Raising America's LTC IQ: insurers must teach their clients the benefits of planning for long-term care early, as well as the consequences of waiting. (Life/Health: Long-Term Care).

An elderly person slips and falls and a life is changed in an instant. Someone who may have never experienced anything more serious than the common cold suddenly needs around-the-clock care. For many older Americans, this scenario is all too familiar.

While the psychological impact of losing one's independence is difficult to overcome, far too many older Americans are doubly burdened as they face the enormous economic hardship of paying for long-term care. Insurers and agents need to know if their clients are prepared. Study after study shows most Americans are not.

Three major factors contribute to the low long-term-care IQ in this country: the underestimation of risk, the underestimation of cost and the mistaken belief that Medicare or major medical plans will suffice.

Consider the first factor. Most people dramatically underestimate their potential need for long-term care. According to a recent study by the Health Insurance Association of America, the general population perceives their risk to be about one in four or 25%. Conservative estimates, however, show that for every five older Americans, two will be admitted to a nursing home during their lifetime. This goes to the heart of the psychological argument that long-term care is something only others need to be concerned about.

The factor that catches many Americans completely by surprise is the cost. In many states, the daily nursing-home rate is comparable to the cost of a stay in a luxury hotel. On average, older Americans can expect to pay $46,000 per year for nursing-home care. Calculated over a lifetime, women aged 55-64, for example, can expect to pay more than $150,000 in long-term-care costs. And as baby boomers continue to age, the demand for nursing-home care will continue to inflate prices.

The third factor is the myth that Medicare adequately covers long-term-care needs. Medicare provides only limited coverage for short periods of time for skilled nursing-home care, leaving no benefits for the custodial needs associated with long-term care. In fact, Medicare pays none of the costs for the nearly 25% of nursing homes in the United States that are not certified by the program. Much home-health care is also not covered because it doesn't meet Medicare's definition of medically necessary care.

Debunking the Myths

How can insurance providers help clients overcome these myths and misconceptions? The best answer to that question is education. Clients must become knowledgeable about the ways long-term care can be funded, including state-sponsored programs such as Medicaid, private financing and long-term-care insurance. Insurers can help clients determine their best option through a simple cost benefit analysis.

The primary payment source for the vast majority of nursing-home patients is Medicaid, a joint federal and state program that provides health care to low-income individuals. Unfortunately, many people fall into this category because long-term-care expenses force them to spend down their assets to the poverty level. Although each state manages its own Medicaid program, federal law requires that in order to qualify, an individual's assets must be less than $2,000 (excluding the home). For couples receiving nursing-home care together, the amount is $3,000. In Tennessee, for example, 70% of all nursing-home patients are on Medicaid. Medicaid is also the only government-sponsored program to cover long-term-care costs.

Middle-income Americans who are forced to spend down their assets often place a financial burden on surviving family members. Although more liberal laws can protect a spouse's assets, the Omnibus Budget Reconciliation Act of 1993 requires states to try to recover the cost of Medicaid benefits from the estates of certain nursing-home residents. Unfortunately, family homes and businesses that should have passed on to future generations are being sold to pay back Medicaid costs.

On the opposite end of the spectrum, private financing might be the best option for individuals with personal resources that will cover three or more years of nursing-home care at an average rate of $46,000 per year. Because costs vary dramatically from one state to another, insurance professionals should encourage clients to investigate costs in their state.

Most middle-income Americans fall into the third category--those who need long-term-care insurance. The cost will vary according to a person's age and health and the benefits selected.

The Earlier the Better

Age is the single most important factor that impacts the cost of long-term-care insurance. The earlier people start planning for their long-term-care coverage, usually around age 60, the more affordable it will be. Early purchase accomplishes two things. First, it allows clients to space monthly premiums over a longer period of time, translating premiums into a smaller portion of monthly income before retirement. Second, it reduces the likelihood of not qualifying because of pre-existing conditions. Other factors that need to be considered include inflation and product availability. These things change over time and can cause some policies, especially those without inflation protection features, to become obsolete and fall short of the insured's needs.

Convincing people to consider long-term-care protection while they are relatively young can be a challenge. Americans have a natural aversion to growing older, evidenced by everything from anti-wrinkle cream to estate planning. The single best way to overcome this challenge is through education. People need to be made aware of the benefits of planning early, as well as the consequences of waiting. In terms of cost, waiting can mean the difference between quality coverage and just getting by. In terms of time, waiting can mean the difference between qualifying and being left behind.

The following steps can help insurers meet the challenges of selling long-term-care insurance:

* Present specific costs for nursing-home and in-home care based on the client's city and state of residence. These costs vary dramatically by location, based on cost of living and supply and demand. By narrowing the focus to a smaller area, more realistic costs can be measured.

* Encourage clients to budget long-term care as part of their overall retirement planning. Compare the estimated monthly income from Social Security, 401(k)s and other pension plans and saving against estimated monthly expenses to determine the level of long-term-care protection the client needs.

* Present all of the options, including personal resources and state-sponsored programs such as Medicaid. Long-term-care insurance is not for everyone, and only by developing a realistic financial forecast for the individual client can insurance providers deliver the best benefit for their customers.

* Whenever possible, involve the client's family members in long-term-care planning. Having those closest to the client provide additional encouragement may help overcome some of the client's psychological hurdles to purchasing a policy.

* Use personal stories as examples of how long-term-care planning helps maintain personal dignity and protect a client's loved ones.

* Once a client recognizes a need for long-term-care insurance, investigate several policy options. Policies vary dramatically from one company to another. Look for companies that specialize in the senior market, as their policies usually can be tailored to best meet specific needs.

* Don't be afraid to follow up with clients who have passed on long-term-care insurance policies. Insurance professionals may not be able to overcome a client's psychological and financial concerns the first time, but it is worth checking back a second time to see if life circumstances may have changed, making the client more open to this kind of protection. The second time around, insurers may have the opportunity to provide clients with the protection they or a loved one may one day need.

* Finally, keep in mind how important insurers' efforts are to help educate the American public, especially the baby boomer generation, about the need for long-term-care insurance protection. According to Janemarie Mulvey, senior retirement research associate at Watson Wyatt Worldwide, "not only will the number of elderly nearly double in the United States over the next 30 years, boomers will live longer than earlier generations, on average. The combination of higher costs and twice as many users is expected to push up long-term-care expenditures for the elderly from $110 billion in 2000 to $528 billion in 2030."

Who will pay these costs? A huge opportunity exists today to help future generations of senior Americans maintain their independence and financial security. Insurance professionals can make a real difference in the lives of so many. Don't miss out.

Scott Perry is senior vice president, career sales and distribution, Bankers Life and Casualty Co., Chicago.