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The ins and outs of long-term care insurance

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May 10th, 2016
Couple learning about long-term care insurance.

Only 8% of people 55-plus have long-term care insurance—many think Medicare or private insurance will cover their needs; others believe the cost is too high.

Losing your independence is frightening, but your chances of becoming unable to care for yourself are high. According to the U.S. Department of Health and Human Services (HHS), almost 70% of people over age 65 will experience at least temporary functional disability at some point. For many people, unless they have family who can care for them, going into a nursing home is their only option, and some people may require long-term care for the rest of their lives.

Long-term care (LTC) does not mean care of medical needs, but rather care with activities of daily living (ADLs)—tasks such as bathing, dressing, eating, using the bathroom, and moving around independently. A significant number of individuals in this country will soon be in need of ADLs assistance.

Enter long-term care insurance. “Long-term care insurance became a reality in the 1990s,” says Carla Sutter, M.S.W., C.-A.S.W.C.M., director of operations for SYNERGY HomeCare Franchising in Gilbert, Ariz. “It evolved as a response to the aging of the U.S. population and the demand for an option that could cover community-based alternatives that would keep people out of nursing homes.”

“Most policies began as coverage for only nursing home care, but they have evolved into coverage for assisted living and home care,” says Michael H. Fliegelman, founder and president of the Strategic Wealth Advisors Network in New York, N.Y. “Some policies have also changed from strictly long-term care insurance to a hybrid product that has features of both life insurance and long-term care.”

Experts say that people should purchase LTC insurance by their late 50s, but the average age is about 60, according to HHS. Studies show that about one in five applicants cannot pass the medical underwriting process because of existing health conditions or disabilities.

Costs

Today, only about 8% of adults age 55 and older have LTC insurance, according to the Robert Wood Johnson Foundation. That is because, in part, many people think Medicare or private insurance will cover LTC needs. For other people, the cost is prohibitive. The average annual premium for private LTC policies sold in the individual market in 2010 was $2,283.20, according to America’s Health Insurance Plans, the national trade association representing the health insurance industry. “The price of policies can vary significantly based on demographics of a particular region,” Fliegelman says.

In comparison, LTC services are also very expensive, if not more so, depending on how long you would need care. The MetLife Mature Market Institute summarized average costs as follows: nursing homes—between $78,000 and $87,000 annually; assisted living—$41,724; and home care—$20 per hour, which translates to roughly $58,000 annually for 40 hours per week. Seniors don’t always have a choice of options—it can depend upon what level of care they need and what type of support is available to them.

As for insurance, Medicare and private insurances only pay for assistance with ADLs on a short-term basis when the beneficiary is considered homebound and has a medical, or skilled, need. The amount of care, however, is often limited to a few hours a day, even if someone has ongoing medical needs. 

Seniors shouldn’t count on Medicaid plans because income eligibility standards are very low, and many LTC providers, especially assisted living and home care providers, do not accept Medicaid as a form of payment.

Coverage

“Some seniors don’t investigate the possibility of LTC insurance because they think it won’t cover what they may need,” Sutter says.

According to HHS’s Office of Disability, Aging and Long-Term Care Policy, most policies cover both facility-based (nursing home/assisted living) and home care. 

“Long-term care policies come in all shapes and sizes,” Fliegelman says. “You can choose solely long-term care products, or a hybrid product with cash values and death benefits. With hybrid policies, there are individual pools of money for long-term care, death benefits, and cash value. If you never submit a claim, the cash value is available to you while you’re alive, as well as the death benefit to your family in the event of your death.” 

As with any insurance policy, there are levels of coverage. “You can choose short or long benefit periods, the amount of daily coverage, or how long the waiting period will be,” Fliegelman explains. “No matter what kind of coverage you decide upon, you should look for a policy with an inflation rider. Then you will be covered if the price of long-term care services increases significantly.”

Receiving benefits 

In most instances, benefits kick in when you need assistance with two of six ADLs: bathing, dressing, eating, toileting, walking, or incontinence. “Make sure your policy also begins paying benefits if you develop cognitive impairment,” Fliegelman says. 

“Many policies specify a waiting period before beginning coverage,” Fliegelman continues. “You have to be prepared to pay out-of-pocket in the interim.” In addition, if your policy covers room and board in a nursing home, be prepared for other out-of-pocket costs.

If you decide to be cared for at home, which is where long-term care is trending, you may have several providers to choose from, depending on where you live. “Be very careful when selecting a LTC provider,” Sutter says. “Make sure the types of care that you are hoping to use as your needs increase are covered under your LTC policy, and find out up front what your out-of-pocket costs will be. You should find a company that is willing to help you get the most out of your benefits.”

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