Long-term care, otherwise known as LTC, refers to the day-in, day-out assistance needed when an individual has a serious illness or disability that lasts for a period of time and they are not able to take care of themself. Long-term care is also for persons needing assistance with the ordinary activities of daily living because of functional impairments, or for persons needing assistance or supervision because of cognitive impairments. Most of us have had a friend or relative who required long-term care because of an accident or an illness. Perhaps you’ve known a young person paralyzed by an accident or an elderly person with Alzheimer’s Disease or some other degenerative condition of aging.
What is Long-Term Care?
The history of LTC began many years ago as nursing care insurance and has changed over time. LTC now includes choices for people at all levels of care as well as home health care. So, LTC is no longer called nursing care insurance or nursing home insurance, but long-term care insurance (LTCI). Over time policies have become more comprehensive, covering home care, community care, adult day care, and assisted-living facilities.
Today, long-term care policies cover the cost of a wide range of services in case a person is no longer able to take care of themselves due to a disabling condition, such as a stroke, dementia, Alzheimer’s disease, Parkinson’s Disease, etc. The services required are usually delivered by three levels of care: skilled care, intermittent skilled care, and custodial care. Of these three levels, 95 percent of the people who reside in nursing homes are receiving custodial care. Custodial care can be required for a number of different reasons including:
· a chronic condition
· the frailty of aging which is not covered by Medicare, Medicare Supplements, or major medical plans under any circumstance.
These policies usually start paying after 90 days, but the waiting period can be shorter or longer. Many Americans believe that long-term care is only for seniors (over 65) or for people who are acutely ill. Many of these same Americans also believe that long-term care usually involves only two scenarios: an elderly person living totally
Independently in their own home, or an elderly person that needs assistance living in a nursing home.
In fact, almost one-third of those receiving extended care are under age 65. Other numbers show, that about 45 percent of people requiring home and community-based care, are between the ages of 18 and 65; 55 percent are over the age of 65.
LTCI policies cover more than just a nursing home, or a reimbursement for costs. It is a continuum of reimbursement or payment that can include home health care in your own home, an assisted living facility, adult day care center, or in a continuing care community.
Will Medicare Pay For My Long-Term Care?
Many Americans, still believe that Medicare and Medicare Supplements provide long-term care benefits. In reality, Medicare only pays for skilled, short-term nursing home stays, or intermittent home care when skilled care is needed. Skilled care refers to care that is provided under a doctor’s order, by a licensed medical professional, such as an RN, LPN,
LVN, or physical and/or an occupational therapist. Approximately 1 percent of all people receiving long-term care, are receiving it for skilled care. This means that Medicare really won’t help if you need long-term care. As a result it is imperative that individuals start looking into long-term care insurance before there health changes and they can no longer qualify for coverage. Theoretically, you buy LTCI with your good health today and pay the premiums with tomorrow’s dollars.
If Long-Term Care Insurance Is So Important, Why Don’t More Seniors Have It?
More Seniors are not applying for long-term care insurance for many reasons. First, many Seniors believe that Medicare will help pay for their long-term care costs or they (erroneously) think they cannot afford the premium. They have heard that LTCI is expensive and they do not pursue it. To learn more about coverage, there are steps to follow. Initially, an appointment should be made with an insurance agent or a financial planner who sells insurance. The insurance agent or financial planner presents information on the advantages of long-term care insurance. After the end of the appointment, you are left with proposals as well as example policies.
Remember, LTCI policies and proposals are not all the same. They share similar features, but they also contain unique legal language that may seem a little unclear and can be a bit confusing.
Eight Features To Look for in a LTCI Policy
1–Daily Benefit Amount (At Least $181 Per Day in Coverage)
The most critical choice to make regarding the plan’s structure is determining the maximum daily benefit that the insurance company will pay for eligible LTC expenses. The national average daily cost of staying in a nursing home is $181.24 per day in a semi-private room at an annual cost of $66,156.
Home health care runs approximately $18/hour for custodial care. The first step is to decide where you plan to retire and then research the costs associated with long-term care expenses in that state. For example, the average daily cost of a nursing home in Washington, D.C. is $231.00, while the average daily cost of a nursing home in Orlando, Florida is $153.
2–Benefit Period (At Least Three to Five Years of Coverage)
The total amount of benefit that will be paid by a long-term care insurance policy over time is referred to as the benefit period. Coverage should provide sufficient benefits for a long stay, with a minimum of 4 to 5 years. Other benefit periods such as lifetime are also available and have no limit on the period over which benefits are paid. Other benefit periods are available, but anything less than 4 years would be unwise. Most people do not need lifetime benefits. Although the average stay in a nursing home is 2 ½ years, information from insurance carriers within the long-term care industry, reveal that claims for home and community based care, average 4–4 ½ years. Remember, people often stay in their homes as long as possible, before they consider a move to a nursing home. Providing care in a home can cost more than a stay in a nursing home. Therefore, 4–5 years of coverage is recommended.
Over the last few years with the addition of assisted living facilities, home care, alternate facility care, and/or alternate community care such as adult day care, nursing homes are only one of many choices. Statistics show that the number of people entering nursing homes is declining while the number of people at other facilities is increasing. Before you decide what benefit period is best for you, check the premiums relating to various benefit periods. Remember, your comfort level should dictate your choices.
Not all professionals agree as to how long your LCTI benefits should be. Many Elder Law Attorneys, financial advisors, and insurance agents consider the necessary benefit period a little differently. If you have not done so already, after moving into a nursing home, you may want to transfer assets to your children, grandchildren, etc. Referred to as the Transfer Penalty, Medicaid penalizes such transfers by imposing a period of ineligibility that can be as long as three years (or five years for transfers to certain trusts). After those three years have passed, you can qualify for Medicaid to pay your nursing home costs (provided the assets remaining in your name do not exceed Medicaid’s limits). If this is your strategy, many Elder Attorneys feel that you will need long-term care coverage only for the years before Medicaid coverage commences. Therefore, you need to purchase at least three years of long-term care coverage. If you do not intend to transfer assets to become eligible for Medicaid, you will need more than three years of insurance coverage. In addition, if you have a combined home care and nursing home benefit, three years will not be enough. Many LTCI experts feel that if an individual can afford LTCI then it would be in their best interest to purchase a policy that fulfills their needs.
3–Waiting/Elimination/Deductible Period (90 or 100 Days)
A waiting period is like any other deductible, except that in long-term care insurance, the deductibles are phrased in terms of days, not dollars. It is the number of days that eligible care must be satisfied before the benefits are paid, therefore, the longer the waiting period, the less expensive the policy. Delaying when benefits start, is a good way of reducing your policy costs. Should you decide to apply for the longer waiting period, make sure you have enough to pay for the period for which no benefits are payable. Elimination periods range anywhere from 0 days (first-day coverage) to 365 days, depending on the policy. All policies offer a choice of at least two (for example, 50 and 100 days or 30 and 90 days), while others offer three, four, or more choices (30, 60, 90, etc). A closer look at the risk assumed when choosing a period greater than 90 or 100 days reveals that, in most cases, the amount of premium saved is not worth the extra risk. Another feature to look for is that some policies have a one time-only waiting period.
4–Coverage Not Limited to a Skilled Nursing Home
Your LTCI policy should pay regardless of what type of facility you enter (nursing home care, assisted living, home care, alternate facility care, and/or alternate community care such as adult day care).
5–Home Care Coverage
Most people do not want to go to a nursing home. People prefer to receive care at home for as long as possible. Proper home health care coverage can delay or even eliminate the need, in some situations, for nursing home care. Most policies integrate home health care into the core policy and you can choose a home health care benefit that is 50 percent, 75 percent, or 100 percent of the nursing home benefit. Some policies require that a rider must be added to the policy in order to get home health care coverage. Adult day care is generally included as part of home health care coverage. Assisted living, which generally involves a less intensive level of care than what is provided in a nursing home, may be part of either the nursing home or home health care provisions, depending upon the contract. Home care is extremely important because it pays for adult day care, assisted living facilities, and/or for home visits by a nurse or home health aide, to assist, with medication, dressing, bathing, and preparing meals.
Many LTCI experts recommend that your home care benefit amount match the amount you would receive for care in a nursing home or other facility. Note: Some policies, cover no cost of home health care or as little as 50 percent of the regular (nursing home) benefit.
6–Inflation Protection (Simple, Compound, or None)
There is no doubt that the cost of care will increase over-time, therefore you need to make sure that the benefit amount you purchase today, maintains its purchasing power for the future. For individuals under age 70, Compound Inflation Protection is a must. Persons 70 and above should consider either simple inflation or a higher daily benefit amount, without the inflation protection option.
Inflation protection can differ many ways between policies. For example, some policies cap the inflation protection once the daily maximum benefit has increased by 50 percent. This could leave you with coverage that would fall short if long-term care costs continued to rise. Other contracts enable you to purchase benefit increases every third year.
7–No Prior Hospital Stay is Required
Avoid policies that require hospitalization. Unlike Medicare, you do not need prior hospitalization to be eligible for benefits. This is particularly important since only half the people entering nursing homes have received care first in a hospital. Rather, many people are admitted to a long-term care facility following a period of care at home.
8–Benefit Triggers (Activities of Daily Living)
Many policies trigger benefits based on the inability to do a certain number (perhaps two of six) of the following activities of daily living or ADLs: bathing, dressing, eating, toileting, continence, and transfer. These ADLs are in most LTC contracts today.
Lets look at how ADL limitations are defined. Some policies require hands-on assistance while others require only stand-by assistance. One policy may consider you disabled if you need someone to watch over you to ensure you eat, while another might consider you eligible for benefits only if you cannot feed yourself.
Cognitive impairment will also trigger benefits. You may be able to perform the activities of daily living, but perhaps need to be reminded because of an organically based dementia such as Alzheimer’s Disease. With two or more ADL limitations, benefits are activated after the elimination period.
There are other criteria that one should consider when looking at LTCI policies:
· Financial ratings
· Shared-benefit pool
· Eligible discounts (such as spousal, group, affinity)
· The underwriting level (preferred, standard, sub-standard)
· Non-forfeiture and other riders
· Accelerated payment plans
Insurance Carriers and Finer Points
When selecting an insurance company for long-term care coverage, choose wisely. No two LTCI contracts are the same. It is important to choose an insurance that will pay benefits when you need them. A.M. Best, Fitch, Standard and Poor’s, Moody’s, and Weiss are companies that specialize in evaluating the financial condition of life and health insurance companies. While no one can provide any guarantees, choose an insurance company that has recently received high ratings from at least two of the above rating services. The following insurance companies are in the top tier of all LTCI companies. There are other quality insurance companies that offer LTCI contracts, but they are not in the top tier.
General Electric Capital Assurance
General Electric offers a monthly limit based on home health care with their contracts. General Electric offers a unique feature in their contract. They will waive the elimination period, if you require home health care. This means, that if you have an elimination/waiting period in your policy before benefits begin, the waiting period will be waived and begin benefits right away. This is definitely a big plus for General Electric.
John Hancock provides a spousal discount even if your spouse does not apply or does not qualify in their custom care policies. In addition, John Hancock also offers a waiver of Home Care Elimination Period Rider. With this rider the elimination period would be waived if the insured receives home care anywhere in the United States. However, this feature is not available in all states and must be added to the base policy with a rider (extra premium required).
John Hancock’s Custom Care policy offers a special elimination period trigger. If one receives home health care for one or more days in a calendar week. John Hancock will apply seven days toward the satisfaction of your elimination period, except if respite care is being received during the calendar week. Therefore, whether you receive 1 day of care or 7 days toward your elimination period. This is known as 1,2,3,4,5,6, or 7 = 7. This is a special elimination period trigger.
John Hancock offers either a daily or monthly limit based on nursing home, home health care, etc. For example, if you purchased a $100 a day monthly benefit with G.E., they will multiply that by 31 (days) and you now have $3,100 a month benefit to work with. Considering the same scenario, CNA or Unum/Provident will take the daily benefit of $100 and multiply it by 7 (days of the week). John Hancock allows you to decide which way you want to have the daily or monthly benefit.
Almost all insurance is state regulated. In most states, LTCI policies written today must be guaranteed renewable. In other words, the insurance company guarantees you a chance to renew the policy. This regulation does not guarantee you a chance to renew at the same premium. The insurance company can increase the premiums over time as your company pays more and larger claims. The insurance companies cannot single people out for a rate increase, but they can increase the premiums on all policies that are the same in that state. A rate guarantee is nice, but you still do not know what will happen to the premium after the rate guarantee has expired.
Each of these carriers has designed their contract with different nuances. The choice is yours. It makes good sense to contact a professional who specializes in long-term care insurance that can guide you through the maze. It is important to look at more than one company and not just rely on a second or third hand information of LTC. A properly, structured long-term care insurance policy is critical to sound financial planning. Obtain LTCI coverage as soon as possible so you can preserve your long-term care choices, protect your assets, and maintain your family’s lifestyle.