Long-Term Care
Long-term care insurance is designed to pay for in-home health care, adult day care, assisted living and skilled nursing care for policy holders who purchase insurance coverage for those types of cares; it is possible to buy coverage for some or all of those care needs. Who usually pays for long-term care expenses? The individual who needs the care pays from his own pocket, or his or her family pays for the care. MEDICARE does NOT usually pay for these types of cares (with some very limited, short-term exceptions). When Medicare does not pay, then neither does a Medicare supplement policy. Private health insurance policies generally do not cover these types of expenses either. When an individual is in need of care and has almost exhausted his or her own financial assets to pay for care, then the individual may qualify for MEDICAID. Medicaid is not like Social Security or Medicare; it is not an entitlement program. Medicaid is need-based and individuals wanting assistance must qualify both medically and financially. Medicaid, when it does help, is set up to pay primarily for skilled nursing care (as in a nursing home) and only for home care or assisted living when the local Medicaid program makes exceptions for such services. Do you need long-term care insurance and, if you do, how do you know what insurance to buy? We’ll try to explain some of the basics of LTC policies below, but you may want to get a cup of coffee and get comfortable. This will take a while.
Not everyone needs long-term care insurance. A very wealthy person may have enough resources on hand to personally pay for his long-term care expenses (consider that local nursing home costs can easily run $85,000 per year for a semi-private room). The wealthy person might prefer, however, to purchase insurance so that he can plan to leave his assets to his heirs. The individual who truly cannot afford premiums for long-term care insurance because he would be unable to buy groceries or medication after paying the monthly premiums is not a good candidate for insurance; that individual will probably qualify rather quickly for Medicaid, but he will have more limited care choices as a result. Those folks in between these two extremes should consider long-term care coverage and make an informed choice as to whether or not insurance coverage is right for them. The younger and healthier a person is when he purchases long-term care insurance, the lower his premiums will be for life and the better his coverage will be. Because Medicaid funding is on unstable ground, it is also prudent for those in their 40's, 50's and 60's to ask whether Medicaid will be available for them in the future, or whether its benefits will be substantially reduced for future generations, thus making it more important that individuals plan to provide for their own care.
Long-term care insurance policies are extremely confusing. Buyers contract with insurers for coverage and, in doing so, select from a number of coverage options. The age and health of the individual applying for coverage, the coverage selections she makes, and the claims experience of the insurer all combine to determine the individual’s insurance premium. It is very difficult to compare one person’s policy to another’s because selections and personal factors differ – it is like comparing apples and oranges. The policy that fits your next door neighbor might be all wrong for you and vice versa.
What are some of the individual components of a long-term care insurance policy?
Triggering events: Certain care needs trigger payment of benefits under a policy. Benefits under many policies are triggered when you, the insured individual, need ongoing assistance with two or more of the activities of daily living (such as bathing, eating, dressing, using the toilet, etc). Dementia patients often need constant supervision and that is a trigger for many policies as well (some older policies exclude dementia care, but newer policies should include it). The policy itself should explain clearly what events will trigger payment of benefits. The policy may pay benefit amounts directly to you or may pay the care providers directly.
Waiting period: Once you are eligible to receive benefits from your policy, the waiting period is the length of time you must wait before the policy begins to pay out benefits. You select a waiting period length when you apply for the policy.
A fairly standard waiting period is 90 to 100 days. This period is based on the idea that Medicare will pay for the first 90 to 100 days in a nursing home, which may not be true for you. Medicare will pay for the initial period of a nursing home or rehabilitation stay only when you meet specific criteria (for example, you had a 3-night stay in a hospital and then went directly to a nursing home or rehabilitation facility, where you will receive extensive therapy or skilled nursing cares such as I.V.’s, wound care, etc., and will improve significantly). If you don’t meet the Medicare criteria, Medicare does not pay for even the first day of nursing home care. A patient who is admitted to a care facility because his dementia makes it unsafe for him to stay at home will usually not meet the Medicare criteria because his care is deemed “custodial” care rather than rehab; Medicare pays nothing. Even when Medicare will pay for an initial stay, Medicare stops paying when the patient stops improving, whether that is day 2 of the stay or day 92. Medicare cuts off at 100 days, regardless of need. It is simply not designed to pay for long-term care.
If you decrease the length of the waiting period (for example, 0 to 30 days), insurance premiums will go up. If you increase the length of the waiting period (example 180 days), premiums will go down. You must remember that you will need to pay for care from your own pocket during that waiting period. If you choose a long waiting period to reduce premiums, then you will want to reserve savings sufficient to cover care during that waiting period.
Covered benefits: When applying for a long-term care policy, you select the types of care for which you wish to insure. The most common benefit is coverage for skilled nursing care (such as a nursing home). A bare-bones policy may include only this coverage and many older policies cover only nursing home costs. Additional coverage options include assisted living, home health care, non-medical assistance in the home (such as “sitter” or companion services, housekeeping, meal preparation, transportation), adult day care and home remodeling to accommodate a disability. To learn more about the various types of care options, please see the section of our web site titled Long-Term Health Care Options. Most people want to stay at home as they age, rather than to go to a nursing home. If you wish to stay at home, or would prefer assisted living to a nursing home, then you definitely want to include these coverage options in your policy. There are rare occasions when, due to someone’s advanced age or poor health, it makes some sense to limit coverage options to keep premiums lower, but most policy buyers want a full range of care options.
Benefit amounts: Once you have chosen the types of care for which you want to insure (in-home health care, in-home non-medical care, adult day care, assisted living and/or skilled nursing care), you will need to select a daily benefit amount for those services. Your goal is not to insure for the entire cost of care (this would increase your premiums), but rather to insure the costs that your current or retirement income will not cover.
When you consider the potential costs of care, it is extremely important to consider WHERE you wish to receive that care. If you plan to retire to Alaska or New England, contact several nursing homes in your target geographical area and find out what their daily rates are right now. Care costs differ considerably around the country; Texas rates are somewhere in the mid-range. Both coasts, Alaska and Hawaii are very expensive places to be ill. You want to plan to insure the costs where you will live when you are likely to need the benefits. The difference in costs between locations can be as much as 200 - 300%.
A good way to begin calculating costs is to pick your eventual retirement locale, ask the daily rates of several skilled nursing care facilities (nursing homes) in that locale and multiply by 31 days. Estimate your monthly retirement income and subtract it from the monthly care costs. That balance is probably the amount per month you wish to insure (your actual care costs with medications and medical supplies might be a little higher, you might choose to draw down a bit from savings to supplement your income, but this is a starting point for calculations). Divide that monthly balance by 31 again to calculate a daily benefit rate for nursing home care.
Policies used to typically offer a benefit rate for assisted living or home care that was only 50% of your selected nursing home benefit rate. Most policies now let you select a rate for home care and assisted living as well. Home care can be just as expensive as skilled nursing care, even higher if round-the-clock care is needed, but most of us want to stay at home. Make sure you plan for adequate benefits for home care and assisted living.
Inflation: One of the challenges of designing your long-term care policy is that you are looking at costs in today’s dollars, but trying to guess what you will need to cover care several years down the road. Because rising costs are tough to predict, and because health care costs continue to increase at a higher rate than most other sectors of our economy, it is critical that you plan for costs to be higher when you need assistance than they are right now. Good policies offer an inflation rider. The inflation rider will increase your policy benefit amounts by a certain percentage with each passing year (there are usually a couple of different increase options). Your premiums will NOT increase by the same amount each year, but your initial premium rate will be somewhat higher to pay for the inflation rider. Please do consider adding an inflation rider to your policy. If health care costs continue to rise at the 8 to 11% they have over the last several years, a policy that only covers you at today’s care rates will be seriously inadequate in just a few years’ time. If your benefits are inadequate to pay for care when you’re ready to use the policy, you may still have to exhaust your other resources or rely on Medicaid, with its resulting limited choices, to supplement your policy when the time comes, which defeats the point of buying a policy and wastes the years of premiums you will have paid in. Do not sabotage your policy by failing to plan for inflation. An alternative to the inflation rider is to significantly over-insure yourself when buying the policy (for example, if you would normally have purchased $150 a day in benefits, purchase $300 instead), but this still gambles that you picked the right number out of the hat to pay for expenses at the time you become ill.
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Length of coverage: When selecting policy options, you must also select the length of time for which you wish to be covered. It is difficult to obtain life-time coverage these days, but that would certainly be a goal for most of us. Life-time coverage means that, once you start receiving benefits, you can receive them for the remainder of your life, as long as you continue to qualify medically. When you consider that an individual can be diagnosed with Alzheimer’s disease and still live another 10 years or more, requiring ever more extensive care, life-time coverage starts to make sense. Some people will have an urgent medical problem and die quickly. Others will be impaired and need assistance for many years. Some individuals will simply need increasing low-level health care over the years due to challenges related to normal aging. Longer coverage periods increase your premium, shorter ones decrease premiums.
People buy coverage for the period that makes sense to them. If there is a family history of dementia or lengthy debilitating illnesses, they try to buy longer periods of coverage. If the goal is to ensure a broader range of choices than Medicaid would offer, people sometimes opt for 3 to 5 years of coverage. Many nursing homes currently ask that individuals privately pay for care for at least 2 to 3 years before applying for Medicaid; where that is the case, a 3-year policy may allow individuals to do that and then qualify for Medicaid assistance. Be aware that some care facilities do not accept Medicaid benefits at all (other than for a small percentage of residents mandated by state or federal requirements). Some nursing homes or V.A. homes have one to two-year waiting lists to be admitted on Medicaid or V.A. benefits and a short-term policy would allow private-pay placement elsewhere while waiting for admission. Home care and assisted living is generally paid privately, so Medicaid doesn’t really figure into calculations for those benefits. Generally, a longer policy coverage period will provide you with more options when you need care. Since longer periods increase premiums, you must look at premium costs for various policy periods and make your selection based on what is most appropriate for you. Medicaid is meant to be a safety net, not a goal. Because Medicaid reimbursement rates to care providers are extremely low, and because the services it covers are quite limited, relying on Medicaid seriously limits your care choices.
Policies handle coverage limits in different ways. Some policies count the number of actual days for which benefits are paid out. Some multiply the number of covered days (for example, 3 years if that was your choice) and multiply your chosen benefit rate by the number of covered days. You then have that “pot of money” to apply towards care expenses, whether you use the dollars in less or more days than the specified periods. Some policies use the “pot of money” approach towards monthly benefits, which is quite helpful, particularly if you are receiving benefits at home. For example, RN visits to the home are fairly expensive, but are not daily events. A policy that allows you a certain dollar amount of benefits per month will allow you to spend more of them on the expensive days, such as when the RN comes out, even if those days exceed your chosen daily benefit amount, and less on subsequent days, with the overall amounts evening out during the course of the month.
Premium waivers: Most policies waive payment of further premiums during any period in which you are receiving benefits under your policy. For example, if you become ill and enter assisted living, and your policy pays benefits for assisted living, then you will stop paying premiums while you are there. If both spouses have policies with the same company, some companies will waive premiums for both spouses if one is receiving benefits.
Premium increases: Once a reputable policy goes into effect, your premium cannot be increased because of your age or changes in your health. The insurer can, however, apply to the state insurance commissioner for an across-the-board increase in premiums, which will affect all its policy holders equally in the state. If the state approves the increase, your premiums may increase.
COMMON QUESTIONS:
What if I never need to use my policy? Lucky you!! When we buy life insurance, don’t we hope we’ll never need to use it? Isn’t auto insurance the same? We insure against risks. Not encountering the risk is even better than having insurance for it. We’re living longer than we used to in the U.S. The fastest growing segment of our population is the centenarians, those over 100 years of age. It is quite likely that, over time, you will need some assistance, even if it is occasional assistance in your own home. To answer concerns of policy buyers on this question, however, there are some long-term care policies that will provide a death benefit to your beneficiaries, based on unused premiums. This seems to be a no-lose situation; you either collect benefits during your life time or your beneficiaries receive a benefit after your death, but these “death benefit” options do increase premium costs.
What if my spouse needs benefits and I don’t? Some policies allow spouses who are both insured with the same insurer to aggregate policy benefits. Either spouse can use the covered benefits until both policies are exhausted. This flexibility is a nice plus.
What if I become forgetful and forget to pay my premium? A good insurer will ask you, at the time of application, to provide an alternate contact person. If you miss a premium, they contact that individual and give him or her a chance to bring the policy current instead of cancelling it. Over the years, the insurer may ask you to update this contact information periodically.
A policy from company A is the same as one from company B, isn’t it? Yes and no. If you select all the same options, theoretically your coverage from both companies would be the same. Your premiums may differ, though, based on each company’s own loss experience in your region with long-term care policies. Given the same coverage, some companies will be less expensive for you than others. If your next-door neighbor also applies to these same companies, based on his selections and his age and health, a different company may be less expensive for him for the same coverage. It pays to contact several different companies to learn premiums (but you must select the same coverages to compare apples to apples) or to work through a long-term care insurance broker, who can sell policies from several different companies and can obtain premium information from several companies for you. It pays to shop around.
Keep in mind that age and health also affect premiums – you and your spouse may choose the same coverage selections, but your premiums may differ. You also want to do research on the history and insurance ratings of the insurance companies you are considering; you want a good, solid, reputable company that has been selling long-term care insurance (not just any type of insurance) for many years, not the new kid on the block. You want to ask the agents for each company how often the company has raised premiums on its long-term care policies (remember, premium increases must be approved by your state and affect all policy holders). Frequent premium increases should be a red flag – the company hasn’t reserved funds adequately to pay its claims in the past and had to seek increases.
I’m too young to need a long-term care policy, aren’t I? Are you an adult? Then, no, you’re not too young. Unfortunately, many younger adults are disabled each year by auto accidents, sporting injuries, violence, falls, strokes, heart attacks and debilitating diseases. Premiums are relatively inexpensive when policies are purchased by young, healthy buyers, so this may be the absolute best time to buy a policy. Certainly, by the time you head toward age 40 or age 50, you should consider purchasing a policy. Again, because premiums are lower if the policy is purchased while you are young and relatively healthy, you will save in monthly premiums by buying now, and you will be eligible for increased amounts of coverage. Even a minor medical condition can keep you from being an ideal insured and can affect your premiums. If you later develop a serious medical problem, you may not be able to obtain coverage at all, or at least not affordably. Are there serious health problems in your immediate family, such as diabetes or Alzheimer’s disease? Consider buying a policy as early as possible; you may not be able to qualify for coverage if you develop one of these conditions. Remember to include inflation in your benefit calculations.
My employer offers long-term care coverage through a group policy at work. Should I buy that policy? Maybe. It is often difficult to tailor one of those policies to your specific needs (by selecting covered services, daily benefit amounts, waiting periods and length of coverage). The needs of the group may not be your needs, or those of your spouse. Premiums will probably be fairly reasonable for the group policy and, if you have any health problems, you may be more likely to qualify for coverage with a group policy. If you do choose a group policy, please see if an inflation rider is available (if it isn’t, this is a bad sign for the group policy). Ask up front whether you can keep the policy, and at what premium cost, if you leave your employer for any reason. If you can’t take the policy with you for an affordable premium, then this may not be such a good deal for you. Because life-time premiums are based on your age and health when first buying the policy, if you buy the group policy now, leave your employer ten years from now and can’t keep the policy, you will then have to apply for individual coverage when you are 10 years older and probably not quite so healthy. You may have a higher premium for life because you’re starting over with a policy 10 years down the road. If your employer offers a group policy, get all the information, and then talk to several companies (or a broker) about individual policies. Compare apples to apples and see which is the better option financially over the many years of the policy.
TIPS:
If one spouse is difficult to insure: If it is difficult to insure one spouse because of poor health or advanced age, but the other spouse does qualify for decent affordable coverage, it sometimes makes sense to over-insure the healthier spouse. That spouse is probably the caregiver and, if the caregiver spouse needs assistance, it is most likely that the other spouse will need assistance also to make up for the services the caregiver spouse is no longer providing. If the caregiver spouse needs assistance in the home, there will be a need for meal preparation, housekeeping and assistance for two, not just for one. If the caregiver spouse needs to go to assisted living, then the other spouse will likely need to go with the caregiver spouse, so the care bills will be for both of them. Over-insuring the healthier spouse may make it possible to help pay for care for the other spouse from the caregiver spouse’s benefits.
Shop around: Do get quotes from more than one insurer before choosing a policy and compare apples to apples. There are premium differences between very good companies.
Care by family: Some policies will pay a family member to care for you in your home, not just professional care agencies. There may be criteria that a family care giver must meet to receive payment. Ask about this when researching policies.
Tell your family you have an LTC policy: Tell your family you have a long-term care policy and where the policy is kept. If you are seriously ill and a child is assisting in managing your care, that child needs to know that you have a policy to assist with care and he or she needs to have access to the information. You may not be in a condition to provide the information at the time of need. The family member helping to manage your care requires the policy information as early as possible, definitely before you are discharged from a hospital stay. The long-term care insurance policy may help you and your family design a discharge care plan that is optimal for you, whether that includes home care, assisted living, or that really nice nursing home down the street. Without the policy information, care options may be limited, and care choices, once made, are more difficult to change even if the policy is discovered later. Share the information on your policy now.
Long-term care insurance is just too expensive. I can’t afford it. If you have family members who are close to you, particularly children or grandchildren, try discussing the policy with them before deciding against it altogether. Your family members may want you to have the best care options available to you and they may be in a financial position to assist in paying premiums. It might actually be easier for them to help you pay insurance premiums to deal with a potential health care emergency than for them to become your full-time caregiver if that emergency occurs. Your illness probably won’t be just your crisis, it will be theirs as well. They may want to help you plan for such emergencies.
If you have property you wish to pass on to your family after your death, such as a house, farm or business, your family might think the long-term care insurance premiums are a good investment for them so that you would not need to sell the property in order to pay for care if you become ill. The policy would protect their inheritance. Before ruling out insurance, discuss it with your closest family members (those who care more about your well-being than their own) and give them a chance to share in the decision and the premiums.
This all gives me a headache. Can I just stick my head in the sand and hope for the best? No! Planning for long-term care is part of responsible financial planning for your future. Ignoring a problem does not make it go away and there are financial penalties (in higher premiums and reduced benefits) for procrastination.
WARNING: Not everyone needs long-term care insurance, nor can everyone afford it. Researching coverage is a responsible part of modern financial planning, however. E-Senior Services cannot recommend one policy over another, nor can we tell you if coverage, or what coverage, is right for you. We do urge you to get the facts for yourself, and, as always, to be a careful consumer. Read the policies, research the companies and compare the benefits before you buy.
