Here's some good news: Women are living longer than ever. The bad news? They're paying a hefty price for it.
Nearly 70 percent of Americans ages 65 or older are expected to need long-term care — either at home or in a facility — at some point in their lives. But whether seniors need help recovering from surgery or a stroke — or simply require assistance with daily tasks like bathing and dressing as they age — the cost of such long-term care can be staggeringly expensive.
In 2013, the median cost of a private room in a nursing home for just one year came in at $83,950 — that's up from $67,575 just five years ago.
Medicare only covers a very small portion of long-term care costs. And since paying out of pocket could easily decimate many people's retirement savings, an increasing number of Americans may need to protect their nest eggs by buying long-term care insurance, which can cover some or all of the costs of extended elder care.
However, the policies aren't cheap. The average, healthy, 55-year-old man can expect to pay a premium of around $2,000 a year. But that's nothing compared to what women are being charged for identical coverage.
Last spring, two major providers of long-term care insurance — John Hancock and Genworth — hiked premiums on new policies for women by 20 percent to 40 percent, with other carriers following suit. The reason: Women are growing old for far longer.
An American woman who turned 65 last year is now expected to live to the average age of 87, compared to 85 for men. Women are also less likely to have a caregiver at home when they need it because they often outlive their spouses, making them more likely to end up in a nursing home or assisted-living facility — and more likely to rely on long-term care insurance to pay for that care.
A divide over gender-based pricing
Nationwide, long-term care premiums for women rose 12 percent in 2013, while rates for men declined 14 percent, according to the American Association for Long-Term Care Insurance (AALTCI). Today, a single, 55-year-old woman pays an average of $1,225 a year for a $164,000 policy, while a 55-year-old man pays only $925 annually for the same coverage.
The industry defends the gendered pricing as a reflection of the fact that the majority of last year's $7.5 billion in long-term care claims were associated with caring for women. "Prices for insurance are based on risk, which is why men pay more for life insurance, and bad drivers pay more than good drivers," Jesse Slome, director of the AALTCI, said in a statement. "Women have a far greater risk of needing long-term care insurance and, in fact, receive two thirds of the benefits paid by insurers."
But not everyone thinks the new pricing scheme is legal.
In January the National Women's Law Center (NWLC), a legal advocacy group, filed federal sex-discrimination complaints against four of the biggest U.S. insurance companies — Genworth, John Hancock, Transamerica and Mutual of Omaha — claiming that the higher premiums violate protections in the Affordable Care Act prohibiting sex discrimination in insurance plans.
"By gender rating their long-term care insurance policies, these companies are charging women 20 percent to 40 percent more than men for the same product," NWLC copresident Marcia D. Greenberger said when the suits were announced. "Requiring women to pay higher prices just because they are women is wrong, unfair, and, thanks to the Affordable Care Act, is now illegal sex discrimination."
Two states — Colorado and Montana — currently prohibit gender-specific rates for insurance. But if the new pricing scheme is allowed to stand elsewhere, the higher costs "will put these policies out of reach for a significant number of women," says Emily Martin, vice president and general counsel of the NWLC.
Long-term care policies are already expensive, says Bonnie Burns, a policy specialist with California Health Advocates, a nonprofit health and education advocacy. "This could be thousands of dollars a year for people once they are in their sixties and seventies," she explains. "You start adding a 40 percent surcharge for gender, and you will price a huge number of women out of this market."
That's particularly unfair "because women are already starting out behind financially," says Martin. "Women only make 77 cents for every dollar made by their male counterparts, they tend to have less in savings, and they tend to have less-secure retirements. There's already a financial hole that women are standing in, and then you add this gender penalty onto their premiums — this sort of tax on being a woman."
Another factor: For many couples, the husband often needs long-term care first, and uses up retirement assets to pay for the care, leaving his wife with a depleted portfolio to provide for both the remainder of her retirement and her potential long-term care needs.
Is long-term care right for you?
The higher prices don't erase the fact that more women will need long-term care insurance in the future, especially if they don't have six-figure nest eggs dedicated to paying for elder care. But how do you know if — and when — you should sign up?
Women typically have four options once long-term care becomes a necessity, says Laura Knolle, a Certified Financial Planner™ with Ballou Plum Wealth Advisors LLC in Lafayette, California. They can deplete their assets to the point where they qualify for Medicaid; rely on family for care; pay for care with their own savings; or depend on a long-term care insurance policy.
Knolle also adds that there's no "right" age to buy long-term care insurance, although she notes that the majority of new buyers are in their fifties and early sixties. "It depends on each person," she says, "but the longer you wait, the less chance you have for getting insured." And the longer you wait, the higher the premium.
People in their twenties, thirties, and forties might have other financial priorities they want to put ahead of long-term care insurance, but Knolle says that buying early has its own incentives. "When you are younger," she explains, "your premiums will likely be lower, assuming that you are in good health." And young women might want to consider saving for future costs, regardless of whether they intend to buy a policy down the road or not.
6 factors to consider when seeking coverage
If you do decide that a long-term care policy is right for you, Knolle says, it's best to follow a few basic steps:
1. Check your available coverage. Research whether your employer offers a group long-term care insurance plan. The benefits may not be extensive, Knolle says, but these plans may be more affordable. And be sure to look into how the coverage and/or premiums may change when you leave your employer.
2. Consider your family's medical history. "Look at your family history to see if there's a track record of people needing care," as well as what type, Knolle says. These details may influence the kind of policy you buy.
3. Calculate your costs. The next step is to estimate what long-term care might cost in your area. There are a number of good online calculators, including this one from AARP, that compare the costs of various types of care by state and metro area. The difference in nursing home care, for instance, can be tens of thousands a year, depending on the state you call home.
4. Weigh whether to save or insure. Inflate your long-term care expenses out to when you will actually need the care — age 80 is a good starting point—and then "ask whether you want to cover that cost yourself," Knolle says. "Maybe you set money aside, which may be an option for a young woman. Or you ultimately decide that you want to pass the risk to an insurance company."
5. Shop around. It's critical to get quotes from a number of different insurers. A recent study of long-term care insurance rates found that the difference in premiums for identical policies could range between 31 percent to as much as 114 percent among insurers. "One insurer will literally charge more than double for virtually the same level of benefits," Slome says.
But if you do your homework, long-term care "doesn't have to be unaffordable," Knolle adds. "There are lots of bells and whistles to tailor it to what you need."
Four major factors people should consider when shopping for a policy are the daily benefit, the cost of living adjustment, the elimination period and the length of coverage. "Those are the four things we play around with when we run quotes," Knolle says.
If you decide that a standalone long-term care policy is still too pricey, consider a life insurance policy that includes a long-term care rider. "It's not perfect," she says, "but at least you would have some coverage. It doesn't have to be all or nothing — something is better than saying it's too expensive and not dealing with it."
Additionally, you can also consider a policy that covers both at-home care and nursing home care, since the majority of elder care starts in the home. And if it's offered in your state, look into the benefits of using a "partnership" policy.
6. Finally, talk to loved ones. Regardless of what you decide, discuss your choices with your family, Knolle says. "No one wants to say, 'I'm going to need help to cook and bathe.' No one wants to think they will get Alzheimer's. It's not a fun topic."
But your family needs to know what your preferences are, especially since they could be on the hook for costs if you haven't prepared. Your health "can affect your children and their financial well-being," Knolle says. "Most women don't want their kids to feel burdened to take care of them."
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