LONG-TERM CARE INSURANCE: THE ABC's OF IT
Providing simple answers to a complex insurance idea
BY:MARGERY STEIN
The statistics are startling: More than seven million American adults currently need long-term care services, and that number will jump to 10 million by 2020, according to the Health Insurance Association of America. The costs of this care are rising, but the resources to pay for it-pensions, 401(k) plans, IRAs and Social Security—are not growing at the necessary rate 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 is Long-Term Care Insurance?
"Long-term care insurance is a kind of disability plan that's designed to reimburse the insured for the cost of long-term healthcare services," says Celeste Cobb, vice president, Long-Term Care Insurance at MetLife in Westport, Connecticut. 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. "Long-term care is care you're expected to need for at least 90 days, or from which you're not expected to recover," says Cobb.
When Would You Become Eligible for Benefits?
About 90 percent of today's policies conform to federal standards set by the Health Insurance Portability and Accountability Act (HIPAA) of 1996. To receive benefits, you must be certified as "chronically ill" by a licensed healthcare provider, which means that you have a condition, such as Alzheimer's or diabetes, that neither medication, surgery nor therapy can cure. You will also need to document that you 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 at least 90 calendar days—or that you need substantial supervision due to cognitive impairment.
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 finances are another consideration. "If you have a very low income, 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?
The answer is no. Medicare is designed to cover those costs associated with acute—or emergency—care, hospitalization, surgery and most doctor appointments.
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 MetLife and other 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 plan. "Long-term care insurance is rated based on the age at which you purchase it," says Cobb. "The average premium right now for 58- to 60-year-olds is about $2,000 per year," she says. "If you bought it at 50, the premium would cost about $1,200."
However, 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: rates can go up 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 $135 a day," says Gray. "Alaska charges $400 a day." On average, notes Cobb, people buy about $150 a day.
Another determining factor is the elimination or waiting period you choose-that is, the amount of time you're responsible for the cost of care before the insurance benefits begin. "These periods range from zero all the way up to 180 days," says Gray. "For younger people, I recommend an elimination period from zero to 60 days. If you're 75 or older, you pretty much have to go with a 90- to a 120-day period to keep the premium within reality."
The number of years you want to be covered also impacts the cost. Coverage can be anywhere from two years to what's called "unlimited," meaning that the benefits never run out. You can also add an inflation rider. "Eighty percent of MetLife's individual policy holders purchase an inflation protection feature," says Cobb. "The most common one kicks in automatically: every year that you own your policy, your daily benefit increases by five percent." Although inflation protection doesn't come cheap, people who chose it want to be sure that their policy will cover the cost of care when they need it.
Are There Other Factors to Consider?
Yes. Your insurance agent will talk 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 amount of coverage you've selected."
If you're one of the lucky ones, your company might offer you group long-term care insurance, possibly at reduced premiums. If so, you automatically qualify. Now, wouldn't that make your decision easier!