No one likes to think about needing assistance with daily activities, but many individuals require additional care as they age. Unfortunately, family members may not be willing, able, or equipped to manage as caregivers, nor equipped to cover the cost of paying someone to provide care.
Long-term care (LTC) insurance often provides a solution to this dilemma. However, the need for long-term care insurance isn’t always clear, and many mistakenly assume that their existing health insurance policies cover this type of care. Furthermore, the cost of long-term care is very high. Whether an LTC policy makes sense for you starts with an understanding of what it is, what your other health policies cover, and whether you can afford the premiums or the risk of not having a policy in place.
Answering Long-Term Care Insurance FAQs
1. What Is Long-Term Care Insurance?
Long-term care insurance provides the means to afford a variety of services to individuals who are no longer able to care for themselves as they once could. People who utilize long-term care benefits usually need assistance with two or more activities of daily living, such as driving, transferring to and from a chair, toileting, or administering medications properly. Healthcare policies typically do not cover assistance with these activities, which is why long-term care insurance can prove extremely useful.
Although policies vary, most long-term care policies provide coverage for help with daily activities, home healthcare, respite services for family caregivers, care in a nursing home or assisted living facility, and adult daycare. The average benefit period for individuals who utilize their long-term care policy is three years, and that benefit is triggered when an individual or family member calls the insurance company to indicate that the beneficiary is no longer able to care for themselves in the home. This call then triggers a nurse evaluation of the beneficiary’s medical and cognitive status, functionality in the home, and current medications to determine if they are eligible to access benefits.
2. Why Is It Important?
Many people in the United States will never require a lengthy stay in a nursing facility. Only 1 in 10 men and 1 in 4 women will ever stay in a nursing facility longer than a year. When genders are combined in the research, just 1 in 10 individuals will stay in a nursing home for longer than three years. The numbers clearly favor men over women, who are much more likely to require care in a nursing facility.
But the number of people who need some type of care beyond typical medical services available through a health insurance policy increases to 69% of all seniors when researchers look beyond nursing facilities. So although many people will not have an extended stay in a nursing home, most people will eventually need the help of a home caregiver, adult daycare, or home health nurse. This means that more than two-thirds of seniors may need assistance with their daily activities at some point after age 65, and most healthcare policies do not offer any assistance with defraying the costs of such care.
To add to the concern, long-term care is astonishingly expensive – in fact, it’s expensive enough to wipe out a lifetime of savings. According to 2012 survey by MetLife, a semi-private room in a nursing home can cost more than $80,000 per year, and the cost of a private caregiver is usually $20 per hour. Long-term care insurance can provide a safety net to protect large amounts of savings in the event that a person needs help at home or in a nursing home.
3. Doesn’t Healthcare Insurance Cover the Cost of Long-Term Care?
Unfortunately, no. Healthcare insurance covers the cost of healthcare – and sometimes not particularly well, at that. If an elderly individual has a traditional Medicare policy, that policy will only cover the cost of short-term rehab in a skilled nursing facility, and only after a qualifying three-night hospital stay. The keyword is short-term: The rehab benefit is expended following a 20- to 100-day stay in a nursing facility, and it can only be renewed once a patient has remained out of a hospital or nursing home for a full 60 days after their rehab stay. Medicare never covers the costs associated with a patient staying permanently in a nursing home.
Moreover, Medicare does not cover the cost of non-healthcare services at home. If a doctor orders it, Medicare will pay for a home healthcare nurse or therapist to come into the home for a 60-day episode of care, but a person cannot expect to receive any other types of services in the home except for assistance with bathing once or twice per week. While bathing is certainly important, many people who need home healthcare should also consider the other assistance they require, such as help with driving to and from appointments, assistance with incontinence, or help with preparing meals.
If a patient has a managed Medicare plan – otherwise known as Medicare Part C, which is a Medicare policy managed by a private insurance company – or a private insurance plan, they can expect even fewer nursing facility and home benefits than Medicare offers. Healthcare insurance, whether public or private, simply does not offer what so many individuals need as they age: assistance with errands, cleaning, cooking, bathing, and toileting.
All of these rules differentiating medical services from long-term care services can seem complicated, but it’s important for families to not feel caught offguard by the reality that healthcare insurance simply does not cover the needs of individuals who need long-term care services. For more information about Medicare’s rules regarding skilled nursing facilities, review its guidelines, or read about Medicare’s home health services.
4. What About Medicaid? Doesn’t That Help?
Medicaid can sometimes help defray the cost of long-term care, but counting on Medicaid is not wise financial planning for people who have built up assets during their lifetimes. Utilizing Medicaid ought to be a last ditch option for individuals who need long-term care but don’t have the income, savings, or assets to cover the costs.
Let’s say a person had $125,000 in assets prior to needing long-term care. If that person hadn’t planned ahead, he or she would have to spend down all but $2,000 in assets by paying privately for long-term care prior to qualifying for Medicaid. Thankfully, this amount does not include a few excluded assets: one car, personal belongings, furnishings, prepaid burial assets, $1,500 of life insurance, and the home, as long as a spouse or dependent child remains in the residence.
The rules for obtaining Medicaid are very complicated and vary by state, but the bottom line is that a person must reduce their liquid assets to $2,000 prior to utilizing the Medicaid benefit. It is extremely wise to speak with an elder care lawyer about qualifying for Medicaid if a loved one has not planned ahead and if it appears they may need long-term care.
Relying on Medicaid also limits an individual’s options. Not every nursing home and assisted living facility accepts Medicaid, and very few in-home caregiver services accept Medicaid or any insurance besides long-term care insurance. A person who relies on Medicaid is required to live in a facility that accepts payments from Medicaid, which may feel distasteful to some people, because the nursing homes that have a Medicaid bed available at the time of need may not have their beds filled for a reason, or may be located very far away from an individual’s support system. And once a person is in a nursing home Medicaid bed, family members may find that it can be difficult to obtain a transfer to a different facility.
5. Who Is It For?
Long-term care policies aren’t for everyone. The cost of a policy is usually high, which may not prove worth the expense for someone lacking a considerable income or savings account. According to the National Association of Insurance Commissioners, people whose only income is Social Security probably shouldn’t buy a policy because the potential reward is not worth the financial risk. Furthermore, people who can’t easily afford the coverage shouldn’t purchase a policy. A long-term care policy is best considered as a protection against the loss of both choices and savings near the end of life. It should not, however, drastically reduce a person’s ability to make choices or exhaust their savings in the present, because that would defeat the purpose of a policy.
Your best chance to obtain a reasonably-priced policy is to start the process prior to the onset of health problems, which tend to mount with age. According to LongTermCare.gov, the average annual cost of long-term care insurance across age groups was $2,207 in 2007. However, people under 40 can expect to pay just $881 per year. This number understandably increases to $2,539 per year for people ages 65 to 69. These costs buy, on average, 4.8 years of coverage worth about $160 per day in either a home or facility setting.
Depending on the policy, it either pays the beneficiary directly for the cost of care, or it pays a facility or agency. The information about a particular policy is all in the fine print, which is very important to read carefully.
6. When Should I Consider Purchasing a Policy?
Some financial experts and lawyers don’t recommend purchasing a policy prior to age 60, but some feel strongly that it’s reasonable for a person to purchase a policy in their 50s. It’s up to you and your family how you want to use the $2,000 per year – either on a policy, or in another form of savings. But if you have a strong desire to protect your life’s savings, and you feel that you can easily afford the premiums, then it’s usually good to look into purchasing the policy before retirement age.
If you wait much longer after retirement age, premiums may prove prohibitively high, and policies have rules against preexisting conditions. If you develop dementia or a disability prior to purchasing a policy, it’s likely too late. And considering the higher rate of nursing home stays for women, it is especially important for women to consider their need for coverage during a stage of life when they can afford to purchase a policy.
7. What Should I Look For in a Policy?
Purchasing a long-term care insurance policy from companies such as Genworth can feel like a tough decision. Premiums are often high, and it’s tough to think about and plan for the possibility of needing help with daily activities. But long-term care policies are a very important financial planning tool, which can ensure the retention of a lifetime of savings, not to mention peace of mind.
Because of the serious financial implications of either purchasing or forgoing a policy, Consumer Reports recommends enlisting the wisdom of a fee-only financial planner in the decision-making process to determine if it’s a smart idea financially. A financial planner can assist with the questions about the risks and rewards, since purchasing a policy isn’t right for everyone. Consumer Reports also recommends finding an independent insurance agent to sell the policy. This independent agent assists with providing several quotes from well-established companies.
That said, there are several things to think about as you compare policies. How you compare the policies beyond the company’s stability depends upon your financial situation and the level of care and savings you want to ensure.
Talk about these questions and compare policies with your financial planner:
- What is the financial rating of the insurance company in question? Make sure you choose one with a strong financial rating.
- What is the insurance company’s history of raising premiums? Even with premium hikes, you’ll want to make sure you purchase a policy you can continue to afford, especially if your income is fixed.
- How does the policy adjust for inflation?
- How much of your personal savings can you put toward the cost of long-term care? For instance, if you can afford to put your personal savings toward half the cost, you can purchase a lesser daily benefit that will save on the cost of premiums.
- How does the policy ensure that you can retain your coverage? Look for a policy that is tax-qualified – this means the company cannot cancel your coverage as long as you pay your premiums.
- What is the elimination period between needing and receiving benefits? Again, if you can afford a 180-day lag time, this can help you save on your premiums. If you don’t have as much in the way of savings, you’ll likely need a shorter lag time.
- Do you have a preference for how benefits are received? Some policies provide payments directly to you, and others pay a provider.
- How long do you want to guarantee coverage once you receive benefits? The average length of time a person need long-term care is three years, but the average coverage guarantee is 4.8 years. The shorter the length of coverage, the less the cost of the premiums.
- How often are benefits paid, to either you or to a care provider?
- Do you prefer coverage in terms of time limits or dollar limits?
8. What Is an Elimination Period, and Why Is It Important?
You can think of the elimination period provision of a long-term care policy as a type of deductible. It’s a way for the insurance company to make sure that you or your family have “skin in the game.” Each policy has a designated elimination period, and this period is the length of time between making a claim and actually receiving benefits – meaning you have to pay for benefits out-of-pocket during the elimination period.
Think of it like a deductible on car insurance: A higher deductible means lower monthly premiums, just like a longer elimination period means lower monthly premiums. If you know that your family does not have many assets to cover out-of-pocket expenses for long-term care, you’ll want to opt for a short elimination period. If you have sizable savings and your main goal in long-term care insurance is to protect the bulk of the savings (but you’re not terribly concerned about out-of-pocket expenses), you can opt into a lengthy elimination period to save on premiums. Elimination periods can span from zero days all the way to 365 days.
Again, this component of a policy is important to review with your financial planner, because the elimination period you select is contingent upon the amount of savings you have or want to protect, and directly affects the premium amount.
Financial implications aside, what is best in a policy is based in large part on what is best for an individual and his or her family. Most Americans will never need to remain in a nursing home for a lengthy amount of time. But most Americans may need some additional care in the home after they reach retirement age. It is these folks – and their families – who are so often crunched by a lack of resources to pay for additional assistance in the home. Even if a policy cannot cover the full cost of a nursing home placement due to exorbitant premiums, a policy that offers at least some respite services for family, or a few hours a day of caregiver services for bathing and toileting assistance, may reap huge rewards for a family that is tasked with caring for a loved one once they become debilitated.
Families often find themselves without any good options for a loved one who needs more help than they can provide. A policy with the most basic benefits may offer just enough options to more easily maintain a sense of control over an otherwise difficult and undesirable situation. Talk your options over with both a financial planner and an insurance broker to determine if long-term care insurance as a financial planning tool is right for you.
What will you do when a parent or spouse needs more care than you are able to provide?
This post was inspired by Genworth long term care insurance.