| |
What
is 'long-term care'?
Because of old age, mental or physical illness,
or injury, some people find themselves in need of
help with eating, bathing, dressing, toileting or
continence, and/or transferring (e.g., getting out
of a chair or out of bed). These six actions are
called Activities of Daily Living–sometimes
referred to as ADLs. In general, if you can’t
do two or more of these activities, or if you have
a cognitive impairment, you are said to need “long-term
care.”
Long-term care isn’t a very helpful name for
this type of situation because, for one thing, it
might not last for a long time. Some people who
need ADL services might need them only for a few
months or less.
Many people think that long-term care is provided
exclusively in a nursing home. It can be, but it
can also be provided in an adult day care center,
an assisted living facility, or at home.
Assistance with ADLs, called “custodial care,”
may be provided in the same place as (and therefore
is sometimes confused with) “skilled care.”
Skilled care means medical, nursing, or rehabilitative
services, including help taking medicine, undergoing
testing (e.g. blood pressure), or other similar
services. This distinction is important because
Medicare and most private health insurance pays
only for skilled care–not custodial care.
|
| |
Will
I need long-term care?
If you’re under 55, it’s unlikely. Even
over 55, only a small percentage of the population
will need long-term care before they are in their
70s or 80s. To illustrate, current research suggests
that, of a group of healthy 65-year-olds, in their
lifetime,
|
 |
56 percent won’t ever use
a nursing home |
|
|
12 percent will use a nursing home
for less than 3 months |
|
|
9 percent will use a nursing home
for 3 months to a year |
|
|
15 percent will use a nursing home
for 1 year to 5 years, and |
|
|
8 percent will use a nursing home
for 5 years or longer.
|
For another perspective,
according to data from actuarial consulting firm
Milliman & Robertson, the probability of a 45-year-old
male having a qualifying nursing home admission
is about 1 in 1000, but for an 85-year-old male
it’s 60 in 1000. Separately, the U.S. Department
of Health and Human Services reported in mid-2002
that nearly half of all men and women age 85 and
older had Alzheimer’s Disease or other forms
of dementia.
But if you’re under 85 it doesn’t mean
you should ignore the topic of long-term care insurance
because
|
|
You might already be unable to buy
long-term care insurance. Wakely Consulting Group,
an actuarial firm, studied applicants for long-term
care insurance in 2003-2004; the findings: 11 percent
in their 50s were rejected, 19 percent in their
60s were rejected, and 43 percent in their 70s were
rejected. |
|
|
A Milliman actuary reported an estimate
that 15 to 25 percent of the over-65 age group are
uninsurable for long-term care. |
|
|
A report from the Henry J. Kaiser
Foundation indicates that there are over five million
people ages 18-64 who need some type of long-term
care. |
|
|
The latest data from the National
Center for Health Statistics (for 1999) reported
that roughly 160,000 of the people living in nursing
homes were under age 65 (nearly 10 percent of the
total). Of those receiving home health care services,
roughly 400,000 were under 65 (about 30 percent
of the total). |
| |
Should
I buy long-term care insurance?
If you need long-term care services and have to
pay to obtain them, what financial resources could
you call on? Do you have enough to pay for four
or more years in a nursing home, an assisted living
facility, or home health care?
If you’re over 65, don’t rely on Medicare
or private health insurance. Medicare doesn’t
pay for custodial care, and private health insurance
rarely pays any of the cost of long-term care.
If you expect to have very little money when you
need long-term care services, you might qualify
for Medicaid, a government program that pays the
medical and long-term care expenses of poor people.
If you expect to be in that situation, you probably
shouldn’t buy long-term care insurance, because
your state’s Medicaid program will pay your
long-term care expenses. Buying long-term care insurance
would only save the state—not you—money.
The exception is if you live in California, Connecticut,
Indiana, or New York, states that have a Partnership
for Long-Term Care program. For residents of these
four states, buying long-term care insurance does
offer an additional benefit.
If you expect to have a lot of money when you need
long-term care services, you also probably shouldn’t
buy long-term care insurance. Instead, you should
plan to pay for the care “out of pocket”—that
is, as a regular expense. One financial advisor
suggested in a newspaper interview that if your
net worth is in the $1.5 million range, not including
the value of your home, you could safely skip buying
long-term care insurance and treat long-term care
expenses, if they arise, as you do your other bills.
If you fall in-between these two categories, owning
long-term care insurance, like all other insurance
coverages, offers peace-of-mind benefits as well
as financial ones. For example, a recent survey
of people age 50 and over asked how confident they
were that they could pay for long-term care services
if they needed them. Among those with long-term
care policies, 52 percent said they were very confident
and another 40 percent said they were somewhat confident.
Among those who didn’t own a long-term care
policy, only 8 percent were very confident and only
27 percent were somewhat confident.
So, unless you have so little money that you will
qualify for Medicaid, or so much money that you
can pay the bills out of your own pocket, you should
consider buying long-term care insurance. |
| |
How
much does long-term care cost?
The fact that you might need long-term care doesn’t
mean that you have to pay someone to provide it.
Many people who need help get it for free from a
relative or friend, usually at home. In a recent
survey of people over 50, roughly 90 percent said
they expect to be the primary caregiver if their
spouse or partner needs long-term care.
But even unpaid caregivers need a break from time
to time, or have full- or part-time jobs that prevent
them from caregiving throughout the day. If you
do pay someone to provide assistance with ADLs,
the cost of long-term care depends on three factors
– the general level of charges in your part
of the country, the specific expense rate for the
services you need, and how long the need for care
lasts.
According to a survey by the MetLife Mature Market
Institute (MMI) in August 2005, the average cost
for a month in a semiprivate room in a nursing home
ranged from a low of $3,000 in Shreveport, LA, to
a high of $9,500 in the Stamford, CT, area. (Actually,
the average cost for a month in a semiprivate nursing
home room was $14,200 statewide in Alaska, but this
is a true “outlier.” The next highest
cost was in the Stamford CT area.) A year-long stay
translates to $36,900 in Shreveport and $115,700
in the Stamford area (and $172,600 in Alaska).
The same survey also covered costs for Home Health
Care. In August 2005, the lowest average hourly
rate for a home health aide was $12 in Shreveport,
and the highest was $28 in Rochester, MN. (Surprisingly,
Alaska was not tops in the nation for this service;
at $22, it was close to the national average of
$19.) If you need a home health aide around the
clock, this translates to a daily rate ranging from
$288 to $672, or a monthly rate of $8,640 to $20,160.
In October 2004, the MMI surveyed costs of Assisted
Living. The lowest average monthly base rate it
found was $1,340 in Miami, and the highest was $3,700
in the Washington, D.C. metro area and also statewide
in Alaska.
In another study, of people making claims under
long-term care insurance policies, roughly one in
four claims were for two years or more. One in twelve
claims were for four years or more.
Finally, don’t forget that long-term care
costs, like most health care costs, are rising faster
than the general rate of inflation. The bottom line?
A four-year-or-longer stay in a nursing home could
cost $300,000 or more – in today’s dollars.
If you can’t pay this out of your own pocket
and aren’t poor enough to qualify for Medicaid,
you should consider buying long-term care insurance.
|
| |
What's
the best age to buy long-term care insurance?
In general, it's a good idea to buy long-term care
insurance before you’re 60, for two reasons:
|
|
The younger you are, the less likely
it is that you’ll be rejected when you apply
for the policy. If you apply in your 50s, there’s
a one in ten chance you’ll be rejected. If
you apply in your 60s, the chance of rejection is
two in ten. If you apply in your 70s, the chance
of rejection is four in ten. |
|
|
The younger you are, the lower the
premium will be for a given set of benefits and
features. Once the premium is set, it stays at that
amount for the life of the policy, unless the claims
for the group of people who have bought that type
of policy require that rates for the group be raised. |
| |
What
features of long-term care policies should I focus
on?
There are various questions and issues to keep in
mind when choosing a long-term care policy. |
| |
Where
may care occur?
The best policies pay for care in a nursing home,
assisted living facility, or at home. Benefits are
typically expressed in daily amounts, with a lifetime
maximum. Some policies pay half as much per day
for at-home care as for nursing home care. Others
pay the same amount, or have a "pool of benefits"
that can be tapped as needed. |
| |
Under
what conditions will the policy begin paying benefits?
The policy should state the various conditions that
must be met.
|
|
Some older policies require a hospital
stay of at least three days before benefits can
be paid. This requirement is very restrictive; you
should avoid it. |
|
|
Most policies have a “waiting
period” or "elimination" period.
This is a period that begins when you first need
long-term care and lasts as long as the policy provides.
During the waiting period, the policy will not pay
benefits. If you recover before the waiting period
ends, the policy doesn’t pay for expenses
you incur during the waiting period. The policy
pays only for expenses that occur after the waiting
period is over, if you continue to need care. In
general, the longer the waiting period, the lower
the premium for the long-term care policy. |
| |
What
previous events must occur before the policy begins
paying benefits?
|
|
Some older policies require a hospital
stay of at least three days before benefits can
be paid. This requirement is very restrictive; you
should avoid it. |
|
|
Most policies have a “waiting
period” or "elimination" period.
This is a period that begins when you first need
long-term care and lasts as long as the policy provides.
During the waiting period, the policy will not pay
benefits. If you recover before the waiting period
ends, the policy doesn’t pay for expenses
you incur during the waiting period. The policy
pays only for expenses that occur after the waiting
period is over, if you continue to need care. In
general, the longer the waiting period, the lower
the premium for the long-term care policy. |
| |
How
long will benefits last?
A benefit period may range from two years to lifetime.
You can keep premiums down by electing coverage
for three to four years—longer than the average
nursing home stay—instead of lifetime. |
| |
Six
other important policy provisions
|
|
Inflation protection is an important
feature, especially if you are under 65 when you
buy benefits that you may not use for 20 years or
more. A good inflation provision compounds benefits
at 5 percent a year. |
|
|
Guaranteed renewable policies must
be renewed by the insurance company, although premiums
can go up if they are increased for an entire class
of policyholders. |
|
|
Waiver of premium, so that no further
premiums are due once you start to receive benefits.
|
|
|
Third-party notification, so that
a relative, friend or professional adviser will
be notified if you forget to pay a premium. |
|
|
Nonforfeiture benefits keep a lesser
amount of insurance in force if you let the policy
lapse. This provision is required by some states.
|
|
|
Restoration of benefits, which ensures
that maximum benefits are put back in place if you
receive benefits for a time, then recover and go
for a specified period (typically six months) without
receiving benefits. |
| |
How
can I save on long-term care insurance?
The tips below will help you save money wisely,
but don’t rely on price alone.
MOST IMPORTANT: Because you may not collect for
decades to come, be sure to buy from a company that
has been around for some time and is financially
stable. You may want to look up, from an independent
rating agency, the financial strength ratings of
a company you're considering.
GENERAL GUIDELINE: Keep the premium for your long-term
care insurance policy to 7 percent of your income,
or less. For example, if your monthly income is
$4,000, the long-term care insurance premium should
not be more than $280 per month. (This is what the
National Association of Insurance Commissioners
recommends in its Model Regulation for Long-Term
Care Insurance.) Another expert advises that the
income to use in this calculation isn’t your
current income, but your expected income in retirement,
since that’s the income from which you’ll
be paying premiums for most of the policy’s
existence. |
| |
Other
ways of saving:
|
|
Find out if long-term care benefits
are available through a group policy from your employer.
Employers might subsidize the cost, lowering what
you must pay. |
| |
|
Check whether you can add long-term
care benefits as a rider on an existing life insurance
or annuity policy. These “combination”
arrangements can save because the insurance company
gains operational savings that it can pass along
to you. |
|
|
Buy a policy with the longest waiting
period you can afford. For example, choosing a 90-day
period instead of a 30-day period can cut the premium
by 30%. However, if you do need long-term care services,
you should save some money to pay these costs until
the waiting period ends. |
|
|
If both spouses of a married couple
are considering buying long-term care policies,
look into buying one joint policy for both of you.
Such a policy pays when either one needs care and
can pay for both, if necessary, up to its benefit
limits. |
|
|
If you’re still looking to
trim the premium further, consider buying a policy
that will pay most, but not all, of the average
nursing home costs in your area. For example, if
a nursing home room now costs $120 per day, buy
a policy that pays $100 per day. However, be sure
to buy an inflation-protection provision. |
|
|
Check with several companies and
agents, comparing both benefits and costs. As with
other types of insurance (and many other purchases),
comparison shopping can save you money. Just be
sure you’re comparing policies with similar
provisions and companies with comparable financial
strength and service records. |
| |
Should
I invest instead of buying long-term care insurance?
If you're under 55, you might think that, since
the likelihood of long-term care outlays is many
years in the future, you could invest the money
you might otherwise spend for long-term care insurance
premiums. That way, if you do need long-term care,
you could just draw upon that investment, and if
not, you’d have money for your heirs, for
a charitable donation, or for your own needs.
But this strategy leaves you vulnerable if you need
long-term care services in your late 50s, 60s, or
early 70s. And it might also leave you vulnerable
if you need these services for a long time, even
if you don’t need assistance until you’re
in your 80s. Here’s why:
|
|
Assume you’re 55 and won’t
need long-term care for 30 years, when you’re
85. |
|
|
Assume you save $2,000 per year,(1)
that you invest the savings, and that your investment
grows at 5 percent per year, net after taxes.
|
After 30 years, your
savings will have grown to $139,500.
|
|
Assume today’s monthly cost
of round-the-clock home health care grows, due to
inflation, by only 3 percent per year, from $12,000
per month now to $28,300 per month then.
|
At that time, if all
these assumptions prove to be true, your savings
would be able to pay for five months of round-the-clock
home care or maybe nine months of nursing home care;
if you need more – say, because the cost of
long-term care services grew faster than 3percent
per year—you’d have to liquidate other
assets that you hadn’t planned to liquidate,
if you have them.
|
| This figure is not intended
to represent the premium for a long-term care policy
for a 55-year-old, because premiums vary considerably
depending on the daily benefit amount, length of
benefit period, length of waiting period, and inflation
and other policy features. It only shows how the
overall analysis might work. |
| |
What
are 'Partnership for Long-Term Care' programs?
Residents of California, Connecticut, Indiana and
New York may take advantage of their state’s
Partnership for Long-Term Care program.
Medicaid is a state-government-administered program
that pays the medical and long-term care expenses
of poor people. If you have more money than your
state permits when you need long-term care services,
your state’s Medicaid won’t pay for
those services. You’ll have to spend your
own money–including using up your assets–until
you become poor enough to qualify.
But if you live in California, Connecticut, Indiana
or New York and you participate in the state’s
Partnership for Long-Term Care program, you can
qualify for Medicaid without spending yourself into
poverty. To participate in the Partnership, you
must buy a long-term care insurance policy that
contains at least the basic benefits required by
the Partnership program.
A 1993 federal law prohibits other states from creating
Partnership programs, but 16 states have since enacted
laws that will establish Partnership programs as
soon as the prohibition is lifted.
Each state’s program is different, so be sure
to learn the details of your state’s Partnership
program before buying a long-term care policy.
In California, for example, the basic benefits include
the following:
|
|
Interchangeable benefits that can
be switched between nursing home care and home care,
or a combination of the two. |
|
|
A deductible that must be met only
once in your lifetime. |
|
|
Inflation protection to insure that
benefits keep pace with the rising cost of care. |
|
|
Waiver of premiums while you are
receiving benefits in a nursing home or residential
care facility. |
|
|
Care coordination to assist you
in planning and obtaining the services you want
and need.
|
Under the California
Partnership program, two types of policies are available–one
that covers only benefits delivered in a nursing
home or residential care facility, and one that
covers comprehensively (at home, in a community
facility, in a residential care facility, or in
a nursing home).
What’s the benefit of participating in the
Partnership? If you live in California, Connecticut,
or Indiana, for example, and you
|
|
buy a policy under the program, |
|
|
live in the state while receiving
long-term care services, and |
|
|
receive and exhaust the benefits
under the policy for long-term care services,
|
you can apply for Medicaid
benefits even though you haven’t sold and
used your assets. Each dollar paid by the insurance
company is a dollar of assets you can keep in addition
to the minimums permitted by your state’s
Medicaid rules.
For example, suppose the long-term care policy has
paid $50,000 in benefits; in that case, you can
keep $50,000 in investments or savings and still
qualify for Medicaid. Without a Partnership long-term
care policy, you’d probably have to spend
virtually all of that $50,000 (this is called spending
down) before you became eligible for Medicaid to
pay your long-term care bills. However, even under
the Partnership program, although you get to keep
your assets, you might still have to use part of
your income to pay long-term care expenses.
Connecticut and Indiana have a reciprocity agreement,
so that if you buy a policy under one state’s
Partnership program and move to the other state,
you can obtain the benefits of the other state’s
partnership program.
|
| |
|
| |
|
