The news isn’t good. According to some experts, long-term care
insurance, around in various forms since the 1970s, is too risky and
too expensive for most people. But there are even more sobering
facts. By 2020, one in every six Americans will be 65 or older, and
by 2021, nursing home populations are expected to mushroom, since
the oldest baby boomers will then be 75. The average rate for a
private room in a nursing home is expected to be $480 per day or
$175,200 per year. And with 60% of adults 65 and older needing
nursing home care today, do the math to figure out how many of us
will be in need 16 years from now.
Many think Medicaid, Medicare and Medigap will pay for long-term
care needs. Not true. First of all, Medicaid is the federal
government program that pays for the indigent. To qualify, assets
must first be greatly diminished, and there are strict rules about
transferring them to heirs within three years of needing a nursing
home. Additionally, patients must then apply all of their remaining
income before Medicaid will pick up any expenses. Medicare, also a
government program, will pay 100% of skilled nursing in a nursing
home for the first 20 days providing at least three days have been
spent at the hospital for the same condition, the nursing home is
certified and the skilled care is received within 30 days of the
hospital discharge. From the 21st to the 100th day, Medicare will
pay 100% of skilled nursing costs in the same facility except for a
co-pay picked up by Medigap, a private insurance policy that
supplements Medicare coverage.
But beyond day 100, you’re on your own.
There is much to consider when deciding whether or not to invest in
a long-term care policy. Net worth (how much of it you’re willing to
spend on healthcare and how much you’d like to leave to your heirs)
is an important factor. Age and marital status are others. The
United Seniors Health Council recommends policies be considered only
by those whose assets are between $100,000 and a million dollars
(excluding home and car), who expect to have an annual retirement
income of at least $25,000 to $35,000 annually, who can pay premiums
comfortably without lifestyles being adversely affected and who can
absorb the inevitable premium increases without difficulty. A good
rule of thumb is to ensure a premium does not exceed five percent of
your current income. Indeed, long-term care insurance should not be
purchased by those whose only source of income is a social security
benefit or SSI (supplemental security income), if there are limited
assets, if paying for daily living expenses like food, medicine and
utilities is a stretch, if the premiums are unaffordable or if the
policy doesn’t offer enough benefits to make it worthwhile.
Okay. So say you’ve decided to purchase a long-term care policy.
When should you do it? Experts caution that these policies do not
need to be purchased until consumers are 65 years old. However, it
is important to be in good health when you apply. One in four
applications for long-term care insurance is turned down. Only if
you have a chronic disease or there is a history of serious illness
in your family should purchasing earlier than age 65 be considered.
Waiting until after 65 is also not wise, since it will be harder to
pass the medical tests and premiums will be higher. Salespeople will
try to convince you to buy when you’re young, but realize that
significant commissions ride on this for them. The fact is that less
than one percent of people under 65 need nursing home care. These
numbers grow to four percent for those 65-74 and 19 percent for
those 85 and older.
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Use the following guidelines to help make the decision to
purchase long-term care insurance coverage solid:
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Choose an insurer who is stable and solid. Since you’re
purchasing coverage that you may not use for some time,
research the company with AMBest, Standard & Poor’s,
Moody’s or the Weiss Ratings Database. Look for
companies rated in the top two financial strength
categories by at least two of the ratings services.
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Seek out a policy that offers flexibility in the
application of benefits. While you can choose the amount
of the daily benefit (from $100 to $250 a day
currently), understand that the premium will go up
accordingly based on your decision. The daily benefit
should make up the difference between your income and
the cost of nursing home care in your area. Choosing to
protect your policy against inflation will also increase
premiums but will shelter you in the long run. (Note:
The inflation option is a choice that is made at
application; choosing “yes” increases the dollar value
of your policy by five percent each policy year to keep
pace with estimated inflation in the cost of long-term
care.)
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Read the policy carefully to find out what’s covered. Is
skilled nursing care covered? Home health aides?
Custodial care? Are particular conditions with which you
may suffer covered, for example Alzheimer’s and
Parkinson’s?
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Choose the maximum daily benefit that the company will
pay out per day. This ranges between $50 and $200, and
premiums increase as the daily benefit escalates;
however, you’ll want the maximum amount since costs of
services will only increase as the years go by. You
should also determine how the daily benefit is
calculated – is it each day’s actual charges or a daily
average calculated monthly? (Note that the latter is
better in the case of home health care since home health
aides may visit many times in one day but not at all on
another.)
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In choosing how long the company will pay for care,
different decisions come into play. Some people will
choose life-time coverage, the longest period available;
quite expensive but nevertheless secure. Others will
throw the dice and try to determine based on statistical
evidence and family history what the best timeframe is
likely to be. It’s a fact that the average nursing home
stay lasts just under three years. Choosing a three-year
coverage period would reduce your premiums
significantly, but there’s obviously a gamble involved.
Some say that those between 50 and 65 should opt for
lifetime benefits with compound inflation options. Those
65 to 75 should consider a six-year or lifetime benefit
with simple inflation options. And those older than 75
should consider purchasing the maximum daily benefit for
as long a period as they can afford.
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Understand the eligibility criteria! Participants become
eligible for benefits on most long-term policies when
help is needed with two or more activities of daily
living, called ADLs. The ADLs are cooking, eating,
bathing, dressing, toileting, maintaining continence,
and mobility. It is wise to choose a policy where these
ADLs are easily triggered. One of them should be bathing
since an inability to bathe often means an inability to
bend or move properly, and so multiple ADLs are affected
when it becomes an issue. Know who determines
eligibility. It is better if your personal physician can
make this decision as opposed to one who is working for
the insurance company.
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Determine how soon payments will begin after you become
eligible. The elimination period is the period of time,
much like an insurance deductible before benefits kick
in and when the payment has to come from your own
personal resources. Choices are generally zero days, 30
days or 90 days.
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Last bit of homework. Before you commit to a long-term care
provider, ask yourself the following questions after you’ve obtained
their rating from the services mentioned earlier in the article:
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What is their history on payouts?
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How long has the company been writing this insurance?
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Is there a company history of premium increases?
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What care settings are
covered – nursing homes, assisted living facilities, home care?
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How do they treat pre-existing conditions?
Congratulations! You’ve done it.
You’ve bought the policy, and now you feel secure. One of the
biggest benefits is that most long-term care policies are guaranteed
renewable for as long as you pay your premiums. Additionally, the
premium is based on the age you were at enrollment and is usually
locked in for the life of the policy.
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