Long Term Care Insurance
By the year 2030, the number of people over the age of 65 will double and those over 85 will triple! As we live longer, we must also prepare to live better. Already, 8.8 million Americans over the age of 65 receive long term care of some kind: 1.3 million are residing in nursing homes and 7.5 million receive home health care. Two out of five people who receive long-term care are younger than age 65. So how does one plan for long term care needs?
The key is to become educated. Long-term care offers services to people coping with a long physical illness, a disability, or cognitive impairment, such as Alzheimer’s disease. Long-term care insurance is an option to help pay for costs of a residential facility such as a nursing home, or an assisted living community. It may also provide care in one’s home, adult day care, hospice care, respite care, etc. It is important to review your needs with your attorney and/or your accountant prior to purchasing long term care insurance. It is NOT for everyone!
Long Term Care Costs
The average cost of nursing home care in Pennsylvania is currently more than $73,000 annually or about $200 per day. It is suggested that you contact three nursing home facilities in your area to ask what the semi-private room daily cost is, and average those three numbers for a realistic rate within your area. Home health care can exceed these costs with around-the-clock nursing care. An aide costs about $16 per hour and an RN can be three to four times that hourly rate. A third option, assisted living facilities, average about $110 per day within Pennsylvania.
Who Pays for Long Term Care and Do You Need Long Term Care Insurance?
There are several choices: personal resources of individuals or their families; Medicare, which will only cover a very limited amount, if any at all; or long term care insurance, which will pay for some or all of your long term care; and Medicaid, for those who meet the eligibility tests.
Whether you should buy long term care insurance depends on your age, health, overall retirement goals, marital/sibling/partner situation, and income and assets. Reasons people purchase a policy include: protection of assets, relieving the burden on their children, providing choices in their care, and avoiding government aid. However, if you cannot afford a policy, this option is not for you.
Options of Services Covered
There are several options for a policy that include only home health care or both nursing home and assisted living. The key is to design a plan that will be flexible for your future needs. Compare rates for a comprehensive plan, which include: skilled, custodial or intermediate care within the home or a residential facility.
Elimination Period
You need to choose which elimination period (deductible) will be your waiting period before your benefits begin. It is similar to a deductible with your auto or homeowners insurance. With some policies, the deductible must be satisfied once during the lifetime of the policy. This might range from 0-100 days.
Inflation Coverage
The most expensive is compound 5% annual inflation, which is imperative for anyone up to early 60’s. The next choice is simple 5% annual inflation, which would be considered for age 60’s to mid 70’s. It is less expensive than the compound, but due to age may be an option. The last is the periodic increase option, which lets you choose to increase your benefits periodically, such as every three years. You usually don’t have to show proof of good health if you regularly use the option. This is the least expensive option and is only recommended for mid 70’s and up.
Best Age to Purchase/Cost Considerations
If one determines that long term care insurance is appropriate, anyone in their 50’s should begin to consider this option. The cost is determined by age, health and marital/sibling/partner status. This coverage is protection for your long-term care, so the medical questions are very different from life insurance. The long-term care insurance companies are concerned about the chronic care needs. For example, if an individual is having physical therapy, he needs to wait until fully released from doctor’s care. On the other hand, if he has had heart or cancer conditions, as long as it is controlled, that persons issues may not prevent him from qualifying for a policy. The key is, in one’s 50’s, there is a greater chance that one will be insurable as opposed to one’s 60’s, 70’s or 80’s. Also, the cost is determined by one’s age, among other factors. The rate is difficult to discuss because there are so many variations of plans.
Guaranteed Costs
For most of the long term care insurance companies, the rates are “guaranteed renewable.” Once you are accepted and as long as you continue to pay your premium on time, they cannot cancel your policy. If the insurance company has a rate increase, they have to go through the approval of the State Insurance Commissioner and raise the rates for every policyholder within the state. It is unlike your auto or homeowners insurance, where you can be singled out with rate increases.
Consumer Tips
Work with an insurance broker that specializes in long-term care insurance and represents the major insurance companies.
Disclose your financial situation to help tailor a plan that is best for you. Base your decision of which company to choose by: quality, ratings and financial security of the company, history of paying claims easily and the price. The price should always be the third consideration. Caution: the least expensive is not always the best!
Once you are approved, you have thirty (30) days for a free look. At that time, you may choose to cancel and receive a full refund of your deposit, choose to change your benefit options and take time to read your policy.
Review the expense incurred method versus the indemnity method. Always provide your siblings, children, attorney and/or accountant with copies of your policy.
Be aware of the exclusions in the policy.
Resources
- “A Shopper’s Guide to Long Term Care Insurance”; National Association of Insurance Commissioners,816-842-3600
- “How to Select Long-Term Care in Pennsylvania”; Pennsylvania Department of Aging, 800-783-7067.
- Elderweb, www.elderweb.com
- Health Insurance Association of America, www.hiaa.org.