Many Baby Boomers don’t have to look far to see how long-term care costs can decimate a lifetime of retirement savings.

In some cases, their parents have had to deplete their nest eggs to pay nursing home costs, and Medicaid is now paying for their care. Or, those Boomers have had their parents move in with them so they can take care of them, said Dana Cox, a representative of LTC Financial Partners LLC.

“That’s making (people in their 50s and 60s) start to think: ‘What’s going to happen to me?’” said Cox, whose company specializes in offering long-term care insurance coverage.

Though fewer than 5 percent of seniors in the United States currently own a long-term care policy, Cox predicts significant growth in coverage in the next several years due to federal health-care reform legislation.

Under a provision of the Patient Protection and Affordable Care Act signed by President Barack Obama in March, employers will have a new program for offering long-term care coverage to their employees. On Jan. 1, the Community Living Assistance Services and Support (CLASS) Act goes into effect. Under that statute, employers can voluntarily offer private or public long-term care insurance coverage available to their workers.

Though the U.S. Department of Health and Human Services has until October 2012 to finalize rules governing the CLASS Act’s provision, “now is the time to start thinking about it, so when the time comes, (employees) have a better understanding of what it is,” Cox said. Once an employer voluntarily offers coverage through the CLASS Act, workers in that company will automatically be enrolled unless they opt out.

LTC Financial Partners, founded in Kirkland, Wash., in 2003, claims to be the largest insurance brokerage in the country dedicated to offering long-term care coverage. Among the major carriers it represents are John Hancock Life Insurance Co., Prudential Financial Inc. and Mutual of Omaha Insurance Co.

LTC Financial entered the Iowa market about a year ago; Cox covers the state of Iowa, working with a regional manager who is responsible for Iowa, Nebraska, North Dakota and South Dakota.

“The whole idea behind (LTC Financial) is to provide individuals looking for long-term care with options,” Cox said. “By representing a variety of companies with different specialties and underwriting requirements, that gives us the flexibility to (provide coverage) that meets the customers’ needs.”

Looming crisis

Statistics point to a looming long-term care crisis. At least 70 percent of people over age 65 will require some long-term care services at some point in their lives, according to the U.S. Department of Health and Human Services.

“That boils down to one out of two women and one out of three men,” Cox said. “As the need for long-term care becomes more apparent, there’s going to be a huge tax on the system, and so costs are going to go up and care is going to be harder to find. The CLASS Act was enacted to begin addressing this.”

Long-term care insurance, whether offered through a private carrier or through a public option, isn’t appropriate for every senior, Cox said.

“You have to have those assets that are worth protecting, and you have to have the ability to pay the premiums,” he said. “Paying the premiums can’t be a burden on your family to be covering something you’ll need later on, if you don’t have a lot of money to protect. Another reason people do it is they don’t want to be a burden on their families.”

The average annual cost of a private room in a nursing home in Greater Des Moines is $61,320, according to a guide published by Kiplinger’s Personal Finance.

The long-term care insurance industry itself is in turmoil, in part due to record-low interest rates that make it difficult for insurers to earn adequate returns on their investment portfolios to fund the benefits they must pay. According to the American Association for Long-Term Care Insurance, for each percentage point decrease in interest rates, insurers need to increase premiums by 10 to 15 percent.

Some carriers are seeking double-digit increases in premiums and have ceased offering new policies. John Hancock, for instance, is seeking a 40 percent increase on its existing policies nationwide and has suspended sales of group long-term care policies, driven in part by MetLife’s exit from the long-term care insurance market.

Overall, sales of long-term care policies decreased 24 percent in 2009, but began rebounding in the first 10 months of 2010, according to Limra International Inc. an insurance research and consulting group. Limra estimates that only 7 million long-term care policies are in force nationwide.

Presently, the potential market for long-term care insurance “is barely being tapped,” Cox said. At the same time, the growing wave of seniors draining their life savings and then going onto Medicaid coverage is unsustainable, he said.

Better option

Most private long-term care policies begin providing benefits when at least two of six “activities of daily living” cannot be accomplished by the covered individual. Those activities are bathing, eating, toileting, continence, transferring (mobility) and dressing.

The public insurance option being formulated now through the CLASS Act would offer benefits of no less than $50 per day for care, or about a minimum of $1,500 per month, or about $18,000 per year, varying with the individual’s level of impairment. Premiums for that public option that are now being discussed would range from $123 to $200 per month, Cox said.

By comparison, an individual can purchase a “fairly robust” private policy for about $100 in monthly premiums, he said, which would provide about $5,000 in benefits per month, or between $150,000 and $200,000 of coverage. Most long-term care policies offer coverage for a term of about three years.

“So a private policy option for a healthy individual is a much better option than the public option, based on the information I see coming down,” Cox said. “The CLASS Act is a good option for those individuals who wouldn’t qualify for a private long-term care policy. But what I try to impress upon people is that with aging, (your health) can change.”

Among individuals considering coverage, most are between the ages of 55 and 62, Cox said. “But I have visited with people in their 70s who have waited a little too long who are looking at it.”

Long-term care as an employer-provided benefit is still a relatively new concept, said David Lind, president of David P. Lind & Associates LLC in Clive.

“I would say we’re very much still in the infant stage of employers embracing something like this, compared with other benefits,” Lind said. In an annual statewide employee benefits survey that his firm conducts, approximately 9 percent of companies said they offer long-term care coverage as a benefit.

“I think the CLASS Act will provide additional (incentive) for analysis of whether to provide this,” Lind said. The survey did not ask employers whether they contribute to the plan.

If an employer chooses to pay for a portion of the premium cost, there is also a tax advantage in being able to deduct that cost, Cox said. In either case, it’s a valuable benefit, he said.

“A lot of employees turn to their employer first as a resource: ‘Hey, I’m looking at this; what do you think?’” Cox said. “It’s just another benefit from the employer to be able to offer this type of information.”