Quick Facts...
- Of the 12 million people needing long-term care, only 1.5 million are in nursing homes.
- Long-term care doesn't happen just to an individual, it happens to an entire family.
- When shopping for long-term care insurance, compare at least three companies.
- Benefits should be triggered by inability to perform activities of daily living or (not and) cognitive impairment.
- Inflation protection is important.
- Premiums are based on your age when you purchase the policy.
Nearly two in five people 65 or older spend some time in a nursing home.
Half of these stays are less than 90 days, often covered by Medicare.
Three-fourths of nursing home stays are less than one year. But one out
of every four people will spend a year or more in a nursing home; one
in 11 will spend five years or more. Men average two years in a nursing
home, women four.
But long-term care is much more than nursing home care. Of the 12 million
people needing long-term care, only 1.5 million are in nursing homes.
Other choices include home care, assisted living and adult day care.
In 2002, the yearly cost of Denver assisted living homes averaged $37,800
and nursing homes averaged $55,115. If costs increase 5 percent per year,
by 2010 these annual average costs will be $55,848 and $80,654, respectively.
Long-term care doesn’t happen just to an individual, it happens
to an entire family. One in three workers take care of an aging family
member. Worker productivity is affected by family health problems. Insurance
can provide personal and professional care services at home to ease the
caretaking load.
What Is Long-Term Care?
There are several types of care related to illness and physical conditions.
Some medical conditions require specially trained nurses or therapists,
usually 24 hours a day. Intermediate nursing care requires daily supervision
but not 24 hours a day. Long-term care covers daily care needed by a person
with an acute or long-term illness or disability who cannot care for himself
or herself. The level of care ranges from bathing and dressing at home
to skilled services in a nursing home.
Medicare sometimes covers some skilled nursing care in nursing homes,
but there is no coverage for intermediate or custodial care or prolonged
home health care.
How Do You Qualify for Benefits?
Many policies state that you are eligible for funds if you can’t perform
two or three out of five or six activities of daily living (ADLs), including
bathing, dressing, continence, toileting, transferring and eating. All
tax-qualified policies state that you must be evaluated by a designated
person such as a doctor and certified that you are chronically ill and
expected to continue this illness for at least 90 days.
Incentives for Purchasing Long-Term-Care Insurance
Premiums are deductible on federal taxes if they exceed 7.5 percent of your
adjusted gross income and the plan is tax qualified. Tax qualified means
that you don’t pay taxes on benefits. There are limitations based
on age and tax year. Credits may apply on state tax returns as well.
Why Long-Term Care Insurance?
You can’t predict whether you will need nursing home, assisted living
or home-care services. You might want to purchase long-term care insurance
for several reasons: to ensure a choice of facilities and services; to
preserve assets for a spouse, children or others; to preserve your independence;
or to ease the burden on caretakers.
Medicare does not pay for long-term nursing home care, but rather for
short stays under very specific rules. Medicare pays skilled nursing facility
(SNF) costs for up to 100 days per benefit period. Days 1 through 20 in
a SNF may be paid by Medicare with no co-pay or deductible required from
the individual. Days 21 through 100 require a substantial co-payment that
may be covered by the individual’s supplemental health care insurance.
When Medicare benefits end, the individual must pay the nursing home costs
with their personal funds, long-term care insurance, or Medicaid.
Some financial planners recommend long-term care insurance. Others say
the newness of this type of insurance makes them only a best (and expensive)
guess. Also, policies often are full of disclaimers, so you might not
get what you need even after paying premiums for years.
People often put off this decision because they feel fine now. However,
there is no guarantee on your health. If you are unsure about purchasing
insurance, do a trial application. If you are rejected, it will not go
on your permanent health record. If your health problems can be remedied,
you can make a permanent application later.
How Do People Pay for Custodial Care?
There are four ways to cover long-term care costs.
Self insurance: If you plan to use your own assets for long-term
care, be sure you understand the Medicaid guidelines that affect the noninstitutionalized
spouse. What will happen to your spouse if there are not enough assets
to cover these costs? Consult with experts if you face a nursing home
decision. Call your local area agency on aging, eldercare locator or an
elder care attorney for assistance. You might consider a reverse mortgage
on your home to increase the availability of funds for long-term care.
(See “For More Information” section below.)
Medicaid: Medicaid is jointly funded by federal and state governments
and managed by the states. Rules differ from state to state. It covers
nursing home costs for people whose income and assets fall below a certain
level. If the person is expected to return home or if there is a noninstitutionalized
spouse, Medicaid exempts the home and a vehicle below a certain value.
Many states place a lien against the home to repay the state after the
patient dies.
Single-premium life insurance: One way to pay for long-term care
is to purchase a single-premium life insurance policy. The investment
is guaranteed to earn a minimum rate of interest, say 3 percent. This
builds up a cash reserve to cover nursing home or at-home care. Money
not spent goes to heirs as a life insurance death benefit. Some policies
cover both husband and wife. If one spouse uses only a portion of the
benefit, the remainder is available for the other spouse.
Long-term care insurance: This covers all or part of needed care.
The choice is to spend money on premiums now on the chance it will save
money later. One rule of thumb is to add up all the premiums you would
pay until age 85. Usually this is less than the cost of one year in a
long-term care facility. Be very sure that you will be able to pay the
premiums in the future. If you cannot keep up premium payments, you lose
not only your protection but all the money you already paid into premiums.
Purchase one policy that covers all the needs you anticipate, not several
policies that duplicate coverage.
Evaluating Agents and Companies
It often is difficult to make an informed decision based on a sales brochure
or presentation. Shop around and compare at least three companies. It
is risky to buy from a door-to-door salesperson or a telephone solicitation.
Check with local agents who can provide service after you purchase a policy.
Only the official company wording in the brochure or the policy is legally
binding. Don’t rely on an agent’s verbal comments, promises,
or notations written on a brochure. Tape record the sales pitch. Read
the fine print. Never withhold information about pre-existing conditions,
even if an agent says they aren’t important. This might allow the
company to void the contract.
The financial stability of the company is important. The company should
have billions, not millions, in assets. Smaller companies should have
reinsurance. If you buy a policy from a shaky company, you may have premium
increases in the future, or the company could go out of business. This
type of insurance is new. No one is sure what the impact will be when
many people start using it.
Choose an experienced company. There are fifty Colorado licensed companies
marketing long-term care insurance. The company should have high ratings
for stability, at least A or higher on the Standard & Poor or other
rating agency scales.
The premiums should be competitive with other policies, not significantly
below market rates. Cut-rate premiums may jump significantly in the future.
Benefits should be comparable to other policies. If premiums are too low
or benefits too generous, the company may not be in business when you
need it. Look for companies that haven’t increased rates in the last
10 years, and for a high claims payout percentage versus the claims filed.
Determine if benefit enhancements are made to existing clients and not
just new ones. Compare services.
Comparing Policies
Select policies that clearly define the criteria to qualify for benefits,
especially your ability to perform daily living activities (ADLs). Avoid
policies that require continual one-on-one assistance to qualify for benefits.
The policy should cover all levels of care that the doctor orders in
any state-licensed facility. It should cover ADLs or (not and) cognitive
impairment such as Alzheimer’s disease.
Some policies cover adult day care, nursing homes, assisted living and
home health care. You might want home care if someone lives with you.
If you live alone, however, having someone come in a few hours a day or
a few times a week may not be enough care. Some policies have a care manager
who works with the family and doctor to determine how to provide the care.
Steer clear of policies that require prior hospitalization in order to
qualify for nursing home stays and/or home-care. By law, no company can
require a prior hospital stay in order to qualify for benefits. Nevertheless,
a company might write this into a policy.
Avoid policies that require that only registered or licensed practical
nurses can provide services or where insurance-company-paid doctors determine
eligibility for long-term care coverage. Look for policies that count
days in the deductible period cumulatively over several stays, rather
than consecutively during one stay.
Inflation protection is costly but important. A daily benefit of 100
percent of today’s costs will cover only 61 percent in 10 years,
48 percent in 15 years, and 38 percent in 20 years.
The policy should provide for third-party notification so the policy
can’t lapse if you forget to pay a premium because of dementia. Also,
legally, all long-term care policies are guaranteed renewable, so the
company cannot drop you if you develop a serious health problem.
The policy is a legal contract between you and the insurance company,
so read everything carefully. Most policies allow you to cancel within
10 days for a full refund if the policy does not meet your expectations.
How Much Does It Cost?
Premiums are based on your age when you purchase the policy. After age
60, premiums begin to increase substantially. You can reduce them by covering
the first 90 or 100 days yourself. Also, higher daily benefits mean a
higher premium. If you have Social Security or a pension benefit, you
won’t need to cover the full cost from insurance. Smoking increases
premiums. Good health when you purchase the policy reduces them.
In addition to premiums, you often have to pay a commission to the agent.
The average long-term care insurance commission is 48.5 percent for the
first year and ranges from 50 to 66 percent of the first year’s premium.
To keep the commission to a minimum, buy only what you need, not more.
Check the cost of facilities and services in your area. Learn the facilty’s
policy on increasing rates. Ask the facility managers what additional
costs you must pay yourself, such as a private phone, hair care, meals
away from the facility, transportation to appointments, etc.
Colorado was the first state to require insurers to offer two standardized
benefit packages along with any other package they sell (Table 1).
| Table 1: Colorado standardized long-term care
insurance plans. |
| Benefit |
Basic nursing home plan |
Standard nursing home and home care plan |
| Benefits |
Comprehensive coverage of home and community care, nursing
home care, and licensed residential care alternatives. Other benefit
features required. |
| Daily benefit |
Up to $110/day. |
| Maximum benefit |
$115,000. |
$192,000* |
| Deductible period |
60 days once per lifetime. |
| Inflation protection |
5% compound automatic annual increase; may be waived. |
| Benefit triggers |
Meets federal definition of chronically ill
individual. Standby assistance with at least 2 activities of daily
living (i.e., bathing, continence, dressing, eating, toileting, transferring)
or has severe cognitive impairment. |
| Federal tax status |
Must be federally qualified for tax-deductibility per
HIPAA law and regulation. |
| Target market |
Must be shown to all potential purchasers. |
| *Unless inflation protection is purchased
|
| Table 2: Comparing long-term care insurance
policies. |
| Comparative Factors |
Policy A |
Policy B |
Policy C |
|
| Covers all levels of care (nursing home, home care,
assisted living, adult day care) in a state-licensed facility. |
|
|
|
|
| Inflation protection (none, simple, compound). |
|
|
|
|
| Covers ADLs or cognitive impairment, including Alzheimer's
disease. |
|
|
|
|
| Premiums competitive, not dramatically below market
rates. |
|
|
|
|
| Issuing company has billions in assets. |
|
|
|
|
| Standard & Poor's rating of A or better. |
|
|
|
|
| Amount of daily benefit (50%, 80%, 100%). Make sure
all comparisons are equivalent. |
|
|
|
|
| Deductible period. |
|
|
|
|
| Length of coverage. |
|
|
|
|
| Pays daily rate even when away from the facility (hospital,
visiting). |
|
|
|
|
| Bed reservation benefit (holds your bed for a short
hospital stay. |
|
|
|
|
| Length of time company has sold long-term care policies. |
|
|
|
|
| Waiver of premium possibilities |
|
|
|
|
| Waiting period for pre-existing conditions |
|
|
|
|
| Eligibility determination - - who decides |
|
|
|
|
| Marital discount possibility |
|
|
|
|
| Third party notification |
|
|
|
|
| Elimination period satisfied once in lifetime |
|
|
|
|
| Table 3: Comparison of identical policies purchased
at different ages. ** |
| Sample Company |
Price per year if purchased at age:
|
| |
50
|
60
|
70
|
| A |
$497
|
$831
|
$1,925
|
| B |
$407
|
$659
|
$1,464
|
| C |
$585
|
$1,070
|
$2,191
|
Source: Colorado Division
of Insurance, 2003
**Unless the company has a rate hike that applies to all policyholders
because their actuaries mispriced the policy, your price is set based
upon your purchase age so does not automatically increase as you get
older. |
For More Information
- Colorado State Division of Insurance, 1560 Broadway, Suite 850, Denver,
CO 80202. Phone: (303) 894-7499. Web: www.dora.state.co.us/insurance/senior/ltc.htm
- Area Agency on Aging. See your local phone book or contact the Colorado
Department of Aging (below).
- Colorado Department of Aging, 110, 16th St., Denver, CO 80203. Phone:
(303)
620-4147. Web: www.cdhs.state.co.us/oss/aas/about1.html
- Colorado Senior Law Handbook, Colorado Bar Association, 1900 Grant
St., Denver, CO 80203. Phone: (800) 332-6736.
- National Institute on Aging, 330 Independence Ave., SW, Washington,
DC 20201. Phone: (202) 619-7501. Web: www.aoa.dhhs.gov
- Center for Medicare and Medicaid Services, 7500 Security Blvd., Baltimore,
MD 21244-1850. Phone: (877) 267-2323. Web: www.cms.hhs.gov
- “Understanding Long-Term Care Insurance.” Contact the Colorado
Department of Insurance, www.dora.state.co.us/insurance/consumer/tip4.pdf
- National Academy of Elder Law Attorneys, Inc., 1604 No. Country Club
Rd., Tucson, AZ 85716. Phone: (520) 881-4005. WebL www.naela.org
- National Eldercare locator service, National Association of Area Agencies
on Aging, 927 15th St., NW, Washington, DC 20005. Phone: (800) 677-1116.
Web: www.eldercare.gov.
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