Long-term Care Insurance

Know the Basics for Long-Term Care?

Long-term care may affect you or your loved one. You need to know what it is all about so you can start taking action based on your circumstances. So here’s a quick overview.

What do we mean by long-term care? It means you need help performing your activities of daily living (ADLs).examples are dressing, bathing, toileting,eating, and continence for the foreseeable future.

Who would provide this help? Long-term caregivers do. They are divided into skilled and custodial caregivers. Custodial caregivers are aides, volunteers, family or friends. Generally heath care plans will pay for care provided by skilled caregivers (medical specialist like doctors, nurses,etc) and custodial services, but only if given as part of a skilled care procedure.

Where can long term care be provided? You can receive long term care in your home, at an adult day center, an assisted living facility, and a hospice facility, or at a nursing home.

What are typical costs for these services? It really depends on where you are living and what you are receiving for care. But ballpark annual costs may be $25,000 for home health care, $40,000 for the assisted living base rate, and $80,000 or more for nursing home costs.

Who pays for long term care costs? long term care costs are paid byeither you, Medicaid, or from a long term care insurance policy.   Medicaid will pay only if your assets and income are very low. If Long-Term Care Insurance is to pay, you’ll have had to purchase the policy and pay the premiums until you qualify for long term care.

What are the Long-Term Care insurance benefits? This depends on your policy. Benefit payments may include payment for various long term care receiving locations (home, assisted living,etc), Daily Benefit Amount (DBA) i.e. how much they’ll pay per day in a nursing home, the duration of long term care (number of days of care) they’ll pay, and any inflation adjustments.

How much are long term care insurance premiums?   That depends on your policy choice. Premium costs, though, generally increase the older you are when you purchase the policy. And choosing more larger or longer lasting benefits will generally increase premium costs too.

Who should not buy long term care insurance? Anyone who can’t maintain paying the premiums until they qualify for long term care shouldn’t purchase it. Premiums for guaranteed renewal insurance might increase with time.

When do you becomeeligible to receive long term care? It depends on the guidelines for who are paying the benefit costs. Under a tax qualified long term care insurance policy, a licensed health care practitioner must certify you as chronically ill (i.e. you can’t perform some number of activities of daily living for anexpected 90 days or you have a severe cognitive impairment) and that a plan of care is in place for you.

How Long Should You Wait?

Many seniors have purchased auto, health, and homeowners insurance for decades as a way to pay those unexpectedexpenses that they can’t afford to pay on their own. You might also have this insurance because the law or mortgage company required it, or just because you want to protect your assets.

With long-term care insurance you might think that you have the luxury to wait until some point in the future to purchase the coverage. And the statistics point out that younger people have less chance of needing long-term care. Therefore, would you be better off waiting until you are 70 or so before purchasing a policy?   That way, you avoid premium payments for a number of years. Plus when you are older you might own the policy for just a few years before using it since the chances of needing specialized care increases as you age. Unfortunately, that strategy often carries a huge risk.

Unfortunately, long-term care can affect people of any age. In fact, 40 percent of Americans currently receiving long-term care are between the ages of 18 and 64.   Many of them due to automobile and sports related accidents, similar to Christopher Reeve’s, and conditions like MS and brain tumors. And ⅓ of the people who have strokes in the US are under age 65.

According to the Centers for Medicare and Medicaid Services (CMS), 60 percent of Americans who reach age 65 will need long-term care at some point in their lives. Statistics suggest that more women than men require special care because women live longer on average, and the older you get, the higher the odds of needing long-term care. In addition, if you have a family history of long, debilitating illnesses, the chance that you will need special care goes up.

Statistics suggest that nursing home care runs at least $70,000 per year on average. This can potentially put a severe strain on the Americans who live in a nursing home, and their families. Statistics also suggest that the 85 and over age group is the fastest growing segment of the U.S. population. During the next 30 years, the number of Americans over age 85 could double, from approximately 4 million to 8.4 million, according to the U.S. Census Bureau. Unfortunately, many of these aging Americans will need long-term care to help them with activities of daily living.

Unfortunately, deteriorating health could make you uninsurable or at least cause the size of the long-term care insurance premium to go up. Once this happens, it could be very difficult to purchase this coverage.

Don’t wait until you need long-term care. By then it could be too late.

Note:
Long-term care insurance is subject to medical underwriting, and benefits will vary based among other things upon your age, health, and premiums. Fees and otherexpenses apply with the purchase of long-term care insurance, and surrender charges may be applicable on money withdrawn after the policy purchase date. Insurance benefits and premiums do vary from company to company. Insurance guarantees are also subject to the claims-paying ability of the issuing company.

Many Seniors Have Inadequate Coverage for Long-Term Care

You might think your HMO or other health insurance is great, and it may be. However, it might not cover the long-term financial ramifications of these illnesses:

 

• Limitations of Parkinson Disease
• Extra Care Needed to Deal With Chronic Arthritis
• Incapacity of Multiple Sclerosis
• Disability Caused by Stroke
• Care Needed by Alzheimer Patients

 

Many insurance plans are designed to address acute shorter-term illnesses – illnesses that the doctors can fix by admittance into a hospital, providing medical care, and then releasing you. But many illnesses do not behave this way.   Many illnesses have a long term debilitating nature, and your insurance may not cover the long term care costs that are often associated with them. This is where long term care insurance picks up the cost.

According to a recent survey, 17% of people over 65 in the US have purchased long term care insurance to cover these costs. Others who have not purchased this coverage could be under the impression that they are either covered by their regular health insurance, a government program, or that they won’t ever have one of these illnesses.   However, regular health coverage is only partial, as it typically does not cover the types of care often provided by nursing homes or community care providers. This type of care is commonly referred to as custodial or long-term care.

At $5,000+ per month for long term care, a person can accumulate a fairly significant long term health care bill.   While many people would never consider being uninsured for routine health care, they seem to have ignored the risk that their health insurance might not cover the entire list of possible afflictions. I urge you not ignore this risk. Regardless of the wealth a person might accumulate during their lifetime, it could be compromised if they should get caught off-guard by a long-term nursing home stay.

If you don’t have long term care insurance, I would also encourage you to consider it when your health is good.   Remember—insurance companies often sell insurance to people when they don’t need it.

If you do not even know the questions to ask, you can order the booklet “Mistakes in Buying Long Term Care Insurance”.

Should You Invest In Long-Term Care Insurance?

A n elderly person needs long-term care when he or she cannot handle normal daily activities such as bathing and eating. Someone must step in an d help him or her from then on.

Long-term care is expensive. The average cost for one year in an assisted-living facility is in the $30,000 to $40,000 range, while home health care runs in the $16 to $20/hour range. The cost of private nursing homes begins at around $70,000 per year. Who can pay for this?

Often people think that government programs – like Medicare and Medicaid–do. But this is not generally the case. Medicare pays for health care for people 65 and over. It does not pay for long-term medical service such as assisted living or adult day care.

In fact, Medicare pays only the first 100 days of skilled care, such as physical therapy or nursing. But you are eligible for the care only if you have been in the hospital for at least three days. And the care you receive must relate to the treatment of an illness or injury. Medicare pays 100% for the first 20 days and all but the first $124 per day (2007) for the next 80 days. That’s it.

Medicaid pays for health services for the very poor of any age. Qualifications for Medicaid vary by state. But generally the law says you must first spend down to the poverty level, using up all but about $2,000 of your assets. There may be long waiting lists for facility care. Under Medicaid, nursing home care is essentially the only option. Home care, assisted living facility care, adult daycare, outpatient services, and alternate caregiver services are not usually reimbursed under Medicaid.

So what do people do?

Either you are poor enough to qualify for Medicaid, rich enough to pay all long-term care out of pocket, or somewhere in between.

People with assets of less than $200,000 generally cannot afford long-term-care premiums, and many in this group would qualify for Medicaid.

Those having assets to invest of ~ $2 million and up will often consider that they can pay long-term care costs out of pocket for several years of long-term care. They may simply forgo long-term care insurance entirely.

It is the couples with assets in $200,000 to $2 million range that may have to seriously consider buying long-term care insurance. They could see their savings devastated by long-term care expenses with little hope of passing something on to their kids.

Plan Now to Pay for Long-term Care

What options do you have when it comes to planning for long-term care? Medicare covers only 100 days of
skilled
nursing home care immediately following a hospitalization, and co-pays can also come into play too.

Although Medicaid might be another option for some people, the spend-down rules in many states might require you to use a significant portion of your personal resources before you become eligible for this coverage. Although a long-term-care insurance policy might be another alternative to look at, it might not be an option if your have had health problems in the past. With all of this in mind, you might want to consider another alternative: saving and investing to pay for long-term care yourself. It may not be as daunting as it sounds.

The average daily cost of a private room in a nursing home in the United States is $70,080 a year, or $192 a day, according to the 2004 MetLife Market Survey of Nursing Home and Home Care Costs (September 2004). These costs could also be higher or lower than this reported average, depending on the costs of this care in your community. According to the MetLife survey, the average nursing home stay is about 2.4 years, but the United Seniors Health Cooperative recommends that you plan for at least four years of nursing home care. Assuming the average costs apply to your situation, you may need to set aside about $280,320, plus a reasonable allowance for inflation to cover the costs of long-term care.

That may seem like a lot of money. However, any investment earnings from the money that’s set aside for this care could help, if you are investing the money over a long-term period.

For example, let’s assume you’re 65 years old and have $600,000 saved for retirement. Based upon family experience, let’s also assume that you want to have some funds set aside to cover long-term care costs when you reach age 80. Assuming annual inflation of 3%, in 15 years, you might need about $436,729 (the equivalent of $280,350 in today’s dollars). This could be a significant sum of money when compared against the balance of your retirement savings.

Now, you could purchase long-term care insurance. However, the premiums can vary dramatically by company, state and coverage. To give you a rough idea of what long term care insurance might cost you, we’ve assembled the following estimates from the Connecticut Partnership for Long-Term Care, a state of Connecticut

program to help citizens meet their long-term care needs.

The table below illustrates the annual premiums for a long term care insurance policy that provides nursing facility care (at $200 per day) and home and community-based care (at $200 per day) with an elimination period of 100 days. The elimination period is the period of time that you are required to pay for this care out of your personal resources before the coverage begins. The table also includes a 5% compounded inflation protection provision. Under this policy, premiums will remain the same for your lifetime unless the insurance company gets state approval to change premiums for an entire “class” of policyholders.

Average Annual Premiums Across Partnership Policies

 

Coverage		Purchase age and premiums
Approximate amount	Period of coverage	55	60	65	70
$73,000	1-Year	$1,500	$1,800	$2,400	$3,400
$146,00	2-Years	$2,000	$2,400	$3,300	$4,700
$219,000	3-Years	$2,500	$3,100	$4,100	$5,900

So, if you would happen to fit this example, you are 65, and you want the highest level of coverage (which costs $4,100 per year) over the next 15 years, you would pay $61,500 in premiums — which might go unused if you didn’t actually need long-term care. Again, it is important to note that long term care insurance premiums and benefits can vary greatly from insurer to insurer. To get more current pricing, check the long term care calculator.

Another option would be to create a “long-term care” fund from your own resources. Continuing on with our example above, let’s assume you decide to initially fund your own long-term care savings account with $150,000. Let’s also assume that you are going to add an additional $4,100 a year to the account (which represents the annual cost of the policy above). If we were to assume a hypothetical annual return of 7% each year, in 15 years you would have accumulated $516,883.72 (which is not reduced for any investment-related costs or expenses). And, if it turned out that you didn’t need a nursing home, you could leave this additional money to your heirs.

Long Term Care Insurance and Medicaid

How would you pay for nursing home care or other types of long-term medical care? Many people believe that Medicare will cover the bills. But the fact is Medicare only pays a portion of your long-term care expenses–and that’s only for short-term skilled care and for the first 100 days. With the average nursing home stay lasting 892 days, it is no wonder that many people start out paying for much of their long-term care expenses out of their own pocket.

How will decisions about planning and paying for long-term medical care impact you? Let’s consider some of the issues you could potentially face by looking at a hypothetical couple:

John and Mary are both in their 60’s, happy and healthy, with two grown children. They have sufficient funds to maintain their current standard of living throughout retirement, and intend to leave some of this wealth to their children after John and Mary pass away.

Mary’s parents are still alive, are in their 80’s, and have lived in a nursing home for the past year. All of the money that they had put away is going toward their nursing home expenses. Eventually, they will have spent their entire life savings on long-term health care, and will have to fall back on Medicaid or their own children to pay these bills.

Mary sees what has happened to her parents and doesn’t want the same circumstances to affect her and John’s independence. She realizes that long-term costs for two individuals would possibly jeopardize the wealth they have accumulated, as well as their retirement goals. What options do John and Mary have?

Medicare might cover a small part of their expenses, but John and Mary would bear the responsibility for the remainder. And they might not qualify for Medicaid until they have spent down their assets to the level required by law. This could leave them with little to live on if they no longer needed the special care. Plus it could reduce or eliminate any hope of helping their children.

For John and Mary, long-term care insurance could provide a suitable solution. A long-term care policy can possibly be written to address many specific medical concerns they may have, such as a family history of Alzheimer’s or other congenital diseases. Plus, they can review different plans to find a premium that would fit into their retirement budget. Long-term care insurance can be an effective means of remaining independent, preserving your wealth, and avoiding the potential need to spend down your assets under the Medicaid rules.

Another Way to Buy Long-Term Care Coverage

Long-term care insurance may be an important (even necessary) part of your financial plan. But you may be reluctant to buy a policy whose premiums can rise. Plus, if you never require long-term care, the money that you had spent on premiums simply vanishes.

Still, you may want the financial security that long-term care insurance provides. There is another way to get long-term care coverage – by combining it with a life insurance or deferred annuity policy. These combination policies could make long-term care insurance more financially attractive.

Here’s a brief summary about how they work. Long-term care insurance is added as a rider or as an additional benefit to a life insurance policy or deferred annuity contract. Premiums for many of the life/long-term care insurance combo policies are usually paid up front.   While this can be a significant outlay of funds at the start of the policy, the one-time premium payment for both life and long-term care insurance does provide protection from rising long-term care insurance premiums down the road. In contrast to the life/long-term care policy, the long-term care coverage on a deferred annuity will typically be based upon a percentage of the annuity assets (based, among other things, upon the insured’s age and health).

One of the combinations of life and long-term care insurance provides current life insurance benefits to the policyholder if long-term care is required. The money to pay for long-term careexpenses comes from reducing the policy’s death benefit. So if you have a $500,000 death benefit and incur $75,000 in long-term careexpenses, (the nationwide average cost of a year of nursing home care for a private room in a nursing facility according to Metlife 2006 Survey of Nursing Home Costs) the death benefit will decrease to $425,000.

As previously mentioned, another way that long-term care insurance can be combined with life insurance or a deferred annuity is to include long-term care insurance as a rider to the base policy. For example, a $100,000 life policy with a long-term care insurance rider may pay lifetime benefits up to $200,000. These policies typically require annual premiums for the long-term care coverage, in addition to the initial premium payment. Many long-term care riders are guaranteed renewable. Assuming the insurer is financially sound, the annual premium on many policies remains constant throughout the life of the policy (subject to the insurer’s claims-paying ability).

The insurance company will look at your family health history and any pre-existing conditions that you may have. In the case of a life/long-term care plan, the potential death benefit and long-term careexpenses will be considered. Therefore, an annuity-based combination might be more appropriate if your health makes it difficult to buy life insurance. The money in the annuity can then be used for long-term care expenses or passed to a beneficiary.

Please note, however, that annuities are long-term investments designed for retirement purposes. Withdrawals of taxable amounts are subject to ordinary income tax, and if taken prior to age 59½, a 10% federal tax penalty may apply.early withdrawals may be subject to surrender charges. Guarantees are backed by the claims-paying ability of the issuer.

Would a combination life/long-term care policy work for you? It depends on your individual needs and financial situation.

Dropping Your Long-Term Care Policy Could Be a Mistake

As you make your way through retirement in fairly good health, you may consider the wisdom of maintaining your long-term care policy,especially if your savings are running low. Will you really need the policy?

It’s understandable why you’d want to drop a long-term care policy you don’t think you’ll use, but before doing so, there are a few things you may want to consider.

You’re healthy now-but that could change.
If you live alone and away from family, you may need a home health aide, and that typically costs more than insurance premiums: For in-home assistance, the national average cost is $25.32 per hour, or $26,333 per year for just 20 hours of assistance a week.

Medicaid may not help you.
Medicaid could cover some of your long-term-care costs, should you need it. But it has some drawbacks. Forexample, few Medicaid programs pay for assisted living or home health care, which many people prefer to nursing homes. And to qualify, you generally must use up all but a few thousand dollars in your savings.

It will be hard to change your mind.
If you drop your policy and later change your mind, you may have to pay more for a new policy that is comparable.

A better option may be a reverse mortgage, which lets homeowners who are 62 or older borrow against their homeequity. You could use the proceeds to keep paying your insurance premiums, or to create a nestegg to pay for home health care. A couple of caveats, however: First, the closing costs on reverse mortgages can beexpensive. And second, if there’s a chance you might move to an assisted living facility (as opposed to staying in your own home), you may want to stay with long-term care insurance-because if you live away from home for 12 months in a row, you have to repay the reverse mortgage, which probably means selling your house.

How much you can borrow using a reverse mortgage depends on your age and prevailing interest rates. We can send you a brochure about the cost of long-term care-and help you calculate how much you could obtain from a reverse mortgage. Contact us now.

1 MetLife

2 State of Connecticut term care/FAQ/FAQ.htm.