By Scott Burns

Q: Your article on continuing-care retirement communities was timely for me. I have started researching housing and health care options for my retirement. Continuing-care retirement communities generally fall into two categories: those with a buy-in fee that includes future health care (i.e. assisted-living or nursing home) at the same charge as the independent living fee, and communities that provide the more advanced levels of care on a fee-for-service basis. The latter require a smaller buy-in fee and monthly fee than the former, but the resident must have the means to pay for a higher level of care if it is needed. The person would either use personal funds or long-term-care insurance to pay for assisted-living, home care or nursing home care.

I have read some information, but it is difficult to find impartial reviews of the status of the long-term-care industry. I know some companies have left the market and that premiums will continue to rise. Those facts alone are enough to make me skeptical. However, I do not have the personal funds to assure myself I could pay out of pocket for long-term care even though I have saved for retirement.

I am single, with no children, so am completely reliant on myself. I am also a federal employee who has access to the federal long-term-care policy. My reluctance to buy into this policy is due to the expense and my questions about the future of long-term care (will it be there when I need it, at a premium I can afford to pay?). I would appreciate any information I could use to make my decision about long-term-care insurance. My decision will impact the sort of community I choose for my home. – S.D., Dallas

A: Finding an objective assessment of long-term-care (LTC) insurance plans is very difficult. The best I have been able to come up with is that financial planners basically triage the retired population into three groups:

• Those who have so little in assets and income that buying LTC insurance is futile. This is a very large group. They will be supported by Medicaid, we hope.
• Those with enough assets and income that they can "self-insure" – they have the means to pay on their own. This is a relatively small group. As a rough measure, it is all those retired people who could pay for LTC out of regular, ongoing income sources. That would be single people with retirement income of at least $60,000 and couples with income of at least $120,000.
• Everyone in between is at hazard and may need to rely on Medicaid after their money runs out. So far, this has not been a fate worse than death, though it may deprive you of your choice for where you stay. That's one reason many people go into an institution that is both private pay and Medicaid. They choose the institution, private-pay until they run out of assets, and convert to Medicaid.

Late last year MetLife, the fourth-largest LTC insurer, announced it would no longer offer new LTC policies, joining a number of other companies that have withdrawn from the market. John Hancock, the company that offers the federal LTC plan, is the largest LTC insurer. It filed to increase the premiums on 850,000 of its 1.1 million policyholders at about the same time.

The reason some insurance companies have withdrawn from the LTC insurance market is that insurance premiums are based on assumptions about investment returns on premium payments as well as rates of need for long-term care. Those investment returns come from the same markets for every insurance company. You and I are in those markets too, trying to get decent returns on our savings. According to one source in the industry, insurance companies count on investment returns to provide about 40 percent of the money needed to meet benefit obligations. When investment returns decline, the only choice is to increase premiums.

Given the last decade of investment returns, there is a good chance premiums will have to rise. Some people may find they cannot afford their insurance. Whether you buy LTC insurance or not remains a very tough call. The most likely candidates to need long-term care, however, are women who have had no children or no female children.