Long Term Care Insurance: Security for Americans

A health care crisis is looming on the horizon for many Americans, one that could bring financial and emotional devastation that would make zooming gas prices and bouncing stock markets pale in comparison. The problem? According to Metlife, 70% of people over the age of 65 will need some form of extended care before they die, whether it's a visiting nurse in the home or full-time nursing home care. According to The Alliance for Aging, "nearly 9 out of 10 Americans will have at least one chronic condition" by age 65. Thanks to modern medicine, these conditions are debilitating, but not immediately fatal. Most seniors express concern about paying for necessary care in the face of such a condition, but few do anything about it. Laura Moore, senior vice president for long term care insurance at John Hancock, says the issue is "increasingly important because Americans are living longer, care costs are rising, and company pensions are being cut back." Moore says that Americans are "not facing the reality of what lies ahead."

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If you need extended care, but are unable to pay for it, the burden will fall to your families. The emotional, physical, and financial drain of caring for a sick parent is so traumatic that, according to the American Alzheimer's Foundation, 60% of family care givers die before the person they are caring for! Furthermore, if you are placed in a nursing home without the funds to pay the bill, you risk not only your life long savings, but also the family home and even your life insurance.

Understanding Long Term Care

Long term or extended care refers to care that is needed beyond the time period covered by Medicare or major medical insurance. It is often provided in a nursing home, but can also be provided in a person's home or in an assisted living facility.

The cost of assisted living, nursing home care and professional home health care is high and climbing yearly. A 2003 study conducted by Metropolitan Life Insurance found the average rate to be $180 per day or $66,000 per year for a private room in a nursing home. Care in an assisted living facility averages $30,288 a year while professional home care would cost $166,440 a year for round the clock care at $19.00 per hour. Due to inflation, by 2021, nursing homes may cost as much as $175,000 per year.

There are three solutions to surviving these high costs of extended care. You can be rich enough to pay all costs yourself, engage in a spend down to exhaust your assets and qualify for Medicaid, or you can purchase Long Term Care insurance (LTCi).

Long Term Care Insurance

LTCi is an insurance program that pays for extended care when Medicare and private major medical is exhausted, or for intermediate or custodial care which are not covered by Medicare or major medical at all. The most comprehensive programs cover home care, assisted living, and nursing homes. Simpler plans provide home care only and are also less expensive.

The care usually involves assistance with daily activities such as eating, dressing, walking, bathing, moving from bed to chair (called transferring) and using the toilet, or, in the case of cognitive impairment, simply sitting with a person to prevent him from danger to himself.

Regardless of the type of plan preferred, it's like any other kind of insurance. You cannot purchase it once you actually need the care.

Making the Decision for Long Term Care Insurance

Two factors that keep people from taking LTCi are a refusal to accept the possibility that they might actually need it some day and the perception of the insurance as "costly." While you may indeed never need it, if you live a long life, the odds are that you will. The cost of having it and not using it is far less than that of needing it but not having it.

The objection most people raise to purchasing LTCi is the cost. It is perceived as "expensive," and perhaps it is, especially if you wait until you are in your 70's to try to get it. However, when tempted to procrastinate, ask yourself if you could afford a bill of about $4000 per month on what you have today. When you retire, are you likely to have more disposable money or less? Wouldn't it be better to pay a premium averaging $900 to $2000 per year now rather than face the possibility of having to pay twice that every month if you need care? According to Medical News Today, "LTCi can be quite affordable, especially if you buy at a relatively young age."

Relying on Medicaid to Pay the Bill

Medicaid is a state and federal program for people who are at the poverty level, or who have certain physical conditions. According to a 2003 report by the American Council of Life Insurers, Medicaid pays only 17% of America's LTC bill. LTCi currently pays the bill for about 5% of those with coverage. A whopping 58% of the LTC bill is being paid by private individuals who are being forced to whittle away their assets to receive the care they need.

In order to qualify for Medicaid to receive care in a state-run nursing home, you have to be below a certain income level and can own only limited property. The rules vary by state, and new laws are making it increasingly difficult to qualify. No longer, for example, can you transfer your assets to your children and then enter a nursing home. Most states have a 3 to 5 year look back period with a stiff accompanying penalty for those who have attempted such a transfer.

The Medicare Misconception

Many people mistakenly believe that Medicare will pay their nursing home bill.

Medicare covers hospitals and skilled nursing facilities for a limited time period. Medicare will pay for 100 days of skilled care in a skilled nursing facility—with a co-pay for days 21 through 100—if you are admitted to the facility within a 30 days of leaving a hospital and have been hospitalized for the same condition for at least three days. A medical professional has to certify that you need this care.

Medicare pays for skilled nursing care in your home if the care is provided by a licensed home health care agency, but you must be confined to your home, under the care of a doctor, and the care must be intermittent or part-time. Medicare does not cover housekeeping services, personal care services like help with bathing, dressing and other activities, meal delivery, or full-time nursing care in the home.

Medicare Supplemental Insurance (Medigap) and Tri-Care do not cover long-term-care services either.

Determining Whether You Need LTCi

Some experts say that only middle class individuals with over $100,000 in assets need LTCi. The very rich can afford to "self insure," (but may prefer to pass their legacy on to their children and let a company pay for their care), while the very poor will be eligible for Medicaid. Those who are already on Medicaid are not eligible. Nevertheless, if you are forced to rely on Medicaid, your heirs may lose your home and all of your life insurance except for enough to pay for your funeral. To make matters worse, relying on Medicaid restricts your choices to nursing homes that accept it. Medicaid does not pay for assisted living and pays for only very limited home care. If independence, and location are important to you, talk to your family to see if resources can be pooled to provide LTCi.

If you have investments, IRA accounts, or savings, having built a small to moderate estate, you definitely stand to lose the most if you need care in your later years. Several strategies can make the cost of LTCi seem less intimidating.

Choosing a LTCi Policy

Companies that offer LTCi often have a wide variety of packages; the language is confusing, and comparison can be difficult. In spite of the convenience of the internet and mail-order, it is always best—when considering LTCi—to sit down with a licensed, reputable agent who will answer your questions and work with you to design a plan that fits your needs and your budget.

The policy should cover several levels of care, not just care in nursing homes. Benefits should increase along with the inflation rate. You should buy from a company that will stay in business for the long run and that has a solid reputation for paying claims.

Policies are priced according to your age, the length of benefit (ranging from one year to life time), and the dollar amount payable per day. According to the latest federal statistics, the average stay in a nursing home is 30 months. While five years or more is an attractive benefit, a three year policy will drastically reduce the price.

Another way to save money is to take a waiting period, usually called an "elimination period." You can think of this as a "deductible" or number of days for which you will pay for care yourself before your policy will begin to pay. Part of your plan should include a consideration of how you will pay during the elimination period.

Lack of Planning Could Mean Disaster

According to Financial Planner, Jeffrey D. Voudrie, ignoring the potential need for LTC is the wrong decision. The National Center for Health Statistics reports that currently some 1.6 million people reside in nursing homes. "That number is likely to increase significantly when the baby boomer generation reaches their senior years." Voudrie reports that many families are already finding themselves "caught in the nightmare of having to provide care that isn't covered by insurance or the government. This problem will not go away, as the government is likely to cover even less care in the future." He advises families to "take action now."

about the author:
Launching his insurance business in the 1980's, Gary Stuart built an agency which specialized in multiple lines, including long term care. Gary translated his decade and a half of experience to the creation of his long term care web site, http://www.long-term-care-insurance-quote.com , which provides consumers with a means to explore their LTC options. Stuart sees education as a key component in purchasing a policy tailored to the needs of the individual.