What is Long-Term Care?
Long-term care is defined as the assistance needed when we are unable to care for ourselves due to chronic illness, physical injury, cognitive (mental) impairment, or frailty. Healthcare professionals, health insurance providers, HMO’s, and Medicare classify this type of care as custodial care, as opposed to acute or rehabilitative care. The focus of long-term care is on assistance with the normal activities of daily living, including:
- Getting around inside and outside of the home.
- Bathing, dressing, toileting, personal hygiene, and eating.
- Assistance needed with the associated activities of daily living, such as using the telephone, preparing meals, paying bills, shopping, transportation, and housekeeping.
- Help with activities necessary to remain at home, participating in an adult day care program, residing in an assisted living center or receiving skilled care in a nursing facility.
Who Needs Long-Term Care?
Anyone, at any age, may require long-term care.
Christopher Reeve needed long-term care because of an accident. The late Jacqueline Kennedy Onassis required long-term care in her extended battle with lymphoma. President Ronald Reagan suffered from Alzheimer’s disease and required extensive care.
Well-known people, such as Michael J. Fox, Montel Williams, Dudley Moore, and former Attorney General Janet Reno, have developed chronic diseases and may all need long-term care for many years.
These are the most visible examples of how a debilitating disease can strike any of us.
Think about any people that you know who have needed personal care and assistance due to a chronic health condition.
As we age, a combination of genetics and lifestyle factors (such as poor diet, lack of adequate exercise, smoking, environmental pollutants, and physical or psychological stress) make us more vulnerable to disease.
Living a busy and active lifestyle creates more risk of accidental physical injury. Yet, active people in good health have greater longevity now than ever before. Preventative medical care, modern medical technology, and new medications help prevent and control diseases that in the past were often fatal.
People are living longer, but all too often with chronic debilitating conditions. The unfortunate downside of living longer translates into a greater likelihood, due to advanced age, of developing a condition requiring some form of assistance.
Today, short-term fatal illnesses are mostly limited to undetected or poorly controlled heart disease, rapidly progressing cancer, massive stroke, or rare events such as an aneurysm.
The major chronic conditions that may affect us are chronic heart disease, chronic pulmonary disease, cancer, debilitating arthritis, and complications of diabetes.
There are also, neurological disorders such as Parkinson’s disease or Multiple Sclerosis, fractures from osteoporosis, strokes (resulting in paralysis), Alzheimer’s disease and accidents.
And let’s not forget, becoming frail due to advancing age may be the most significant reason why people need assistance.
Will You Need Long-Term Care?
Statistics from the U.S. Department of Aging, the Census Bureau, the healthcare sector, and the insurance industry indicate that:
- 43% of all people over the age of 65 will be admitted to a nursing home at some time in their lives;
- over 40% of Americans receiving long-term care today are under 65 years old;
- Alzheimer’s disease affects 47% of all people over age 85: the average expense for care of an Alzheimer’s patient will vary greatly based on how much family support and help there is:
- 50% of all seniors over the age of 85 will require some form of assistance with activities of daily living; and the average stay in a nursing home will once again vary depending on the individual circumstances.
- For some lucky ones it is brief and for others it may be many, many years.
Twelve percent of those admitted to a nursing facility stay for 5 years or longer and many have received other forms of care prior to the nursing care. Generally, people receive other means of care before going to a nursing facility.
There are still limited statistics for the large number of people who have been cared for at home by spouses, adult children, or friends.
A recent study indicates that caregiving directly affects one out of four American households. Women have a much greater risk of needing care; and the majority of all nursing home residents over age 70 are females. These are but a few of the many statistics pointing to the fact that the potential need for long-term care is highly probable as we continue to live longer lives.
Despite all the statistics, most of us don’t want to believe that it can happen to us.
We all know of people who have died suddenly without ever being sick. We also know of people who have lived in nursing homes for several years and became impoverished because of an extended illness.
We all hope and pray that modern medical technology will develop cures and effective treatments for medical conditions that we struggle with today.
As you read this right now, significant research and advances are being made. The bottom line is that we have no way of predicting what the future holds for any one of us. What we do know is that the risks are real and the costs are high.
What Long-Term Care Services May You Need?
Anyone with a chronic illness, physical disability, cognitive impairment (dementia), or frailty as a result of aging, may need intermittent rehabilitative services by licensed professionals (Registered Nurse, Physical Therapist, Speech Therapist, Nutritionist, Medical Social Worker, etc.).
However, most assistance is provided by non-professional personal aides who assist with the custodial activities of daily living such as walking, bathing, dressing, transferring, toileting, etc.
Homemaker services are used for help with daily chores, i.e. shopping, cooking, housekeeping, transportation, gardening, bill paying, etc.
How Much Does Long-Term Care Cost?
The costs of long-term care will vary significantly by where you live and the type of care you receive.
Many people think that home care usually costs less than nursing facility care. However, skilled care at home can cost just as much, if not MORE than nursing home care.
It is very eye opening to call health care agencies in your area, as well as Assisted Living Facilities and Skilled Nursing Facilities.
Usually, the cost of care starts lower and then, of course, ramps up as the amount and intensity of the care continues. The cost of care varies across the country.
Ask your insurance agent for the cost of care in your area. It is so important to understand the cost of care not only where you live today, but where you plan on retiring.
What Impact Will Inflation Have on Your Long-Term Care Costs?
This is a significant factor in planning for our long-term care needs. Inflation is a major factor as it is important that your long-term care plans keep up with the increasing cost of care.
Typically, inflation in health care has been about double the overall annual inflation rate.
With the demographic impact of the baby boomers and increased longevity in our aging population, current projections are that inflation in health care, especially in long-term care, will surpass the general inflation rate.
History clearly shows that every market the baby boomers touch sees dramatic price rises due to supply and demand. Examples of this phenomenon were the enormous increases in the cost of homes, new automobiles, and a college education.
Due to the financial problems with Social Security, Medicare, Medicaid, and the looming impact of a rapidly aging population, the Federal Government is now offering tax incentives to individuals and businesses that purchase private Long-Term Care Insurance.
Who Pays for Long-Term Care?
Unfortunately, private health insurance, Medicare, and Medicaid are not realistic options to rely on to pay for your long-term care.
This section addresses who pays for long-term care and what the limitations and disadvantages are in relying on those programs.
How Can You Protect Yourself from the Costs of Long-Term Care?
To effectively plan for your long-term care needs, you should evaluate your financial situation and develop a financial safety net in the event that you, your spouse, parents, or others financially dependent on you may require long term-care.
Your financial safety net plan needs to accomplish the following goals:
- To have the financial resources to pay for quality care at home or in a long-term care facility.
- Protect savings, assets, and the standard of living for both the ill and healthy spouse.
- Prevent being a burden and dependent upon children or other family members.
- Conserve your estate and ensure an inheritance for your heirs or other beneficiaries.
- Avoid becoming impoverished and having to rely on the Medicaid program.
To pay for long-term care costs, you have four choices:
- “Self-insure” by paying for all the care that you, your spouse, or your parents may need.
- Become dependent on another person, i.e. your children or grandchildren.
- Spend down all of your assets and pay for care until you qualify for Medicaid.
- Transfer the risk of these catastrophic expenses to a LTC Insurance Policy.
What Protection Does LTC Insurance Offer for Long-Term Care?
LTC Insurance must provide appropriate coverage for your specific future needs and the premiums must be affordable. It can be vital in giving you “peace of mind” that you will have the necessary financial resources to pay for quality care, and the freedom to choose where and who provides your care.
A well-designed LTC Insurance policy may be one of the best financial decisions you ever make. It should be carefully designed as a component of your overall financial and estate planning strategy and should meet the following criteria:
- LTC Insurance should accomplish the goals that you feel are important in reducing your financial risk for long-term care expenses.
- The premiums must be structured so they are affordable both today and in the future.
- The amount of money you would receive in benefits should be substantially greater than the premiums you will pay.
- LTC Insurance should be an investment you make today that will effectively protect your other investments, assets, income, and standard of living for the future.
- An LTC Insurance policy should have benefits that are specifically designed for you.
What protection does LTC Insurance provide?
LTC Insurance is increasingly popular insurance that will pay for care required by a chronically ill or disabled person. It is regulated by the Department of Insurance of your particular state.
Benefits are paid directly to the insured person for the costs of their care. Health insurance, HMO’s, Medicare, or Medicare Supplement policies do not cover this type of care.
LTC Insurance is designed to pay for care by both skilled (nurse, physical therapist, etc.) and unskilled (personal care aide, homemaker, live-in caregiver) personnel in your home, an adult day care center, an assisted living center, or a skilled nursing facility.
What Are The Components of an LTC Insurance Policy?
There are many ways to design an LTC Insurance policy to meet your specific needs. You can select the dollar amount of coverage you want, any appropriate additional benefits or riders, and the amount that you will pay in premiums. All policies have several components in common.
This is the dollar amount you will be entitled to. You can select from $50 to $500 per day of coverage. This is money paid to you for expenses incurred for care. The higher the benefit amount that you choose, the higher your premiums will be.
This is the length of time that your benefits will last. You can choose anywhere from a 2-year benefit period to Lifetime Unlimited benefit period. Your benefit period starts when you begin needing care and collecting benefits. A longer benefit period increases your level of protection and available dollars and increases the premiums.
This is like a deductible, but it is measured in the number of days you must wait before your benefits begin. You can choose from 0, 20, 30, 60, 90, or 100+ days, depending on the company. You pay the costs of your care during the elimination period, so the longer the elimination period, the lower your premiums.
Inflation Protection Rider
This rider (option) automatically increases the amount of your daily benefit and total benefit amount each year to keep pace with inflation. All companies currently offer inflation protection riders. You can choose not to add the inflation protection rider, or to choose an option to purchase additional coverage in future years.
PLEASE BE EXTREMELY CAREFUL ABOUT CHOOSING THE FUTURE BENEFIT INCREASE OPTION OR NOT ADDING THE AUTOMATIC INFLATION RIDER.
If you choose a policy with a FUTURE BENEFIT INCREASE OPTION, make sure you see the projection of the benefit and premium increases for the life of the policy.
CHOOSING NOT TO BUY AUTOMATIC INFLATION PROTECTION MAY BE ATTRACTIVE BECAUSE THE POLICY WILL BE PRICED SUBSTANTIALLY LOWER TODAY. THIS DECISION COULD PUT YOU AT CONSIDERABLE RISK OF BUYING A POLICY THAT WILL NOT PROVIDE THE COVERAGE YOU NEED. IT IS CRITICAL THAT YOU FULLY UNDERSTAND AND CAN AFFORD THE CONSEQUENCES OF NOT CHOOSING AN INFLATION PROTECTION RIDER.
These are added benefits you can purchase that may add value to an LTC Insurance policy. They include a Return of Premium Rider, a Survivorship Rider, a Shared Benefit Rider, and others. Some insurance company policies include certain optional benefits at no additional cost.
How Do You Access Benefits Through a LTC Insurance Policy?
Your physician, or an independent healthcare professional, must determine that your medical condition will require that you need care or assistance for at least 90 days.
The needed care is to assist you with the Activities of Daily Living or because you are cognitively impaired and need continued supervision.
Your physician or an independent healthcare professional determines that you need assistance (hands-on assistance or stand-by assistance) with 2 of 6 Activities of Daily Living. The activities of daily living are bathing, dressing, transferring, toileting, continence, and eating.
Your physician, or an independent healthcare professional, determines through standardized tests that you are suffering from a cognitive (mental) impairment that affects your memory, your ability to think clearly, and your ability to take care of yourself in a safe manner.
What Types of LTC Insurance Policies Are Available?
What is a Tax Qualified Long-Term Care policy?
The 1996 Health Insurance Portability and Accountability Act (HIPAA) provided certain tax benefits to people who already had LTC Insurance and to those purchasing new policies after January 1997.
Premiums paid for Tax Qualified policies are tax deductible within certain limits. The value of the tax deduction is a function of whether you are self-employed, have a policy paid for by your employer, or itemize health care expenses.
Under all the above circumstances, benefits paid out by a Tax Qualified Long-Term Care Policy are guaranteed to be non-taxable as income.
What are Long-Term Care Partnership policies?
In February of 2006 President Bush signed the Deficit Reduction Omnibus Act of 2005 (DRA). This new law allows for nationwide expansion of Long-Term Care Partnership programs and tightens the eligibility rules for Medicaid.
Long-Term Insurance Partnership policies allow consumers to protect some of their assets that they would most likely have to spend down to qualify for Medicaid when needing long-term care.
Until the DRA came into effect there were only 4 states that participated in the Partnership Programs which include Indiana, California, Connecticut, and New York.
What other types of policies are available?
The Pension Protection Act authorized the sale of “hybrid LTC Insurance” protection through life insurance with long-term care benefit riders and annuities with long-term care benefit riders.
How Much Is LTC Insurance?
The cost of LTC Insurance is usually the most important issue that people are concerned about.
Unfortunately, there is a common misconception that LTC Insurance is “too expensive.” This is a myth.
It is often mentioned in the financial press and by people who have not kept up with significant changes in the LTC Insurance industry.
As a result of consumer driven legislation on both State and Federal levels, LTC policies now offer great flexibility in policy design, clearly written and understandable policies, built in consumer protection, generally fair and affordable premiums, and increasing Government scrutiny over premium stability.
Keep in mind that you, as the purchaser, have a great deal of control over the premium by the choices you make in benefits and policy design. Each component affects your final premium.
Once the policy is issued, you pay the same premium each year for the life of the policy, unless there is an across the board price increase issued by the insurance company. You can lower your premium at a later date by reducing your benefits.
Premiums can be paid monthly, quarterly, semi-annually, or annually.
Some companies offer accelerated pay plans. The policy is then fully paid up for the life of the policyholder. These plans are often attractive to business owners who may be able to get a 100% tax deduction on the premiums paid.
The premiums are based on the age that you apply for coverage. An insurance company cannot increase your premiums unless the State Department of Insurance approves the request for a rate increase by that company for all policies in the same class within the state.
The significant factors that affect the cost of LTC Insurance are the age at which you purchase the insurance, your current health condition, the benefit amount and type of coverage you want, and the insurance company you choose.
The age at which you purchase LTC Insurance has a major impact on the rate you will pay. The younger you are the lower the premium, and the less in total premiums you will pay over the life of the policy. It makes good financial sense to buy a policy as young as possible. Several recent financial publications have recommended purchasing LTC Insurance beginning in your forties.
If you think that at some time in your life you will consider Long-Term Care Insurance, find out how much the premium would be today, and what the premium would be if you wait a few years. Then you can make a wise financial decision based on actual numbers. You will never “save money” buy purchasing a policy at a later date.
Your health condition when you apply is a significant factor in whether you can get preferred rates (with discounts up to 20%), and also will determine if you can be approved for an LTC Insurance policy at all. Generally, any severe, chronic, degenerative condition will preclude you from being accepted.
The companies offering LTC Insurance policies vary in their health-underwriting standards. Some are more liberal than others. Some companies offer preferred rates if you are in excellent health, while other companies offer different rate classes for people with certain health conditions.
Selecting a good insurance company depends on several factors. Consider the company’s financial ratings by the insurance rating services such as A M. Best, Moody’s, Standard & Poors, Fitch (formerly Duff & Phelps), and Weiss Research. These rating services evaluate the financial strength of an insurance company and its claims paying ability.
Don’t choose a company based on lowest premium alone.
When Is The Best Time To Purchase LTC Insurance?
The very best time to buy LTC Insurance is NOW.
It is a fact that waiting to buy is not wise, from either a financial or a health perspective. (The exception is if you are now uninsurable due to a condition that will improve in the near future.) It makes the most sense to buy a policy at the youngest age possible because premiums are based on the age that you apply.
The greatest risk of waiting is that your health can change instantly due to an injury or illness. This could mean that you would be uninsurable, or that your premiums would be higher because of an existing health condition.
Additionally, insurance companies frequently develop new policies in order to be competitive in the marketplace. Once a new policy design is issued, the older policy is no longer available. The trend has clearly been that newer policies have all been priced at higher premium levels.
The current LTC Insurance policies available are well designed and offer comprehensive benefits and good value.
What If You Purchase LTC Insurance and Never Need Long-Term Care?
Most people would consider you lucky if you never endure a long period of disability and never need long-term care.
LTC Insurance (like automobile insurance, homeowners insurance, health insurance, disability insurance, and business liability insurance) is purchased to protect you from the catastrophic costs of financial loss.
People don’t buy health insurance to pay for a dozen annual visits to the doctor. You don’t pay for auto insurance for reimbursement of a $1000 fender bender. You probably could afford to replace the carpets in your home if a water pipe burst and your carpets were ruined.
You buy insurance to protect yourself from having to pay $50,000 plus for major surgery, $100,000 in liability for an auto accident, $250,000 or more to rebuild your house that burned down, etc.
Today, one year of substantial home care or care in a skilled nursing facility would be extremely expensive. People buy LTC Insurance because the cost of care can be financially catastrophic.
The risks of YOU needing care at some time in your life are much greater than your risk of being involved in a major injury auto accident, needing major surgery, or your house burning to the ground.
Without a crystal ball, there is no way of knowing who will need long-term care in the future.
There is, however, a solution for people who are concerned about paying LTC Insurance premiums for many years and never using the benefits. Several insurance companies have developed hybrid insurance products that combine Life Insurance, annuities, and Long-Term Care Insurance.
The companies that offer these policies are well-rated, financially secure insurance companies. For some people, especially people who have potential estate tax considerations, these policies make a great deal of sense.
Basically, you are buying a policy that will pay out a certain dollar amount for long-term care if you need it, and whatever you don’t use for long-term care is paid out to your beneficiary as a life insurance death benefit outside of your estate.
Like other types of Life Insurance, the policy has cash value that grows tax-deferred over time, and you can borrow against the cash value. Your insurance agent can help you look at these policies and determine which approach makes the most sense for your situation.
Why Don’t More People Have LTC Insurance Protection?
There are several reasons, but the number one reason is that many people falsely believe they are already covered by their health insurance, HMO, Medicare, or Medicare Supplement.
They hope the government will provide for their care, without understanding that they will need to spend their own money and assets until they are impoverished and eligible for government assistance.
Another reason is that people don’t believe it can happen to them or don’t even want to think about the possibility. This is called “DENIAL.”
Many people don’t know what today’s costs of care are, or more importantly, what those costs will be in the future based on inflation.
They don’t realize how much money could be used for a person’s care. Another reason why more people are not yet covered is that LTC Insurance seems like a complex insurance product.
Insurance agents who specialize in LTC Insurance must have an excellent working knowledge of Medicare and Medicaid, financial and estate planning, medical insurance and HMO’s, elder law, insurance underwriting, and much more.
Agents in this field must be willing to take the time and have the ability to communicate to the consumer all of the many aspects and variables of long term care planning.
Perhaps the most unfortunate reason that more people are not covered is simply that they waited too long. They developed a medical condition or had an accident that made them uninsurable.
You cannot purchase LTC Insurance for any amount of money if you already have certain high-risk medical conditions, or if you already need care.