Long Term Care Insurance Resources
Long-term care insurance purchased by individuals to cover the cost of their home health care, adult day care, assisted living, and nursing home stays protects the insured and the insured's property and life savings. A single long-term care policy can provide benefit payments for all of these needs.
Here is why you need long term care insurance: Medicare only pays about 15% and Medicaid about 43% of nursing home care and home health care. Private insurance only covers about 5%, and the remaining 38% of those costs are paid by individuals and their family members.
How Long Term Care Insurance Works
Long term care is a combination of services directed toward meeting the needs of someone who, due to reduced physical functioning and/or reduced intellectual functioning is unable to carry out every-day tasks without the help of another person. These services can be received at home, in the community or in a residential facility.
One of the first steps in understanding long term care insurance is to learn about long term care services and planning for long term care. Planning for long term care means thinking ahead and being prepared for the consequences of needing long term care. Long term care planning is an integral part of retirement planning.
Insurance (from auto to homeowners to health) is an important part of securing your financial goals. Long term care insurance can help to safeguard your assets and protect your financial stability. Long term care insurance is an important tool to help you with the high cost of long term care services.
Long term care insurance has two inter-related purposes:
Long term care insurance can help you and your family to
maintain your financial independence IF you have purchased a policy which gives
you enough protection to do so. In general, you should purchase as much coverage
as you can reasonably afford.
Be realistic in your expectations of long term care insurance. Your goals and
the goals of long term care insurance should be compatible.
How Long Term Care insurance Works
Sometimes, people have expectations of long term care insurance that are not appropriate or realistic. An important part of deciding whether long term care insurance is right for you is to understand its limitations.
Here's what long term care insurance WILL NOT DO.
Often, when a person enters a nursing home, Medicare
will pay for some care, because that nursing home admission has been
preceded by a hospital stay. However, Medicare usually pays for only a
few days, because the nursing home resident needs long term care
(sometimes called chronic care or maintenance) which is NOT COVERED by
Medicare.
Then, the individual must pay for nursing home care out of his or her
own pocket -- with his or her income and/or assets. These personal
funds can be spent very quickly. Their income might not be enough to
pay for care, and people may find that their life savings have been
nearly exhausted. When this happens, they apply for Medicaid, which
will pay for their care.
Many people are surprised to learn that Medicare, Medigap, and major
medical insurance do not cover long term care. Your choices are to
make preparations yourself or expect the government to pay via
Medicaid -- the Medical Assistance program for the poor.
Similar events can happen if care at home becomes expensive or the
individual no longer can stay at home and moves to a nursing home.
Long term care is expensive, and you need to know how much long term care costs in your area. Long term care services can be delivered at home, in a community setting and in a residential care facility. Nursing homes cost more than home care. However, in your planning to cover long term care costs, you should focus on the costs of nursing homes, because they are more expensive.
Here are some approximate costs of long term care.
Care at home usually is the setting preferred by long
term care clients and their families. Like any long term care services,
care at home can be costly.
In general, Medicare covers up to 35 hours a week of home health care
-- home health aide, skilled nursing and rehabilitation services -- if
you are homebound. BUT Medicare does not pay for long term care
and will stop paying if the beneficiary needs chronic care or
maintenance (i.e., long term care).
Costs vary depending on a client's needs. For example, if in a month a
client receives 2 skilled nursing visits (at $150 each), 3 personal care
aide visits per week (at $42 per visit) and 1 home delivered meal 5 days
a week (at $5 per meal), then his or her home care costs would be $804
per month. If he or she also receives 1 therapy visit per week, the cost
would increase to $1448 per month.
Some long term care clients and their families benefit from adult day care ($50+ per day) or adult day health care ($150+ per day). Most programs offer services of several days per week for individual clients. Usually, an individual also is receiving some care at home.
Nursing home care is the most costly form of long term
care.
In general, Medicare covers the "full cost" of the first 20
days of care in a Medicare-certified nursing home following a hospital
stay. For days 21 through 100, you share in the costs of care.
BUT, Medicare does not pay for long term care
and no longer will pay if the client needs chronic care or maintenance
(i.e., long term care). IN FACT, Medicare usually pays for only a few
days of nursing home care, because the nursing home resident needs long
term care that is not covered by Medicare.
The average length of stay in a nursing home is about 2 1/2 years.
(REMEMBER: This is an average. Half the residents stay longer, and half
stay shorter. Both shorter and longer stays are not uncommon.) Therefore
on average , nursing home residents for example, may pay a total average
of $260,000 for their nursing home care.
Medicare and Medigap not a cure-all
This is custodial care and it is beyond the ability of most families to provide. Thus nursing home care is required. Studies show that the average term for such care is between two and three years. However, it is not unknown for such patients to remain in custodial care for two and three times that period. If you have no long-term care insurance, you must pay the bill, at least until you have exhausted your resources.
When you exhaust your resources, you become eligible for Medicaid. That program requires very limited resources, but it does pay the cost of nursing home admission and custodial care.
The cost of nursing home care has been subject to the same inflationary factors we have seen in all medical care. Depending upon the location and standards of the institution, yearly costs in 1995 ranged from $25,000 to $50,000. There is every reason to believe that these increases will continue in the future.
Having identified the need and the costly nature of long-term care, we will identify some of the variables that exist in selecting appropriate insurance.
DOLLAR COVERAGE: One of the choices in selecting a LTC policy is the amount of daily cost you choose to buy. For example, you can decide to buy a policy that will cover only a part of the cost of a day's care. Thus a $50 a day policy would leave you to cover the remainder of the cost out of your own pocket. As of 2003 most daily rates are in the area of $140. Companies often specify the maximum total amount that would be paid out under given coverage.
Many policies carry an inflation formula of about 5% to cover the increase of costs from year to year. This is a wise provision to have included in the policy you choose. For example, if you bought an $100 daily coverage plan beginning in 2000 at the age of 65, and you entered a nursing home when you became 70, the daily cost would have risen to about $105.25.
Another choice in LTC insurance is to have a waiting period before the insurance coverage comes into play. This waiting period could be from a few days to several months. Such a choice might be made on the basis that the financial strain would not be felt until you had been in the hospital for the period selected.
The other vital alternative you must choose when buying LTC insurance is the period of coverage. If the average time spent in a nursing home is about three years, you need to decide whether to gamble on less coverage than that or to purchase more. All of these choices have a direct bearing on the premium you will pay. When that period of coverage is exceeded, you are back into the position of having no insurance, and must manage all costs from your own resources. Selecting a life-time care option carries substantially higher premiums than coverage for definite periods.
HEALTH CONSIDERATIONS: All policies have a waiting period for preexisting conditions. They are defined as conditions for which medical advice or treatment was recommended by or received from, a provider of healthcare services, within the defined period preceding the effective date of coverage of the insured person. That is consistent with most health insurance policies of all kinds. It is wise to have a clear understanding of this provision and to be absolutely honest about the existence of such conditions. It is possible that a failure to be candid will result in the cancellation of your coverage just when you need it most.
Don't wait until you have had medical confirmation of a fatal illness before buying insurance. Insurance companies must enforce preexisting-condition regulations to safeguard their clients who share the costs through their premiums. Most insurance companies have specific exclusions for their policies. They are:
Insurance coverage for an admission to a nursing home is dependent upon a doctor's certification that you need such care. Some companies used to require hospitalization in an acute care facility for three or more days to qualify for LTC coverage. While that is not common now, it is a feature you should be sure to check when buying coverage.
Another variable affecting premium rates is the age at which you purchase coverage. If you are 60 years old, premiums will be less at your entry into the program than if you are 70.
Because of these variables, it is difficult to make easy comparisons between policies and there are several other types of care available through LTC policies. Some have provisions for skilled nursing care, intermediate care, and home healthcare. You should check to see what these provisions are when you examine the policies you are considering.
At the end of 2003, approximately 1.9 million Americans purchased long-term care insurance. Although the National Association of Insurance Commissioners (NAIC) established standards for this insurance, 22 states still have not developed standards requiring insurers to guarantee policy renewal, and perhaps still only 15 states have not adopted standards disallowing Alzheimer's disease exclusions. Most policies still contain restrictive definitions that potentially limit access to benefits.
Consumers also risk unpredictable premium increases
that make it difficult to retain their policies. Yet, if you allow your
policy to lapse, you will lose the money you invested in premiums. Some
unscrupulous insurance agents will sell you policies when you have
Medicaid or policies you don't need.
A good long-term senior care policy will provide the following benefits:
Be sure to keep the benefits the same or very close to the same for each policy you are comparing. You can raise or lower any of the above benefits and adjust the premiums to your budget. The "pool of money" is the best value because it will probably provide benefits longer than a set number of days. A number of companies provide 10%-15% discounts for couples that apply at the same time.
To purchase a policy like this, the estimated and projected annual premiums for an individual in excellent health would be as follows:
All premiums reflect a spousal discount. The premiums illustrated may be higher or lower depending your health on the state of residence. The longer the delay in purchasing a policy the higher the premium. There is also a greater the risk health conditions may change and one may no longer be able to medically qualify for coverage.
Long Term Health Care Statistics Sources
Insurance Information Institute www.iii.org
Institute of Consumer Financial Education www.icfe.info