|
|
Long-Term Care |
||||||||||||||||||||||||||||||||||||
|
|
General Information Cost of Care Where to Buy Long-term Care Coverage Options & Features Factors Affecting Rates and Availability Final Thoughts on LTC
Long-term Care Insurance (LTC) is coverage that provides you with the money to reimburse the cost of providing custodial nursing home care, home health care and assisted living should you be unable to care for yourself due to an accident or illness. Does it seem unlikely that such a thing would happen to you or one of your loved ones? Well, think again. The odds are 50% that you will need some type of long-term care after you reach the age of 65. An even more surprising statistic is that 40% of patients receiving long-term care are under the age of 65 (according to the Life & Health Insurance Foundation for Education, Washington, DC). In fact, statistics show that at least 6.4 million people aged 65 or older need long-term care, with one in two over age 85 requiring care. At least half of the population who are 85+ will need help with activities of daily living (according to the United Seniors Health Council, Washington, DC, 2002 as reported). Sudden accidents or disabling illnesses can happen to any one of us without notice. In fact, whether it was one of your parents, grandparents, an aunt or uncle, there is hardly a baby-boomer out there who doesn’t know of at least one family member or friend who has needed some form of nursing home care at some point in their lives.
It is a misconception to think that the government will pay for all or most of long-term nursing home care for those over 65. There are two government programs that provide some nursing home care, Medicare and Medicaid:
Medicare will only pay for short-term skilled nursing home care, after you have been hospitalized for at least three days. This type of care is for those who need medical care as they are getting well from an accident or illness, for a period of no greater than 100 days. Medicare will also pay for some home rehabilitative, intermediate care. This is care that you don’t need everyday, but perhaps several times per week. In fact, only 5% of nursing and home health care is the “skilled” type which is eligible under Medicare. 95% of nursing home admissions are for “custodial” care, that is, to care for people who cannot perform the activities of daily living without assistance but don’t need acute medical treatment for a condition that is expected to improve with medical intervention (according to the Life & Health Insurance Foundation for Education, Washington, DC). See the Medicare consumer website for more information.
Medicaid is the government program which pays healthcare expenses for those who meet the federal poverty guidelines. Medicaid pays for about 50% of the custodial nursing home care in the U.S. today, but is only for those who have exhausted most of the their finances. With Medicaid as the payor, the patient does not have many choices in the type of facility they are admitted to. See the Medicaid consumer website for more information.
What does it cost to live in a private nursing home? The costs vary widely by region of the country, but here are some local average numbers from the 2005 MetLife Survey of Private Nursing Home and Home Care Costs. The study was conducted by LifePlan, Inc., a risk management and consulting services firm providing support to the long-term care insurance industry.
The chart below shows results of their study of the average daily & annual cost of private licensed nursing homes (rates shown are for a private room in survey of facilities that offer both skilled and custodial care). Note that this survey shows an average increase of 15% from a similar study conducted in 2003:
Private Nursing Home Average Cost
Data provided by LifePlan, Inc.
This second chart shows results of their study of the average hourly rate to employ a licensed home health care aide and a homemaker (rates shown are from licensed home health care agencies which employ both types of aides).
Home Health Care Aide and Homemaker Average Costs
Data provided by LifePlan, Inc.
Cost Summary: This study shows the average cost of in-patient private nursing home care in the Baltimore to Richmond corridor in 2005 averaged approximately $74,000 - $99,000 per year. Also cited is the cost of hiring a home health care aide to come to your home three days per week for 8 hours per day, which costs from $18,700 to $22,500 per year. Homemaker services for the same hours per week run on average $18,700 - $20,000 per year.
In short order, expenses like these can eat away the estate you spent your entire lifetime to build, limiting your lifestyle choices and destroying hopes of passing on a financial legacy to your heirs.
The answer is long-term care insurance. A well written policy can give you the flexibility to seek traditional care in a nursing home, but will also provide alternative coverage for assisted living facilities, adult day care, home health care and sometimes even homemaker services. Today’s seniors want the flexibility to seek the level of care and the location they find most comfortable. In addition, many long-term care policies are tax qualified, meaning that all or some of the premiums you pay may be tax deductible. Check with your tax advisor regarding the deductibility of your long-term care policy.
Where to Buy Long-term Care Coverage
There are two main ways to purchase long-term care coverage, through your employer or on your own. If you are still working, your employer may offer long-term care plans that you can purchase on a voluntary basis through payroll deduction. This avenue may offer discounts off the open-market price and may be easier to obtain if you already have some health problems. Voluntary employer sponsored plans are often portable, which means you can take your policy with you when you retire or if you change jobs. Another advantage to workplace plans is that they sometimes extend the discounted price to your spouse or even your parents. The downside of purchasing your long-term care at work is that your employer will chose the insurance company for you and will often have some say regarding the options made available to you.
The most flexible way to obtain long-term care coverage is through a personal policy that you buy yourself. There are several ways you can get coverage in addition to a traditional long-term care policy. We will touch on all the options here:
Long-term Care Policy: This is a stand-along long-term care policy that you purchase and pay for yourself. There are many good quality carriers that sell long-term care policies, but not all carriers sell in every state so it is important tobe sure the carrier you want offers the policy you want in the state where you live. When you purchase your own policy, you have the flexibility to custom tailor the policy options and benefits to meet your own anticipated needs and budget. It is important that any policy you buy be affordable over your lifetime. It will do a disservice to you and your loved ones if you have an LTC policy for 10 years, only to have to let it go because you can no longer afford it. The perceived down-side of personal LTC policies has been that some carriers have raised their rates because the risk has been greater than they anticipated. Many people bought policies when they were younger, hoping their lower age-based premium would remain in place for their lifetime. Carriers cannot raise rates on an individual, but most states allow carriers to raise rates for everyone in a class or state. Alternatively some insurance companies have, to date, chosen not to raise rates on current policyholders. Though there are no promises or contractual guarantees that rates may not be increased in the future, it may be preferable to consider a carriers that have established a good track record for keeping premiums level.
Life Insurance with a Long-term Care Rider: This method of purchasing LTC is relatively new and is a win-win for yourself and your estate. If you need money to pay for long-term care during your lifetime, it’s available. If you don’t, the premiums you pay provide a death benefit to your beneficiaries. Different carriers handle this option in different ways. One plan allows you to select a percentage of the life insurance death benefit (for example 1 – 4%) which is then made available to you to on a monthly basis to reimburse you for qualifying long-term care expenses. Any money spent on long-term care is simply deducted from the death benefit.
Another method of providing funds to pay for nursing home care is not a long-term care policy at all. If one has money in an existing CD or annuity that will not be needed for living expenses, it can be exchanged into a tax-favored life insurance plan with an accelerated benefit rider. This rider allows a portion of your death benefits to be released prior to death to pay expenses in the event of terminal illness or permanent confinement to a nursing home. Note again, this is not a long-term care policy and is only appropriate for someone who has extra cash assets that will not be needed during one’s lifetime.
You become eligible to receive benefits from your LTC policy when you cannot perform a certain number of “Activities of Daily Living” (ADL’s). These are:
Continence Control of one’s bladder and bowels Toileting Use of toilet and associated hygiene Transference Moving from bed to chair and back again Dressing Ability to clothe oneself Eating Ability to feed oneself Bathing Ability to bathe oneself
Also included is cognitive impairment, which requires substantial supervision to protect one’s health and safety.
There are several factors and benefits to consider when considering the purchase of a long-term care policy. Each of these factors and benefits has an impact on the rate and it is important that the final policy design fit both your needs as well as your budget.
Daily or Monthly Benefit is the maximum dollars that are paid for each day or period of care. Some policy benefits have different dollar benefits for nursing home verses home health care. The higher the benefit you purchase, the higher the premium.
Policy Duration is the maximum period of time that benefits will be payable. Examples are 2 years, 5 years, lifetime, etc. The longer the policy duration, the higher the premium.
Benefit Cap is the daily or monthly benefit multiplied by the duration of the policy (for example 200 per day x 365 days x 5 years)
Elimination Period is the number of days or months you will have to wait before benefits are payable after the day your claim begins. The length of the elimination period you should select will depend on the assets you can comfortably allocate to paying for the up-front costs of long-term care. Longer elimination periods will lower your premium.
Inflation Protection (or COLA) allows for an increase in benefit which is usually based on a defined percentage. This benefit increases the cost of the policy but is intended to keep your benefit current as costs rise in the future.
Guaranteed Renewability means that premiums can only be increased if they are increased for an entire class of policyholders. It means your policy cannot be cancelled as long as you pay premiums on time according to the schedule.
Waiver of Premium allows for premiums to be waived during times when benefits are being received.
Factors Affecting Rates and Availability
Age: Your premiums will be lower if you purchase your LTC policy at a younger age. Policies are generally available to persons from age 18-84, but this varies by carrier. Remember that 40% of those needing long-term care are under the age of 65, so it is not unreasonable to consider purchasing a policy at a younger age. Please note that premiums may increase as you get older if the company you purchased from is increasing premiums for the whole class of policyholders. It is important for you to know how the carrier you are considering has handled premium increases in the past, although past history is not a guarantee for the future.
Health: You will be asked health questions and may be asked to undergo a physical as part of the application process. If you have chronic health conditions or injuries, your premium may be increased of the company may exclude certain pre-existing conditions.
Benefits: The benefits you apply for will affect your premium. The more options and the higher benefit levels you request, the higher your premium will be. See the Options & Features section.
Most consumers are not as familiar with LTC provisions and terms as they may be with life and health insurance, so it can be confusing for the first time purchaser. We suggest you request and read a sample “draft” policy carefully before you purchase an LTC plan. There are variations from company to company, and from state to state. The contract wording will completely explain your rights and benefits. You will also have a “free look” period (usually 10 – 30 days) after the policy is delivered to you. Look through your actual policy carefully during this time as you will have the right to return your policy for a full refund during your free look period.
|
