Long-Term Care Insurance

For some of us, planning for the future is like staring into a thick fog. How can we know what the years to come will bring? It is especially difficult to face the prospect of our own failing health or that of a loved one. Many of us just avoid thinking about it altogether, hope for the best, and assume we’ll have the resources to cross that bridge if and when we get to it. But, our anticipated capacity to deal with the needs of long-term care (LTC) may be founded on the common misperceptions about the cost of care, the likelihood that we may actually need it, and the availability of public funding in the event that we do need it.

You Might Need Long-Term Care

Many people are unaware of the actual costs associated with long-term care. in 2001, the American Association of Retired Persons (AARP) conducted a survey of Americans age 45 and older, and if revealed that only 15% of participants could accurately estimate the national average cost of a nursing home stay; 24% of the respondents didn’t know; and 51% thought if would cost less than it actually does – $55,848 per year. Furthermore, over one third did not know the average monthly cost for assisted living – between $2,000 and $2,500. These figures reflect present costs; however, some long-term care professionals project that in 2030 the average yearly cost for a nursing home stay could be as high as $190,000!

What is the likelihood that you or someone you love may need long-term care? The Department of Health and Human Services predicts that 43% of individuals over the age of 65 will ultimately require some form of long-term care. Long-term care refers to the broad range of services that assist those with chronic conditions in performing the essential activities of daily living (ADLs), such as getting around the house, dressing, bathing, or eating.

A person is generally considered to be in need of long-term care if he or she has difficulty performing two or more ADLs, because of physical limitations, cognitive impairments, or both. The most common forms of long-term care assistance are nursing homes, assisted living/residential care facilities, adult day-care centers, and in home care.

Financing Considerations

The general tendency of many to underestimate the cost of long-term care often goes hand-in-hand with a tendency to overestimate the amount of financing availably through public programs and private health insurance. Contrary to public belief, Medicare – the government health insurance program for people aged 65 and older, as well as for people under the age of 65 with certain disabilities and chronic conditions – does not fund long term care. In fact, no current government program is specifically designed to cover long-term care. Medicare only covers short-term care. It may cover some nursing home or assisted living costs, but only for “skilled care” deemed medically necessary for the duration of an illness, usually limited to 100 days.

As a result, Medicaid has, by default, become the major source of public funds for long-term care, but because it is a government program designed to help those in financial need, individuals may have to “spend down” their personal assets before being eligible for assistance. So, if you have savings, in order to qualify for Medicaid, you may have to pay out-of-pocket for long-term care expenses, effectively exhausting your savings. This process of “spending down” your assets will eventually put you in a position of financial need that would qualify you for government assistance.

The Insurance Solution

The good news is – there is an alternative. Long-term care insurance can help you pay for long-term care expenses before you or a loved one becomes eligible for Medicaid. It may allow you to keep significantly more of your savings, as well as alleviate the burden on younger generations, who often provide financial support and act as unpaid caregivers. In addition, participation in certain policies may make you eligible for certain tax deductions.

Long-term care insurance is designed to help you maintain your quality of life, while offering you independence and increased options for care. Many policies assume the costs of nursing homes, assisted living/residential care facilities, adult day-care centers, and/or home care. Most insurers offer policies to people age 40 and over, and the amount you pay is typically based on three factors: age; current health; and specific policy features, such as breadth of coverage, levels of care, and length of benefits. As you think about a plan that’s right for you, consider these questions:

  • Is the policy “qualified” under the Health Portability and Accountability Act? – With a qualified LTC policy, you may be able to deduct a portion of insurance premiums or reimbursed expenses that exceed a certain percentage of your gross income. Unqualified policies do not meet the legislative requirements for the tax deductions.
  • Is the policy guaranteed to be renewable? – With this protection, an insurer cannot cancel your policy unless you fail to make payments. Many insurers also offer a grace period – generally 7 to 31 days after a premium date – which provides an opportunity for payment before a policy may be canceled.
  • Is the policy protected against inflation? – Because the purchasing power of a dollar tends to decrease over time, it is important to make sure a policy adjusts benefits to keep pace with inflation. For example, is a policy agrees to pay $100 per day, the daily rate in twenty years should be more that $100 to account for a probable rise in costs. Be advised that some insurers offer inflation protection only under a policy rider commonly called a “benefit adjustment option.” There may be an additional charge for this rider.
  • Is there a pre-existing condition clause? – While this stipulation is common, there should be no more than a six-month exclusion for pre-existing conditions.
  • What are the coverage restrictions? – Comprehensive plans cover many different types of care, including nursing homes, assisted living/residential care facilities, adult day-care centers, and home care; whereas, noncomprehesive plans tend to restrict coverage to nursing homes or home care. Some insurers only offer home care with a policy rider, often at an additional charge. There also may be stipulations regarding the licensing of facilities and state certification.
  • What levels are covered? – There are three main levels of care: skilled; intermediate, and custodial. Licensed medical professionals provide skilled care under the direct supervision of a physician. Nurses, therapists, and nurses aides provide intermediate care, most often nursing and rehabilitation services, under the supervision of a physician. Home health aides provide custodial care, which provides companion and homemaker services and accounts for 95% of long-term care. While it is a non skilled form of assistance, it is considered by many to be one of the most important components of long-term care.
  • Is Alzheimer’s disease covered? – Most policies cover Alzheimer’s disease and other cognitive disorders, often referred to as “organically based medical conditions.”
  • When will benefits begin? – Benefits commonly begin when a physician determines that a person is unable to perform two activities of daily living (ADLs) unassisted. In the same way that physical limitations can trigger benefits, cognitive impairments associated with conditions such as Alzheimer’s disease or Parkinson’s disease may also trigger benefits
  • How long will benefits last? – Oftentimes, you have a choice to the duration of your benefits, which may be available up to a lifetime maximum. Consider these factors: your age; the amount you can afford to pay for premiums; and your risk tolerance based on your own health and the income and assets you expect to have in the future.
  • What is the daily benefit amount? – Daily benefits vary depending on where you live and the type of care you are receiving. For example, a person may receive benefits ranging from $100 to $150 a day for nursing home care, and $100 a day for at-home care. Remember, it is important to know if your benefits will be adjusted for inflation.
  • Is there an elimination period? – You may have to wait for a prescribed amount of time – often called an “elimination period” – before receiving benefits, during which time you will be responsible for expenses. In general, elimination periods range from 21 to 365 days. A longer elimination period may reduce your premium.
  • Will premiums be waived while receiving benefits? – You should not have to pay premiums while you are receiving benefits. Some insurers may require that you receive benefits for a prescribed period of time, 90 days for example, before premiums are waived.
  • Who can purchase long-term care insurance? – In general, anyone aged 40 and over, and in moderately good health, should be eligible. The more tenuous your health is and the older you are, the harder it may be to qualify and the more likely you are to pay a higher premium.

Preparing for Long-Term Care Needs

It is difficult to prepare for the possibility that you or someone you love may need long-term care as a result of an accident or illness. Your world could change dramatically, affecting not only your quality of life, but your finances as well. While you may not see long-term care on your horizon, it may enter your life through someone you love. The AARP estimates that 44% of Americans between the ages of 45 and 55 have aging parents or in-laws and children under the age of 21. Furthermore, 40% of people in need of long-term care are between the ages of 18 and 64.

While we might not know what the future holds, we can hope for the best and plan for the worst. Planning today for an uncertain tomorrow may afford you more independence with your savings, offer you more options for care, and bring you peace of mind.

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