LTC INSURANCE: THE ABC'S OF IT
Providing simple answers to a complex insurance idea
By Margery Stein
The statistics are startling: around seven million older American currently need long-term care services, and that number will jump to 12 million by 2020, according to the Health Insurance Association of America.* The costs of this type of care are rising, but the financial resources to pay for it-personal income/assets pensions, 401(k) plans, IRAs and Social Security-are not growing at the necessary rate (or in this economic climate growing at all) to keep up, and the government is not picking up the tab. If you don't have substantial savings or investments (or feel confident in your investment abilities), and you haven't inherited a bundle, how will you care for yourself when you're pushing 70 or 80? Long-term care insurance is one logical option to consider-but that doesn't mean it is necessarily for everyone. If you decide to investigate this kind of insurance, start by asking these key questions:
What Does Long-Term Care Insurance Cover?
"Long-term care insurance is a kind of plan that's designed to reimburse the insured for the cost of long-term healthcare services," says Celeste Cobb, a long-term care Insurance professional in Westport, Connecticut. "Long-term care is care you're expected to need for at least 90 days and from which you're not expected to recover," explains Cobb. A good policy will insure you in nursing homes and assisted-living facilities as well as pay for home care, adult day care, hospice services, and respite, or temporary overnight, care.
When Would You Become Eligible for Benefits?
To receive benefits, you must be certified as "chronically ill" by a licensed healthcare provider, which means that you have a condition (such as diabetes, for example) that neither medication, surgery nor therapy can cure. Moreover, it means that you will also require help in performing at least two out of six activities of daily living (bathing, eating, dressing, walking, transferring yourself from a bed to a chair, and remaining continent for a period expected to last at least 90 calendar days) or that you need substantial supervision due to cognitive impairment (such as with Alzheimer's or dementia for instance).
Are Policies Available to Everyone?
Not everyone is eligible for every plan. Age is one factor. The older you are, the fewer choices of plans you have, notes Julius Gray, president of Total Long-term Care America, Inc., in Montgomery, Alabama. "You can't get a lifetime plan, for example, if you're 80. Maybe you can get a three- or four-year plan. But if you're 60, you can get as many years of coverage as you want." Your health is another important factor. Certain medical conditions can make a policy prohibitively expensive, or make you ineligible for coverage. Also, your finances are another consideration. "If you have a very low income or assets, you typically qualify for Medicaid and are not encouraged to apply for LTC insurance," says Cobb.
Is Long-Term Care Covered by Medicare or Medical insurance? What about Medicaid?*
The answer is generally no. Your health insurance plan, and Medicare are designed to cover those costs associated with acute-or emergency-care, hospitalization, surgery and most doctor appointments. To have Medicaid cover your long-term care expenses, you are required to spend down assets to a very low level to qualify for coverage. In addition, Medicaid typically covers only nursing home care. In states where home care is covered, it's done so on a very limited basis.
*Referred to as Medi-Cal in California
When Should I Buy a Policy?
Insurance companies say that over the past several years the average age of those buying LTC insurance has been declining. "About five years ago, the average buyer was in the low 60s," says Cobb. "Ten years prior to that, the average age was 68. Now it's 58."** Although many insurers recommend buying at about age 50, some consumer groups suggest waiting until 60 or 65.
On the flip side, the younger you are, the less expensive your premium. "Long-term care insurance is rated based on the age at which you purchase it," says Cobb. For instance, according to the American Association for Long-Term Care Insurance, the national average for a policy (with a 90-day waiting period) offering a $150 per day, long-term benefit for three years costs a 55-year-old $1,064 per year. For someone who was 65 years old, the national average was $2,998."***
However, being younger, you're likely to be paying for a longer period of time, so you need to factor that into your calculations. Also, don't assume that your rate will stay the same forever. While that is the intention, many carriers have had to increase their rates over the past few years, with permission from the state's insurance department.
How Much Will Insurance Cost?
"The cost of long-term care insurance varies dramatically," says Gray, "not just with age but also with the amount of coverage and other policy features." First, it's affected by the daily or monthly benefit amount you choose, so you should find out what the average cost of care is in your area. "In Alabama, nursing home rates average about $150 a day," says Gray. "In Alaska, it's at least $400 a day."
Another determining factor in your cost is the elimination or waiting period you choose. This is the amount of time you're responsible for covering your cost of care before the insurance benefits begin. "These periods range from zero all the way up to 180 days," says Gray. Your annual premium will be cheaper with a longer elimination period.
The number of years you want to be covered, referred to as your benefit period, also impacts the cost. Coverage can be anywhere from two years to what's called "unlimited" of "lifetime"- meaning that the benefits never run out. You can also purchase an inflation protection feature. "The most common one," says Cobb, "kicks in automatically." That is, it provides an automatic increase to your daily benefit with every year that you own your policy- either at a fixed rate like 5% per year, or a variable rate that is tied to an inflation indicator like the Consumer Price Index. Although inflation protection isn't cheap, people who chose it want to be sure that their policy benefits will keep up with the rising cost of care over the long term.
Are There Other Factors to Consider?
Yes. Ask an insurance agent about indemnity or per diem plans, and reimbursement plans. Indemnity plans pay the full daily nursing-home benefit that you choose, regardless of the actual charges, notes Gray. For example, he says, "If you've chosen a $100-a-day plan, that's what you're paid, even if the home only charges you $90. You get to keep what's left, but because your policy has a limit on what it pays, you could run out of money." A reimbursement plan pays only the charges you actually incur, up to the daily or monthly maximum that you've selected. Any unused portion of the stays in your policy, which can help extend the life of your policy beyond the original benefit period (number of years) you purchased."
If you're one of the lucky ones, your company might offer you group long-term care insurance, possibly at reduced premiums. If so, many group plans allow employees to automatically qualify for coverage - with no health questions. Now, wouldn't that make your decision easier!
*HIAA's A Guide to Long-Term Care Insurance
**American Association for Long-Term Care Insurance, November 2007
*** American Association for Long-Term Care Insurance's 2008 National Long-Term Care Insurance Price Index
Margery Stein is a freelance writer based in New York City