The phrase “long-term care” refers to the help that people with chronic illnesses, disabilities or other conditions need on a daily basis over an extended period of time. The type of help needed can range from assistance with simple activities (such as bathing, dressing and eating) to skilled care that’s provided by nurses, therapists or other professionals.
Employer-based health coverage will not pay for daily, extended care services. Medicare will cover a short stay in a nursing home, or a limited amount of at-home care, but only under very strict conditions. To help cover potential long-term care expenses, some people choose to buy long-term care insurance.
Policies offer many different coverage options. Since you can’t predict what your future long-term care needs will be, you may want to buy a policy with flexible options. Depending on the policy options you select, long-term care insurance can help you pay for the care you need, whether you are living at home or in an assisted living facility or nursing home. The insurance might also pay expenses for adult day care, care coordination and other services. Some policies will even help pay costs associated with modifying your home so you can keep living in it safely.
Who needs long-term care?
Although you may require long-term care at any point during your life, due to accident or illness, it is most often associated with aging, and for good reason. People are living longer than ever – the current life expectancy today is 78.8 years for men and 82.5 years for women. 1 And the longer you live, the greater the likelihood you’ll need care.
*It is estimated that 70% of people over age 65 will require some period of ongoing assistance at some point in their lives. 2
- National Vital Statistics Reports, Volume 58, Number 21, June 28, 2010.
- U.S. Department of Health and Human Services, National Clearinghouse for Long-Term Care Information, accessed February 1, 2013.
Where is long-term care received?
Long-term care has evolved considerably over the past few years. Today, there are many options where you can receive care.
Once just associated with nursing homes, the good news is that most long-term care (about 80%) is provided in a familiar setting 3 – either in the home of the person receiving care or at a family member’s home. This can be explained by the fact that most long-term care is unskilled in nature, so it’s easily received at home. One scenario might be that an aide comes to your house every morning to help you out of bed and assist you in getting dressed.
In addition to home care, long-term care can be received in the following settings:
· Adult day care center
· Nursing home
· Assisted living facility
· Hospice facility
3. U.S. Department of Health and Human Services, National Clearinghouse for Long-Term Care Information, www.longtermcare.gov, 2010.
What does long-term care cost?
Long-term care can be very expensive and the real amount you will spend depends on the level of services you need and the length of time you need care. Unless you have had direct experience with a long-term care situation, you may be unaware of its cost. The numbers may surprise you. The Cost of Care Survey revealed that the national average for 24-hour home care or one year in a nursing home can run more that $85,000/year or $235/day for a private room.
The expenses associated with assisted living facilities are also high, with national average at approximately $39,240 annually, which is over $3,000 a month.
Even care received at home may challenge your budget, with a national average of $31,200 a year for care received six hours a day, five days a week. If home care is needed around the clock, costs can surpass those of nursing home care. These costs can be much more depending on where you live.
Who pays the bills?
For the most part, the people who need the care pay the bills. Individuals and their families pay about one-fourth of all nursing home costs out-of-pocket. Generally, long-term care isn’t covered by the health insurance you may have either on your own or through your employer. What about the government? Generally, neither
Medicare nor Medicaid cover long-term care. People over 65 and some younger people with disabilities have health coverage through the federal Medicare program. Medicare pays only about 12 percent for short-term skilled nursing home care following hospitalization. Medicare also pays for some skilled at-home care, but only for short-term unstable medical conditions and not for the ongoing assistance that many elderly, ill, or injured people need. Medicare supplement insurance (often called Medigap or MedSupp) is private insurance that helps cover some of the gaps in Medicare coverage. While these policies help pay the deductible for hospitals and doctors, coinsurance payments, or what Medicare considers excess physician charges, they do not cover long-term care. Medicaid – the federal program that provides health care coverage to lower-income Americans – pays almost half of all nursing home costs. Medicaid pays benefits either immediately, for people meeting federal poverty guidelines, or after nursing home residents exhaust their savings and become eligible. Turning to Medicaid once meant impoverishing the spouse who remained at home as well as the spouse confined to a nursing home. However, the law permits the at-home spouse to retain specified levels of assets and income. It’s impossible to predict what kind of care you might need in the future, or know exactly what the costs will be. But like other insurance, long-term care insurance allows people to pay a known, affordable premium for a policy to protect against the risk of much larger out of- pocket expenses. Since it’s likely you will need long-term care, you should learn about the insurance coverage available to help that’s most appropriate for you.
Just as you insure against other risks, you may wish to consider adding long-term care (LTC) insurance to your financial plan. To put it simply, a long-term care insurance policy reimburses you for expenses paid for long-term care. LTC insurance helps you preserve your income so that you and your loved ones can continue to meet everyday expenses without interruption and protects the assets you’ve worked so hard to acquire.
A daily benefit is the maximum dollar value that you are able to be reimbursed per day. The daily benefit amount is important because you want to make sure that the benefit amount you choose would cover the total cost of care you choose, in your area. A good site for looking up the cost of care in your area is: www.genworth.com/costofcare. Daily benefits normally range from $100-$300 per day depending on the cost of care in one’s area and their desire to cover all of the projected cost. Most people pick a benefit to cover the cost of care today and then add an inflation rider to increase the benefit with inflation.
Most people misinterpret what the benefit period actually means. It is not the maximum time you can receive benefits; it is actually the minimum time; assuming that you still need care. You can think of the benefit period as a multiplier to figure out your total “pool of money”. You can multiply your daily benefit, by 365, by the number of years in the benefit you choose.
For instance: $200/day with a 3 year benefit equals a $219,000 pool of money for you to pull from.
$200/day * 365days * 3 years = $219,000
The good thing about most long-term care policies is, if you don’t use your full benefit amount, it does not disappear. You can actually use the extra money you didn’t use to extend your benefit period.
Upon needing care, maybe you find out you only need to use $150/day even though your daily benefit is $200. In this case your benefit period would be 4 years, even though you only signed up for the 3 year benefit. This is why you can think of your benefit period as a minimum time period as opposed to a maximum.
$219,000 pool / $150 days = 1,460 days of coverage / 365 days = 4 years of coverage
The elimination period is the number of days that you wait, once you file a claim, prior to receiving your care reimbursements. A typical elimination period is about 90 days. If you feel more comfortable with benefits starting sooner, you can choose a 60 day or 30 day elimination as well. These options cost a little more. If you would like to save some money, there is also a 180 day and 360 day option.
The reason the 90 day is most typical, is because it is the most cost efficient and is most in-sync with the limited benefits that are payable from Medicare for a maximum of 100 days.
Inflation protection is one of the most important aspects of a policy. The cost of care is going up on average from 3-5% per year. Purchasing a policy for $200/day might cover the average cost of care in your area today; but if you were to go on claim in 20 years from now, you $200 dollars could be pennies compared to care costing over $500/day.
When you purchase inflation protection, your daily benefit and pool of money start to increase in year 1. Every policy anniversary, your daily benefit and pool of money would grow by the specified amount. Your most common options for protection are 3% simple, 3% compound, 5% simple, and 5% compound. The compound giving you faster increase over the simple inflation protection.
Non-forfeiture options allow you to stop paying premiums and cancel the policy, without losing all of the premiums that you’ve paid into the policy. With a full non-forfeiture option, you are able to cancel your policy at any time and keep the dollars you put into the policy. With a contingent, non-forfeiture option, you are able to cancel your policy and able to keep your dollars, but only if the company increases the price of your policy. If your premiums never increase, you are not able to walk away with the dollars you put into the policy.