The lowdown on long-term care insurance.

If you think long-term care is something for the crowd - a matter of Medicare, Medicaid, or your top-of-the-line health plan - you may be betting the proverbial farm.

You may think long-term care insurance is only for the elderly. It might surprise you to discover that 40 percent of those who need long-term care are between the ages of 18 and 64. You're not alone in your thinking. A recent survey of 1,000 adults, age 42 and over, conducted by Mathew Greenwald & Associates, Inc., for the American Council of Life Insurance, Washington, D.C., found that while long-term care is one of the major issues Americans report being concerned about, fewer than one in five (18 percent) have given it a great deal of thought. And because of misconceptions, such as the difference between disability coverage and long-term care coverage, many people aren't sure to what extent their insurance covers long-term care - or whether they are covered at all.

In fact, long-term care insurance should become part of your comprehensive financial and retirement planning for many reasons - the main one being to ensure that your carefully preserved retirement funds aren't wiped out in a matter of months by long-term care expenses you assumed were covered.

Defining and differentiating

Long-term care refers to the assistance you might need if you ever have a chronic illness or disability that leaves you unable to care for yourself for an extended period of time. It goes beyond medical care and nursing care. You can receive long-term care in a nursing home, in your own home, or in the form of help with activities such as dressing. Not exclusively needed by the elderly, long-term care can also help a person who has been in an accident or has suffered a debilitating illness.

Beyond nursing homes, a complete range of services is available to help meet long-term needs. Care given by family members can be supplemented by visiting nurses, home-health aides, friendly visitor programs, home-delivered meals, chore services, adult daycare centers, and respite services for caregivers who need a break from daily responsibilities. Obviously, few, if any, of these services come cheap.

And, while long-term disabilities may be covered by certain Social Security benefits or health insurance policies, such coverage generally pays some predetermined portion of lost income. Long-term care coverage is not intended to replace income, but should work with other types of coverages in paying for all the related costs that go beyond income replacement.

Measuring vulnerability

Understanding the magnitude of your exposure to long-term care costs becomes clearer when you relate it to other risks you've probably already covered with insurance.

* Automobile insurance, required by law, can cost up to $1,200 per year or even more, and the average American may drive approximately 50 years. Yet the risk of being involved in an automobile accident is 1 in 240. But would you consider driving without automobile insurance?

* Homeowner's insurance, required by lenders to cover the risk of total loss of property from fire, among other risks, can easily exceed (for a comprehensive policy) $500 per year. Yet the risk of having your home destroyed by fire is 1 in 1,200.

* Health insurance. According to a 1998 study of benefit plans of large- and mid-sized U.S. companies conducted by the Hay Group, a Philadelphia-based management consulting firm, monthly premiums can range from $200 to more than $500 per month depending on the type of coverage and whether policies are for individuals or families. The cost of major surgery, including charges for attending physicians, ancillary services, and a hospital stay can often exceed $40,000, while the risk of major surgery is 1 in 107.

* Long-term care insurance. Rates for long-term care insurance vary significantly depending on the age at which policies are purchased. Weiss Ratings, Inc., a Palm Beach Gardens, Florida-based company that provides insurance company ratings and analyses, reports annual premiums from 25 long-term care insurers range from $252 to $1,575. The average length of stay in a nursing home is 2.5 years, with an average cost of $100,000 per occurrence. The risk of needing long-term care is roughly 1 in 15, dramatically higher than any of the risk factors represented by the other negative possibilities you so carefully insure yourself and your family against. With these odds, why would anyone want to carry that risk?

If you are still inclined to leave yourself vulnerable to future financial disaster, the following facts may convince you to change your thinking about long-term care planning.

* Forty percent of those who need long-term care are between the ages of 18 and 64. According to a recent study by the U.S. General Accounting Office, of 12 million Americans who need assistance to carry out everyday activities, 5.1 million are working-age adults.

* The financial impact of long-term care can be astounding. Depending on where you live, nursing-home care can average from $30,000 to more than $50,000 per year. Home health care - to help with dressing, bathing, preparing meals, and doing household chores - can easily cost a minimum of $1,000 per month.

* Private insurance and Medicare do not cover most of the costs of long-term care. In fact, they pay for less than 5 percent of the nation's long-term care costs. Studies report that 80 percent of married nursing-home residents lose all of their assets within a year.

* There is no indication that the government will provide increased support. With federal, state, and local program expenditures approaching $90 billion per year for long-term care services, the government is looking at the private insurance industry, employers, and individuals to take responsibility and find a solution for long-term care funding.

* No one can say with certainty that they will never have a serious accident or be diagnosed with a catastrophic illness.

Reducing risk

People are becoming increasingly aware of this risk, a trend that explains why purchases of long-term care insurance by young people are growing - as they realize that long-term care insurance isn't just for their parents or grandparents. Today, the average age of those enrolled in the employer-sponsored market is 43 years.

By the end of 1994, 1,028 employers were offering long-term care insurance plans to their employees, with 432 employers paying all or part of the employee premium. Connecticut Community Care, Inc., Bristol, a state-licensed, private, nonprofit care-management agency, estimates that corporations lost an average of $220,000 a year per 500 employees as a result of their employees' caregiving responsibilities. This excludes the costs of personal use of company telephones, increased payouts of health care benefits due to caregivers' stress, and productivity losses.

Given these benefits, it may make sense for you not only to consider long-term care insurance for yourself as an individual, but to investigate the cost and benefit of offering it as an employee benefit for your association.

Regardless of whether you plan for yourself or the organization, the goal of a long-term care insurance program is to maintain your highest level of independence and to protect the lifestyle you've worked hard to establish for yourself and your family. The program you select should:

* Provide enough coverage to help finance two or three years in a nursing home. Nursing-home care or home health care benefits should not be limited primarily to skilled care; they should also cover intermediate and custodial care.

* Cover both nursing home and alternative care. With the pool of older Americans growing, more alternatives to institutionalization, such as nursing aids, companion services, and chore runners, are available, but you need to be aware of restrictions on in-home care. Be aware that many policies, for example, will not provide immediate at-home help after breaking a hip because so-called homemaker benefits do not go into effect until 60-100 days after a hospital stay.

* Offer an inflation protection rider or an option that allows you to purchase additional coverage periodically without showing proof of insurability. These precautions help protect you from rising costs of care and are especially important if you are younger (under 65).

* Guarantee that the policy cannot be cancelled, refused renewal, or otherwise terminated because you get older or suffer deterioration in physical or mental health. This means premiums cannot be raised unless there is a rate increase for all policyholders in a particular group.

* Cover services required because of a chronic and disabling physical illness, such as multiple sclerosis or senile dementia - including Alzheimer's disease and other organic mental and nervous disorders - should the policyholder develop the disease after purchasing the policy.

* Guarantee the right to return the policy within 30 days after purchase and to receive a premium refund.

* Include a preexisting condition limitation of fewer than six months.

* Conform to the National Association of Insurance Commissioners' Model Act and [its recommended] regulation inflation protection.

* Offer an optional nonforfeiture benefit, providing for some return on premiums paid or reduced benefits, even if the policyholder quits paying the premium after a minimum period of time.

* Offer some guarantee of future insurability, allowing for purchase of additional amounts of coverage without showing proof of insurability - up to the maximum specified in the policy - upon the occurrence of specific life events, such as marriage and birth of children, that require additions to the policy.

* Not use medical necessity as the only benefit trigger. Generally, the fewer the restrictions, the more useful is the policy. Avoid restrictions that require policyholders first be hospitalized to receive nursing-home benefits or home health care benefits; or that they first receive skilled nursing-home care before receiving intermediate or custodial nursing-home care.

* Use inability to perform the fewest activities of daily living as a benefit trigger. Note how the insurer defines activities of daily living and how their performance is linked to activation of benefits. Since inability to perform a specific number of activities of daily living is often a benefit trigger, look for a policy that requires inability to perform the fewest number.

* Include some provision for restoration of benefits following a period of disability and recovery.

* Include a case-management component. Local, personalized case management ensures that you will have input into the selection of services, as well as professional support with identifying and coordinating providers, services, and billing. It is challenging enough to know what is available now, especially with more changes on the way. Add to that the frustration of guessing which government agency provides the appropriate service, and the process can be overwhelming - especially for the uninitiated, which is nearly everyone who faces a crisis.

Other provisions apply if you are considering long-term care insurance for your association. First, the program must be portable so that policyholders can take it with them when they leave your employment. Second, the policy should include a provision that if an employee who participates in the program does leave your association, rates maintain rather than increase sharply for continued coverage.

The bottom line

By planning now to include long-term care coverage as part of your retirement planning, you can secure your future in several ways. An indepth survey conducted by the Health Insurance Association of America, Washington, D.C., working closely with nine of its member insurance companies, identified some of the key reasons respondents purchased long-term care insurance. The top four reasons stated were 1) to preserve independence and to avoid depending on others for care, 2) to protect assets, 3) to guarantee the ability to afford needed long-term care services, and 4) to protect the family's standard of living.

For these reasons and many others, the possibility of providing an ASAE-endorsed long-term care program is being researched at this time. ASAE is beginning due diligence on the details of both individual and employer-sponsored plans, considering long-term care insurance an important member and employee benefit that has many positive implications for the association as well.

Long-Term Care Costs

Long-term care policies offer a wide range of benefit options and policy-design flexibility at stable and affordable premiums for both employer-sponsored policies and individual policies.

If your employer does not yet provide long-term care insurance, as CEO it's something to consider negotiating into your contract. You can also purchase your own coverage. A study released by the Health Insurance Association of America, Washington, D.C., in 1995 reports that the typical policy purchased by people at age 65 costs an average of $93 per month. The policy would pay such benefits as an average of $86 per day for nursing-home care, an average of $80 per day for home care, and the cost of 5.1 years of nursing-home care.

The same study reports the following ways to affect your premiums:

* Purchase long-term care insurance at age 50 or younger - which can cut a monthly premium by half or more.

* Consider the size of the daily benefit and the length of time for which benefits are paid; those factors directly affect the premium amount.

* Recognize that elimination periods - the number of days you must be in residence in a nursing home before policy benefits begin, for example - can vary, usually from 0 to 100 days. The longer the elimination period, the lower the premium.

* Work with deductibles in the same way - the higher the deductible, the lower the premium.

Clearly, you can lower your own costs for long-term care coverage by buying a policy at an early age and by selecting carefully both the level of benefits and the deductible period. In making your selection, bear in mind that although 45 percent of nursing-home stays last three months or fewer, more than one third last one year or longer. It is the costly longer stay that is the catastrophic expense you will want to insure against.

A List of Long-Term Care Insurers

A number of companies now work with individuals and organizations to provide long-term care coverage. A representative list follows, with phone numbers to call for more information.

* AIG Life Companies, U.S.; Wilmington, Delaware: (877) 8710767.

* Allied Life Insurance Company, Woodland Hills, California: [phone].

* American Express/IDS Life Insurance, Vienna, Virginia: [phone].

* American Travellers Life Insurance Company, Carmel, Indiana: [phone].

* Bankers Life and Casualty, Chicago: [phone].

* CNA, Chicago: [phone].

* Fortis Health Insurance Company, Milwaukee: [phone].

* G.E. Financial Assurance Company, San Rafael, California: [phone].

* John Hancock Insurance Company, Boston: [phone].

* Metro Life Insurance Company, New York City: [phone].

* Mutual of Omaha, Omaha, Nebraska: [phone].

* New York Life, Austin, Texas: [phone].

* Penn Network America Insurance Company, Allentown, Pennsylvania: [phone].

* Pioneer Life Marketing, Irving, Texas: [phone].

* Prudential Health Care, Roseland, New Jersey: [phone].

* Prudential Life Insurance, Horsham, Pennsylvania: (800) 7320416.

* Standard Insurance Company, Portland, Oregon: (503) 3217000.

* The Hartford, Hartford, Connecticut: [phone].

* Transamerica Occidental Life Insurance Company, Kansas City, Missouri: [phone].

* Travelers Insurance, Hartford, Connecticut: [phone].

* UNUM, Portland, Maine: [phone].

Dixie L. Arthur is executive vice president, ASAE Services, Inc. E-mail: [e-mail]. This article is based on the white paper "In Denial or in the Dark? What You Need to Know About Long-Term Care," March 1997, written by Dixie L. Arthur, with the support of AHA Resource Inc., a subsidiary of the American Hospital Association, Chicago.