INSURANCE  -  LONG-TERM CARE
 
 

The statistics are startling: 40 percent of all Americans age 65 or older will spend at least some portion of their lives in a nursing home, although most stay in a nursing home only temporarily. Half of all couples exhaust their entire life’s savings within a year of one spouse’s being admitted to a long-term care facility. The average annual cost of a nursing home stay is $25,000 – a figure that can reach $50,000 or more in some metropolitan areas.

Furthermore, costs are increasing well ahead of inflation. Annual increases of 10 to 15 percent are not unusual. Moreover, for every person who is in a nursing home, there are several other elderly who are being cared for by family members, often at great financial cost.

Yet Medicare – even when coupled with private Medigap coverage – generally pays only for post-hospitalization stays in “skilled nursing facilities.” Custodial and intermediate care, the kind of care that most people in nursing homes receive, is not covered by either Medicare or Medigap.

Faced with these alarming statistics, many seniors are considering a relatively new and increasingly popular type of coverage known as long-term care (LTC) insurance, also called nursing home insurance. Unfortunately, this insurance has been vastly oversold, and it often falls far short of meeting the expectations of the people who buy the policies. Recently, however, policy features and benefits have shown some marked improvements. LTC insurance can be a partial solution to the nursing home and home health-care cost dilemma.

Long-term care insurance is usually offered as a separate policy, but it is sometimes available as a life insurance policy rider. Under certain circumstances – like being confined to a nursing home or requiring home health care – these riders permit the policyholder to take the death benefit in the form of a monthly annuity. If you elect to take this coverage as part of a cash value life insurance contract, you may even be able to leave intact the bulk of the policy’s death benefit.
 
 

The Mechanics of Long-Term Care Policies

Who can be covered?

Long-term care insurance is issued to those as young as forty and as old as eighty-four. Level premiums are based on the current age of the insured; discounts are available for married couples. Most policies are guaranteed renewable and include a waiver of premium during the benefit period.

How benefits work

Generally, a long-term care policy covers four basic types of care: skilled, intermediate, custodial, and home. The first three types of care are usually provided in a hospital-like institution, with different floors or wings dedicated to different types of care. At-home care requires the services of a paid nurse or attendant: depending on the individual’s condition, the caregiver might be on duty anywhere from around the clock to only a few hours each day.

Long-term care policies provide daily benefits ranging from $50 to $100 or higher for the first three types of care; benefits for home care are often about half that for nursing home care. The maximum benefit period is usually five years. In place of the deductible required by most standard medical policies, most LTC policies impose an “elimination period” – a time period after admission to a long-term care facility during which no benefits are paid. Elimination periods vary from policy to policy, and some companies offer policies with no elimination period at all. While a longer elimination period does lower the premium, remember that the average nursing home stay is only 60 days, so it doesn’t make much sense to purchase a policy with an elimination period that is longer than the average nursing home stay.

Policyholders can typically lower their premiums by 15 percent by waiving the inflation-adjustment and hospice coverage. But the inflation-adjustment provision can be crucial given the escalating costs of nursing homes. Policyholders desiring lifetime coverage, as opposed to a five-year cap, must pay a premium that is around 20 percent higher than that for ordinary coverage. When the policy covers home health-care, benefits amount to about half of the institutional payment. For a policyholder to qualify for the home health-care benefit, a physician must periodically certify the fact that the individual suffers from disabilities that make an independent lifestyle unfeasible. Some long-term care policies now cover adult day care as well.
 

Choosing an appropriate policy

In evaluating a long-term care policy, take the following important matters into account:

v   Does the policy cover illnesses like Alzheimer’s and Parkinson’s disease?

v   Are preexisting conditions covered?

v   Is prior hospitalization required for nursing home admission at any level of care?

v   Does the policy provide inflation protection that automatically increases benefits with each passing year?

v   Is the coverage renewable for life? It should be as long as you pay your premiums.

v   Does the premium remain the same throughout the life of the policy?

v   Is your premium waived after you have been receiving benefits for at most 90 consecutive days?