past, these tests were only required in cases of advanced age, around 70 or older, says Murray Gordon, founder of MAGA Ltd., a long-term care insurance agency. "It was not the general practice. Now it will be."
UNINSURED AND AGING
Only 10-to-15 percent of the elderly population is covered by private long-term health care insurance, according to a June 2012 study in Health Affairs. The 2012 National Long-Term Care Insurance Price Index finds the average annual cost of long-term health care insurance for a single person, age 55, is $1,720, while that number is $2,700 for a couple.
Goda at the Stanford Institute says cost is a big reason for not buying this insurance. Few people are purchasing long-term health care insurance, and more may not now because of rising costs. "It's already a big problem,” she says. “This makes it a little bigger." Existing policyholders of this insurance may also soon no longer be able to afford the higher premiums.
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Many people expect Medicaid or Medicare to cover them when they need long-term care – but here’s the reality: Medicare doesn’t cover it. Medicare only covers primary and emergency care and limited (30 days at a time) rehabilitation care. And in order to qualify for Medicaid, a person has to meet strict income and asset guidelines, says John O'Leary, president of O'Leary Marketing Associates, which specializes in funding of long-term care. You need to be close to abject poverty and a single person cannot have more than $2,000 in assets, not counting the home or car.
A burgeoning industry of estate planning attorneys has cropped up to help people find legal loopholes to divest their assets – but there are many restrictions. Some couples try to spend down and divest assets in order for one spouse to qualify for Medicaid. But then the other spouse is left with little and still has a long life ahead, says Karen Holden, professor emeritus of public affairs and consumer science at the University of Wisconsin-Madison. There are “spousal impoverishment” provisions that allow the other spouse to retain some assets, but they’re unlikely to be sufficient.
Eileen J. Tell, senior vice president for product development at Univita Health and a member of the Long-Term Care Discussion Group, a voluntary group of experts who focus on long-term care issues, says some people are transferring money to their children. But losing control of that money "is dangerous, since you have to trust that your child will eventually give it back to you."
A PROGRAM IN PERIL
Tell says that more reliance on Medicaid will tax already tight dollars for the program. In 2011, national health care spending for long-term services was $210.9 billion, and almost two thirds of it was paid by the Medicaid program, according to the George Washington University's National Health Policy Forum Report. At the same time, the population most in need of care – those ages 65 and over – is expected to double over the next 30 years.
"There is tremendous concern about the impact that growing long-term health care needs will have on Medicaid budgets," says Tell. She says that if people without long-term health care insurance don’t want to drain their bank accounts or end up on Medicaid, they could always pay for their own care. But depending on their wealth and health needs, they could compromise the quality of life for the spouse or family members if all the money has gone towards care.
“Many baby boomers are going to face a huge dilemma and one that has not been well publicized,” says O’Leary. “Without long-term care insurance, or some similar program, boomers will be forced to use up their savings and whatever income they have to pay for their care. They will either be forced to rely on friends and family, or impoverish themselves and go on Medicaid.”
Then there’s the toll this situation will take on nursing homes that rely on Medicaid money. Assisted living facilities and nursing homes are expensive: According to the Health Affairs report, the average annual cost for a nursing home is more than $75,000 a year (that’s $6,250 a month – enough to afford a luxury apartment in Manhattan), and 17 percent of people age 65 or older will receive care in a long-term care facility for one or two more years.
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However, most nursing homes limit the number of Medicaid beds they make available in order to assure a profitable mix of beds. And some only accept Medicaid for current residents who have been paying out-of-pocket for several years, according to Donna McDowell, the former director of the Wisconsin Bureau of Aging and Disability Resource Department of Health Services.
In response to this situation and rising costs of private long-term health care insurance, Congress this month established a 15-member bipartisan Commission on Long-Term Care to develop a plan to make long-term care services more widely available to the elderly. Within six months, the commission will submit its recommendations.
People like Nancy Buck are hoping they come up with real answers. "There are many of us out here, barely holding onto health insurance. And there are more than a few who are taking the chance of living uninsured."