A Long-Term Problem

By Martha M. Hamilton
Sunday, November 11, 2007

For many people, long-term care insurance provides comforting assurance that they will be taken care of if their health falters. But a substantial percentage of older applicants find themselves rejected, and that can be galling.

Take Joan Bennett Clancy, who lives in suburban Maryland. At 71, Clancy is an active and healthy former nurse. She takes a few medications, but the last surgery she had was when she was in her 40s. "I'm very active. I mow my own lawn, I cut down my trees, and I paint my house," she said. She also skis, swims and walks, so Clancy was surprised when she was rejected for long-term care.

Originally offered a policy with options that added up to an annual price of $7,000, she turned down some of the bells and whistles and chose a package that cost about $2,000. She had paid her first premium when the letter arrived rejecting her.

"When the letter came back, it said they were rejecting me because I fell so often," she said. That was news to her. It was also news to her internist, said Clancy. The doctor said that she had never talked to the insurance company and that, as far as she knew, the company hadn't reviewed her records.

Clancy had seen the internist only once to have a prescription renewed, she said. She thinks the doctor might have asked her whether she had any falls, and she may have told her what she thought was a funny story: Clancy had accidentally stepped on the train of another woman's gown at a party and had taken a tumble when the woman walked off.

She also mentioned it to an orthopedist she visited for a sore shoulder after she scraped off multiple coats of old paint from a huge outdoor porch and repainted it, a chore that took about three hours a day for the better part of the summer.

"If I was unsturdy, or passing out, that would be another matter," she said. Regardless of what prompted the denial, she doesn't have the insurance she thought she needed.

A good number of people have had similar experience. According to one study, insurance company underwriting practices prevent 25 to 33 percent of the population aged 65 to 75 from taking out long-term care policies, either because of poor health or unhealthy lifestyles. That may explain why the average age of people who buy long-term care insurance has fallen to 58 from 69 in 1995, according to a study by the American Association for Long-Term Care Insurance.

But some researchers think they have a way to make the odds of getting coverage better. Mark Warshawsky, director of retirement research for Watson Wyatt Worldwide, and colleagues including Christopher Murtaugh of the Visiting Nurse Service of New York and Brenda Spillman of the Urban Institute argue in favor of a solution that they also say could reduce the costs of buying an immediate life annuity, a type of insurance policy that guarantees lifetime payments.

Their proposal is to create a hybrid called a "life care annuity" that they say could increase the number of people covered by long-term care insurance. Immediate life annuities generally cost more for lower payouts than traditional pensions, which are a version of the same product. The reason is that a traditional pension typically covers everyone in the workplace, including some who will not live long after they start drawing a pension. That leaves more benefits for others.

Not so with immediate life annuities, which generally appeal to buyers who -- because of their general good health and family history -- expect to live long and collect lots of payments. Since insurers know they'll be paying more, they charge more.

If you took that pool of long-lived healthy people and stirred in buyers (or die-ers) with anticipated health problems, you could reduce the cost of the life annuities. The reason that those buyers -- the ones with anticipated health problems -- would be attracted to the product is that it would also offer long-term care coverage when it was needed. Their premiums might or might not be higher than they would be for stand-alone long-term care insurance, but at least they would be able to obtain coverage.

The life care annuity sounds like the beginnings of a good idea, though it doesn't exist yet. And it might be hard to bring to market because of complications in tax treatment of money paid out. Distributions from long-term care policies aren't taxable, whereas distributions from life annuities are. That could change, however, as a result of a provision included in last year's Pension Protection Act.

If so, more of us could be protected as we move into our aging future.

Until then, Clancy said she'd advise thinking twice about talking freely to your doctor. "You think, gosh, what should I tell the doctor anymore?" she said.

© 2007 The Washington Post Company