On average our life spans are longer than any in human history. This is good to hear, good to know. Then you realize that you may not have the finances to pay for extended medical care, for yourself of your family. Not good to hear.
That’s where long-term care insurance comes in, a somewhat new kind of coverage that is structured to cover long-term care services—services which otherwise waste no time in draining a savings account.
Costs for nursing home care, home care and adult day center care differ quite a bit nationwide: In 1996 care in a nursing home averaged around $50,000 to $60,000 or more; home care costs were around $50 – $200 per day, a fee that is contingent upon the type of care provided as well as the number of hours each day; and adult day services range from about $30 to $130 per day.
Suddenly, annual premiums for insurance coverage on long-term care bills sounds pretty good.
But before you get too thrilled, long-term care insurance is not cheap and in fact would not make financial sense for the majority.
The following presents some fundamentals concerning long-term care insurance; read through to see if it and you or your family make a good match.
Long Term Care Insurance: A Brief Explanation of Long-Term Care
Which among us will live into our golden years, doing so independently in our own place and taking care of our own day-to-day affairs, and which of us will need the services of a nursing home? No one can say, but for those of us who will need assistance, long-term care is typically broken into three types or levels:
• Skilled nursing care
Some medical conditions require skilled medical personnel (registered nurses or professional therapists) working 24 hours a day according to a physician’s instructions. Others require skilled care for a brief time, in the wake of an illness or following discharge from a hospital. Nursing homes generally provide skilled care, and in rare instances skilled nursing care can give it to folks in their own homes.
• Intermediate nursing care
For conditions that are stable and need daily nursing supervision but not anything like round-the-clock care. Although directed by a physician and supervised by registered nurses, intermediate nursing care is not as specialized and often can really be more about personal care. Finally, most who require this type of care need it for a long time.
• Custodial care
Generally carried out by unskilled personnel, custodial care helps folks manage day-to-day issues as basic as bathing, eating, and dressing. Nursing homes almost universally provide it.
Long Term Care Insurance: Paying big bucks for Long-Term Care
One third of nursing home expenses are paid for by the patient and his family—payment they only manage to make sometimes by selling off assets. Meanwhile, state Medicaid programs cover approximately half of all nursing home care, but you can’t rely on those programs (Medicare and Medigap) for care over the long-term.
In order for Medicare to cover the first 100 days of skilled nursing home care, the patient has to meet some tough requirements as well as offer a substantial co-pay on day 20. Additionally, Medicare does not cover custodial care or prolonged home care, and neither does Medigap.
Long Term Care Insurance: Who it would Benefit Most
Long-term care insurance is often bought by people with a substantial estate who wish to protect it from long-term care costs, which can wipe out sizeable assets in a very short period of time. However, people purchase private insurance policies so that the extensive costs of long-term care don’t clear out their assets, but in this regard long-term insurance policies are not cost-effective: High premiums, coupled with premium increases and the need to cover some costs out-of-pocket make it a poor financial investment for most.
Long-term care insurance might be best understood as you placing a wager on your well-being down the road. If you do wind up in a nursing home, then your wager will have paid off, but the odds are slim: In short, a long-term care policy is a reasonable decision if you can very easily afford it, but it isn’t really the kind of investment one should make if doing so creates any sort of financial problems in your day-to-day life.
Ask yourself this: Does your family have a history of chronic or debilitating illnesses, ones that strike family members in their sixties? If so, long-term care insurance could be a very good idea.
However, the non-profit United Seniors Health Cooperative believes that no one should consider buying long-term care insurance unless they can do so with ease, without having to make any lifestyle changes in order to afford it. Otherwise, they argue that you will be no worse off financially by not buying one of these policies and instead allowing your savings to accrue interest.
Long Term Care Insurance: How It Works
Long-term care insurance policies can vary widely from one company to the next, with differing eligibility requirements, restrictions, services, costs and benefits. In general however, these policies cover the following services:
• Nursing home care (skilled, intermediate and custodial);
• Care in one’s home and in adult day care centers;
• Assisted living
• Personal care
• Hospice care
• Specialized care (for those suffering from the likes of Alzheimer’s).
Many other services are not included, such as psychological disorders (depression, anxiety etc) substance abuse, illnesses or injuries caused by war (Agent Orange syndrome), or any form of self-inflicted injuries, including attempted suicide.
Daily Benefits & Benefits Periods
Policy holders are offered a choice of daily benefits (what the company will pay per day for care) which usually ranges from $40 to $250 per day for nursing home care. To determine what you need, first determine the costs of nursing facilities in your area. Home care benefits are generally one-half of that for nursing home care, and only pay up to a fixed amount per hour of service rendered (for instance, $60/day or $20/hour). It is unlikely that your policy will pay for your needs in full; rather, where they stop paying, you start.
Policy holders must also choose a benefit period (how long the company will pay for care). Periods may run one year, two, four, six, ten years or for the rest of your life. The higher the daily benefit, and the longer the benefit period, the more expensive the policy is.
You Are Your Own Best Protection
Long-term care insurance policies are not carbon copies—they differ from one to the next. Consider asking these questions when deciding on a policy:
• What conditions must first be met to collect benefits?
• Does the policy pay for any type of nursing home, or only ones that offer skilled care?
• If it does not pay for custodial home care or hospice care, when will it?
• What types of facilities are covered? It isn’t uncommon for policies to cover facilities that meet certain criteria established by the insurer.
• Are there built-in benefit increases to allow for inflation or is the benefit amount pre-fixed?
• Does the policy feature any provisions to provide coverage in the event the current policy has lapsed?
• Will it cover expenses outside the local area?
• What is not included in coverage?
• Do premiums increase with age?
• If you go into a nursing home, does the policy require premiums payments then?
• Is this a guaranteed renewable policy? (this provision protects the consumer, since it means the company can’t cancel the policy unless you stop paying its premiums, period)
Long Term Care Insurance: Red Flags From AARP
The American Association of Retired Persons (AARP) distributes the following list of Don’ts to keep in mind when shopping for long-term care insurance:
• Don’t sign a policy unless it has a guaranteed renewable provision. If the insurer has the sole option of canceling the policy, don’t walk—run away..
• Don’t sign a policy if even one section or paragraph is mysterious to you.
• Don’t buy a policy if you can only just afford it, since premiums will without doubt go up.
• Don’t buy any policy if your income is such that you will spend down your assets to qualify for Medicaid benefits within six months of needing care (see below).
• Don’t buy a policy that pays home care or custodial benefits only after skilled care has been given.
• Don’t buy a policy that only covers skilled nursing care.
• Don’t buy a policy that only covers care from Medicare-certified nursing homes—unless your area features a number of these
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