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By
Ken Story &
Luke Gjurasic |
As Americans live longer and more of us face the potential of needing to pay for our own care outside of the hospital, many are exploring the options available through a Long Term Care insurance policy.
What is Long Term Care Insurance?
Simply put, a Long Term Care (LTC) insurance policy pays for your care, outside of a hospital, resulting from a serious disability or illness. Exactly when it will pay, how much it will pay, who it will pay and where it will pay are important distinctions which separate one policy from another.
LTC insurance is a relatively new form of insurance. The first policy was written less than 40 years ago, but since that time we have seen a literal explosion in terms of the need for the care, the cost of care and the availability of quality insurance policies.
Initially designed to provide nursing home care only, now LTC policies offer the option of nursing home care, home health care and a number of "alternate" forms of care, including assisted living and residential care facilities. Policies that provide the full range of coverage are referred to as "comprehensive" or "integrated" policies. They typically provide coverage anywhere in the United States while a few extend worldwide.
What about my Health Insurance, Medicare or Medicaid?
Many people incorrectly assume that their health insurance or Medicare will pay for the cost of long-term care. In fact, typical health insurance policies provide no coverage, while Medicare provides a very limited amount of skilled care, and in total, pays for less than 3% of the cost of LTC in this country. Medicaid, which is a health insurance program funded by both Washington State and the Federal Government, provides basic coverage for the indigent and poor, but only when they have spent down to the poverty level.
What do I Look for in a Policy?
There are six basic components of any Long Term Care insurance policy:
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1) Where Will the Policy Pay for My Care . A comprehensive policy will pay for care in your home, an assisted living facility, an adult family home, or a nursing home, anywhere in the United States. Watch out for policies that pay for a reduced benefit for home care or offer none at all.
Also, make sure you know who is permitted to be a paid caregiver.
2) The Maximum Daily Benefit. This is the most per day (or per month) the policy will pay towards you care. Raising or lowering this benefit will have a lineal impact on your price. Limits range from $100/day to over $350/day. In 2007, according to Met Life, the average daily cost of a nursing home stay (semi-private room) in King County, WA was $224/day.
3) The Maximum Lifetime Benefit . This is the maximum amount of money the policy will pay over the course of your lifetime. This limit is a function of the daily limit (#2 above) times the number of years of coverage. Example: A policy with a daily benefit of $200/day and a 5 year benefit period would have a maximum lifetime benefit of $365,000 ($200 x 1,825 days). This total is referred to as your "pool of money". Additionally, unlimited benefits are available at a higher rate.
4) Inflation. There are two types of inflation available and it is critical that you understand the difference.
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A) Automatic Inflation (a rider).
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I) Both the
daily limit and the maximum lifetime limit will automatically be raised each year without raising the cost of the insurance policy, though you will pay more for the rider.
II) There are many options here, the most common are:
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a) 5% compound
b) 5% simple
c) Consumer Price Index (CPI)
6) How do You Qualify for Benefits. Most policies sold today are tax-qualified and thus must follow some standardized wording enacted by the Federal Government in 1997. Look for policies that allow you to qualify for benefits if you:
A) Have a severe cognitive impairment, requiring supervision, or
B) Need substantial assistance for at least 90 days with at least 2 of 6 activities of daily living (eating, bathing, toileting, dressing, countenance, or transferring).
Five factors influence the cost of insurance:
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1) Your Age.
The older you are, the more expensive the insurance. However, once you
purchase a policy, the price is designed to stay level (see "can they
raise my rates?")
2) Your Health. The healthier you are, the less you pay. The poorer your health, the more you will pay.
3) Coverage. The more coverage you buy, the more expensive the policy, but the less risk you will assume.
4) Rates. Different companies charge different prices for similar coverage.
5) Your Lifestyle. Discounts are often available for people with active, responsible lifestyles.
Can They Raise My Rates?
In Washington State, the rates can only be raised if they are raised for
everyone in your class and the rate is approved by the Insurance Commissioner's
Office. It is very unusual to see rate increases in LTC insurance policies.
Under no circumstance can the rates be raised because of your health, because
you file a claim, or because you get older.
When Should I Buy LTC Insurance?
While there is no simple answer to this question, policies are less expensive
for people who are healthy and the younger you are, the less costly the
coverage. Suzie Orman, in her book The 9 Steps to Financial Freedom,
says it is best to consider the insurance while you are in your 50's, but
anyone 40 or older should take a look. We believe the best time to purchase is when:
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a) you are healthy
b) it is affordable
c) it is high on your priority list
How Do I Know I am Not Getting Ripped Off?
Take your time. Attend a seminar. Evaluate both cost and coverage. Find balance between what is reasonable in terms of coverage with what is affordable in price. Favor experienced agents and companies that are financially sound with a proven track record in LTC.
Role of the Federal Government
During recent years the Federal Government had taken an increased interest in LTC insurance, because they realize that the more Americans who purchase policies the fewer will need government aide. Faced with the challenges of Social Security and Medicare, they are not prepared to deal with the cost of caring for the disabled elderly. The Federal Government sponsors a group plan underwritten by John Hancock and Met Life. It is available to active and retired Federal Employees and spouses.
In the future, look to the Federal Government to be offering increased tax incentives to those who purchase policies and for it to be sponsoring a massive education program to help more Americans understand how vulnerable they might be without LTC insurance.
Tax-Qualified Policies
The cost of certain tax-qualified LTC policies can be treated as a medical expense when filing your federal tax returns. How you qualify for benefits is virtually identical among all tax-qualified policies, but varies widely among non-qualified policies. If you are self-employed or own a business you will likely get a tax deduction because the cost of LTC insurance is treated similar to health insurance premiums.
Discounts
We represent a number of insurance companies that offer exclusive discounts for a variety of associations, including AAA Washington, AIA, and University of Washington Retirees Association and Boeing . We may be able to save you some money. Simply e-mail us or give us a call.
Bottom Line
Whether or not you purchase a policy is not the critical issue. What is important is that you make an informed decision.