A Guide To Long Term Care Insurance

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As America has grown, so has our population – and now that population is living longer than ever before. Over the span of the twentieth century, life expectancy rose from around 50 years old to 75 plus. Thanks to medical innovations in public health and awareness of common health issues, our bodies function much longer, and if we can achieve higher life expectancy, many, including younger generations, have a lot to look forward to. Not to mention that Paul McCartney may have a new hit — When I’m 86 — modernizing the lyrics of the classic Beatles tune When I’m 64 with  “Will you still love me when I’m 75+?”

Although we view such numbers as reflective of people in general, health is an individual issue and aging is a fact of life. As individuals age, more comprehensive care is required – care that goes beyond a few doctor visits. Seniors need assistance with daily life, from bathing, eating, getting dressed, using the toilet, moving from one room to the next, and more, all of which can become difficult tasks for one to perform on their own when bad health hits.

These inabilities aren’t always related to physical health either. Many seniors, including those who remained active throughout life, will still face cognitive and mental challenges, including symptoms like those of Alzheimer’s.  Thus, caring for aging seniors is a necessity. However, not everyone has the needed family resources to do so, whether monetarily or because they don’t have any family to provide the sometimes full-time help seniors need. At that point, family members can enlist outside help on their own, but that’s often quite costly and presents a plethora of challenges. The other, often easier, and definitely wiser option is to purchase long term care (LTC) insurance, which can help pay for long term care costs, at least a portion of it, and/or fill in some of the gaps of private health insurance, Medicare, or Medicaid.

What is Long Term Care Insurance & Who Needs It?

An estimated 70% of all Americans 65+ will need some kind of long term care over the course of their remaining lives. Almost 40% of senior adults will need nursing home care, averaging around $75K annually, and in 2008 alone, 21 million people needed long term care.

Unfortunately, in the US, almost 50% of the population receives insurance from employer coverage, but the average retirement age is 61, and although seniors become eligible for Medicare at age 65, it doesn’t cover all medical expenses. LTC insurance can cover some of those expenses that other policies won’t, like medical care and nursing assistance, whether received at home or in a medical facility.

So if you’re lucky and will live for a long time, and considering other individuals who need long term care for reasons aside from being elderly,  it’s essential to evaluate LTC insurance benefits, especially if you fall under one of the main types of people LTC  insurance is mainly for — quite a variety including:

  • Individuals with substantial assets: If you have plenty of personal assets you don’t mind devoting to long term care, you may not need an insurance policy. But if you’d rather pass along your savings to other family members and have an insurance company foot some of the bill, LTC insurance is to you and your family’s advantage.
  • Individuals with moderate assets: This applies to the majority of Americans, and there are a couple of choices. You can opt out of LTC insurance and spend all your assets on care services until near poverty level, at which point Medicaid picks up the bill. If you’re not comfortable with that, LTC insurance can help protect assets you already have simultaneously providing coverage you’ll need later down the road.
  • Individuals who desire choice: If using your personal assets to pay for long term care, cost  might limit where you can go. If you choose Medicaid, the program will only cover certain kinds of care and facilities. With LTC insurance, you can choose a policy based on the covered facilities, similar to the differences of PPO and HMO health insurance.

Of course, there’s a chance you may never need professional long term care. 78% percent of elderly individuals with long term care needs are taken care of by family and friends. But what if your needs are more than they can handle? What if your family is across the country or overseas? There’s a 68% chance someone over 65 will have trouble performing at least two daily activities. That doesn’t mean your need for long term care won’t strike sooner or for another reason though. The US Government Accountability Office reports  40% of people receiving long term care services are between age 18 and 64. Although most often used by seniors, it can also assist young or middle aged individuals that suffered disabilities or serious accident induced injuries which resulted in needing long term care.

Regardless of the need for long term care though, coverage for it’s essential, and when people get the care they need, it not only improves quality of life, it can be a strong factor in increasing life expectancy – and Paul McCartney’s newest hit.

Cover Me: What Long Term Care Insurance Covers & Doesn’t

What Long Term Care Insurance Does Cover

Most LTC insurance policies cover a standard array of many long term care services, such as:

  • Home visiting nurses
  • Home delivered meals
  • Chore services
  • Adult daycare
  • Caregiver respite
  • Physical therapy
  • Assisted living and nursing home services.
  • Caregiver training for care providers like family members, as well as services required for specific amounts of time, like needed care after leaving a hospital. Anytime an individual can’t perform “activities of daily living,” such required services should be covered, even including activities like bathing, eating and getting dressed. Some policies even cover the costs of needed, “indirect” alternate care, like installing at-home wheelchair ramps or household modifications, like those made to bathtubs.

What Long Term Care Insurance Doesn’t Cover

Like all insurance policies though, there are things that aren’t covered. A service may not be covered completely, at all, or may have condition specific exclusions. Some things LTC insurance often won’t cover include:

  • Pre-existing conditions: If you’ve received care for a particular illness or disability six months prior to a LTC insurance application, care for that condition may be excluded for up to 6 months following approval. However, the Affordable Care Act (ACA) makes it illegal to deny coverage for pre-existing conditions as of 2014.
  • Mental health and nervous disorders: If your condition is age-related, LTC insurance must provide coverage, but if it’s related to a different cause, coverage may be denied.
  • Family member care: If family members have been entrusted with care and had to quit their jobs, LTC insurance can’t provide compensation for them, although many plans will cover care-giver training.
  • Alcohol and/or drug induced conditions: If your disability is related to self-induced addiction, LTC insurance won’t provide coverage. If you’ve caused yourself physical harm, like a suicide attempt which resulted in disability, LTC insurance won’t cover services.

Filling In the Gaps of Health Insurance Policies

 In addition to limitations of LTC insurance, one of the most important elements making LTC insurance so important is because of the coverage gaps created by other health insurance policies, particularly Medicare and Medicaid.

Long Term Care Insurance and Medicare

 One coverage hole LTC insurance helps plug is Medicare. Don’t make the mistake of assuming Medicare will pay for long term care and that therefore LTC insurance isn’t really necessary. Medicare only pays for medically necessary long term care, and you must meet certain criteria for this to be covered. Additionally, it only extends to skilled nursing home facilities and skilled home health care. The majority of long term care is focused on helping people complete daily activities like dressing, bathing, and using the bathroom, and these services, known as custodial care, are not covered by Medicare under any circumstances.

Long Term Care Insurance and Medicaid

 Relying solely on Medicaid for long term care may be more reliable than Medicare, but can mean less flexibility. Most of all, because of catering to low income individuals, there are income requirements to meet. If you make too much, you’ll likely need to purchase LTC insurance. Unlike Medicare, Medicaid will pay for custodial care, but requires that you can’t perform two daily activities before coverage begins. Here’s a list of common long term needs demonstrating how Medicaid stacks up:

  • Nursing home stays are normally covered from the very first day of admittance and as long as necessary.
  • Not all nursing homes are covered. Only facilities that work with Medicaid will accept benefits
  • Most states don’t offer home care coverage.
  • Adult day care is rarely covered.
  • Most states don’t cover assisted living facilities.
  • Respite care is rarely covered.
  • If you reside in a nursing home, activities like museum trips or a private room aren’t covered and you must pay for them.
  • There are no guarantees you can stay in one nursing home. If your facility stops accepting Medicaid, you’re required to move.

If Medicaid is your only option, it’s better than not having long term care. If you can afford LTC insurance though, it provides better coverage and more flexibility when really needed.

How Much Does Long Term Care Insurance Cost?

When combining the inevitable fact that you’ll definitely grow old with fairly high chances that you’ll need expensive care, insurance companies have to offset costs with high premiums. The Health Insurance Portability and  Accountability Act of 1996 (HIPPA), offers some tax advantages to those who purchase certain types of LTC insurance, but it can limit options. Check with state insurance departments to learn what plans are offered in your area and if it’s even worth pursuing though.

Like all insurance policies, premiums are based on a number of factors.

  • Age: The younger you purchase a policy, the less expensive it will be. According to the American Association for Long Term Care Insurance (AALTCI), a 55 year old single adult can pay anywhere from $1,325 to $2,550 annually for $169K in benefits. However, buying early doesn’t guarantee locking in low rates. With increasing costs of medical care and growing demand for coverage, costs could increase exponentially by the time you actually use benefits. On the other hand, if you wait too long to purchase a policy, you may ineligible.
  • Amount of coverage: The greater the benefit and the longer your payment duration, the more expensive the policy. To get an accurate estimate of needed coverage, research costs of related long term care expenses in your area.  A nursing home in rural Minnesota might cost $50K, but the same level facility in New York could cost twice as much.
  • Health: The healthier you are, the easier it is to find coverage. Some insurers require blood tests now, but if you’re already sick, getting coverage is almost impossible. An easy way to put this into perspective? You can’t insure a home that’s on fire.
  • Elimination period: This is essentially a waiting period before benefits take effect. This is separate from the qualification period, but with longer elimination periods, premiums are lowered.

Even if you’ve purchased comprehensive LTC insurance, don’t make the mistake of thinking it will pay for everything though. It’s still an insurance policy, which all have exclusions and limits, so you’re responsible for a portion of the costs. For example, 25% of nursing home costs were paid out of pocket in 2002. While juggling medical bills when receiving long term care services doesn’t sound ideal, insurance helps you estimate payments and can provide predictable premiums that help offset high out of pocket expenses.

Types of Long Term Care Insurance

 When you finally decide to pull the trigger and purchase LTC insurance, it’s helpful to understand how different types of policies benefit you. There are three major forms of coverage:

Long Term Care Policy

 This stand-alone policy is basically traditional LTC insurance. Risks include cost, no cash value accumulation, possible premium increases, and extensive underwriting, but in many cases, it’s better than nothing.

The main advantage of a basic LTC policy is that you aren’t tapping into personal assets to pay for long term care, obviously already prohibitively expensive.

Fixed Annuity with LTC Benefits

 If you’ve been turned down for a traditional LTC policy or don’t like the idea of potentially not using a policy you’ve paid for, this option may be best. How does it work? Some investment annuities require medical underwriting and others don’t. If you’ve been turned down for a LTC policy, look for an annuity without medical underwriting. These single premium fixed annuities allow you to purchase a rider providing long term care coverage. This allows you to invest a lump sum of money, which grows at a fixed interest rate, providing extra money to put towards long term care expenses.

If you don’t need long term care, the money is yours to do with as you please. However, there’s a downside — fees apply to riders, and sometimes, it can eat into interest your money gains, putting you back at square one. Currently, interest rates are low, discouraging for a potential investor, but possibly to your advantage if your timing is right. Just allow enough time to wait out interest rates.

Life Insurance with LTC Benefits

 This is a great option when contemplating purchasing life insurance as well as LTC insurance. It’s only available with permanent life insurance policies, so if those aren’t right for you, there’s no need to purchase permanent life insurance just for the long term care benefits. If you’re planning on getting this form of life insurance though, adding a rider to cover long term care may be less expensive than purchasing a LTC policy on its own. If you end up needing some form of long term care, the costs are taken from death benefits. Upon your death, the remaining value is distributed to your beneficiaries, and if your money runs out first, the insurance portion of the rider kicks in.

Where to Purchase Long Term Care Policies

 Like any insurance product, it’s in your best interest to shop around for LTC insurance, and there are several outlets to do so.

  • Individual policies: Sold by private insurance companies, these policies are common, but will vary from company to company. Comparing plans and getting multiple quotes ensures you cover all your bases.
  • Policies from your employer: If you’re considering long term care while you’re still employed, ask your employer if plans are offered. Even once you’re retired, your plan will normally stay valid and family members can be added to the policy, but may have to pass a medical screening test. While employer plans can be more comprehensive than an individual policy, your premiums may go up after retirement.
  • Government policies: If you or a family member has worked for the state government, you may qualify for a policy with the state government. The same principle applies to anyone who’s worked for the federal government as well as current and retired members of the uniformed services.
  • Association policies: If you’re a member of any type of association, ask your chapter head if they’re partnered with certain insurance companies who offer long term care policies. Even if you leave the association, you can still keep your policy.
  • Continuing Care Retirement Community policies: If you live in a retirement complex, you may be required to obtain LTC insurance, and this usually requires passing medical screenings.

What to Look for in a Long Term Care Insurance Policy

 Yes, it is another insurance policy to decipher and pull out the insurance Cliff’s Notes on, but LTC insurance policies need to be tailored to specific needs, so take time to understand options, and avoid policies that don’t meet the following:

  • Ensure your policy includes at least one year’s worth of coverage for a nursing home or home health care. Some policies try limiting coverage to skilled care only. Make sure intermediate and custodial care is also covered.
  • Your policy should cover Alzheimer’s — most of today’s policies will, but it’s worth double checking.
  • Look for a policy with an inflation protection option. Depending on when you purchase your policy, you may not need to use benefits for years — when care will be much more expensive. Making sure your benefits grow to accommodate inflation is necessary, and the best policies allow two options to increase benefits:
    • Benefits automatically increasing annually.
    • Benefits increasing periodically without required medical screenings.
    • Policies should come with guarantees that they can’t be canceled or non-renewed because you get older or suffer poor mental or physical health — that’s the whole point of purchasing LTC insurance.
    • You should have the right to return the policy within 30 days if you don’t find it satisfactory.
    • Look out for requirements. Some policies try to place restrictions on care. Don’t purchase a policy requiring any of the following:
      • You must be hospitalized first to receive nursing home or in-home care benefits.
      • You must receive skilled nursing home care before able to get intermediate or custodial care.
      • You must receive nursing home care before tapping into home healthcare benefits.

Tailoring Your Long Term Care Insurance Policy

 Purchasing LTC insurance requires some decision making. Use these recommendations to get the most out of your coverage.

  • Choosing a monthly limit: Compare the daily rate of a semiprivate nursing home room with the cost of home health care in your area. Whichever costs more, take that rate and multiply it by 30 days, which will then give you an idea of how high your monthly benefit should be. If you have a choice between daily or monthly benefits, always choose monthly. This provides you with greater flexibility to use benefits.
  • Choosing a waiting period: Similar to a deductible on car or home insurance, a waiting period is the number of months you’re willing to pay for your own care before your benefits kick in. Typical choices are 30, 60, 90, or 180 days, and sometimes an entire year. 60 or 90 days typically provide the best value. The longer you wait, the less your premium will be, but ensure you’re comfortable with the time period and that the savings are worth the risk.
  • Choosing your care location: You never know what kind of care you’ll need in the long run. Limiting coverage to home health or solely nursing home isn’t a good idea. Make sure your policy will cover care anywhere, and always choose 100% home coverage.
  • Choosing coverage years: This aspect of coverage really depends on why you’re purchasing insurance. If you’re wealthy and don’t want to spend savings on long term care, purchase a minimum of 10 years or lifetime coverage if available. Couples may find it’s the same price to purchase a shared option spanning 10 years rather than two 6 year policies.
  • Choosing an inflation option: If possible, purchase either an option allowing an automatic increase tied to the Consumer Price Index without a cap on increases, or a 5% compound interest annual adjustment. The latter is the best option because of a guaranteed rate of benefits increase without premium adjustment, but it can be expensive. See if a 3% adjustment is available — you still get the advantage of an annual benefit increase as less of a cost to you.

Long Term Care Insurance and the ACA

 While the ACA is working to overhaul the health insurance agency, one area that isn’t going to see many improvements is long term care. At first, addressing long term care was included in the bill under the Community Living Assistance Services and Supports Act (CLASS), but after much deliberation, was chucked because government officials found it too expensive to address. However, there are still some aspects of the law aimed at improving long term care services.

States are given incentives to expand home based services and community based services within Medicaid. Other efforts include expanding existing grants, increased care coordination, and providing education to better assist an aging population. Since the CLASS act failed, a Commission on Long Term Care was appointed to evaluate current long term care options, and to develop a plan to establish new ways of providing long term services. While it may be a few years before drastic changes come, understanding current options is important because — let’s face it – nobody’s getting any younger.

The Beatles may have sang that all you need is love, but unfortunately, you need adequate insurance too. And regardless of life expectancy, there’s one question you definitely need to ask yourself:

Will I be adequately insured when I’m 64?

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