As life expectancy increases, so do the costs associated with ageing, especially when seniors need help with daily tasks like dressing or eating.A 2011 MetLife survey shows that the national average cost for a home health aide was $21,840 annually, while a private room in a nursing home cost $87,235 per year in 2011.
According to Department of Health and Human Services, close to 70 per cent of people over age 65 need long-term care, which can include care in a nursing home or assisted living facility, or home health aides to assist with daily activities like bathing or meal preparation.
For low-income individuals, Medicaid covers costs such as nursing home care in a Medicaid-approved facility. But those who have sizable assets would need to transfer assets or spend them down before qualifying for Medicaid.
Medicare covers certain medical needs, but not day-to-day activities like dressing, bathing, or using the bathroom. “There are very few pieces of long-term care that involve medical treatment,” explains Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute, a nonprofit consumer education organisation. “If you need help taking your medicine, Medicare would tend to pay for that sort of thing. But helping you take a shower in the morning? That’s not a medical activity.”
If your life insurance policy offers an accelerated death benefit, that would allow you to use some of your life insurance money while you’re still alive to cover long-term care costs. Long-term care insurance is another way to cover those costs, and it’s especially appealing to those with assets they want to protect instead of spending them down to qualify for Medicaid. “In essence, you’re insuring your bequest to your heirs,” says Gerard Wedig, healthcare economist and associate professor of business administration at the Simon School of Business at the University of Rochester.
In fact, the only people who should be buying long-term care insurance are those with assets over $50,000, according to Sandy Praeger, Kansas insurance commissioner and chair of the National Association of Insurance Commissioner (NAIC)’s Health Insurance and Managed Care Committee. “If you have assets below $50,000, you’ll spend those assets down rather quickly,” she explains.
In addition to protecting assets, long-term care insurance affords more choice about whether you move into a nursing home or assisted living facility or stay at home. Long-term care policies can cover home care, while Medicaid generally does not.
Since long-term care insurance is medically underwritten, it’s tough to qualify for a policy if you’re already showing signs of dementia or another condition that might necessitate long-term care. And because older policy holders are more likely to need this type of care, age is heavily factored into the premium. “If you can get a policy before you’re 60, that would keep the monthlypayment down considerably,” says Praeger. Insurance companies can still raise premiums, but they have to justify the rate increase, according to Praeger.
However, adds Wedig, if you start paying premiums too early, you run the risk of lapsing payments and losing the policy altogether if your situation changes. For instance, you buy a policy and later decide that you don’t need it because you moved near adult children who can handle care-giving responsibilities if needed.
With a non-forfeiture clause, you would get back some of the money you already paid if you later cancel the policy. However, that benefit can increase your premiums by 10 to 100 per cent, according to data from NAIC.
Younger policyholders may also want to consider inflation protection, as the cost of home or nursing home care will likely increase by the time by the time they need it. NAIC data shows that inflation protection can add 25 to 40 per cent to the premium, but without it, you may find that your policy only covers a portion of your actual costs. “Some people pay their policies for 20 years, and they go into a nursing home and find out the policy pays out only $75 per day,” explains Tom Burke, a spokesperson for the American Health Care Association, an association of long-term and post-acute care providers.
If you purchase a state Partnership-qualified policy, then your policy must provide inflation protection. Policies through the Partnership Program are also tax-qualified, meaning if your annual premiums and other out-of-pocket medical expenses exceed 7.5 per cent of your adjusted gross income, they are tax-deductible.
The Partnership Program (available in most states and designed to make long-term care insurance more affordable for middle-income individuals) provides another key benefit: asset disregard, which helps consumers qualify for Medicaid to cover additional care beyond their policy limit without spending all their assets.
“Every dollar that the policy pays is a dollar that you don’t have to spend to qualify for Medicaid,” explains Weisbart. “With a Partnership policy, if the policy pays out $50,000 in benefits, you can keep that $50,000 in assets because the policy has saved the state’s Medicaid program from spending that money.”
Cost is one of the main deterrents to purchasing long-term care insurance. When considering a policy, it’s important to make sure you can afford the monthly premiums, says Dee Mahan, director of Medicaid advocacy at the consumer healthcare nonprofit Families USA.
“I would really caution people who are lower-income on whether this is something they’ll be able to swing after they stop working. Check with the Partnership programs in your state first.”
But as Burke points out, “affordability is not just what you’re paying now, but whether you can afford to do so without insurance and run the risk of $60,000, $80,000, or more per year or longer.”
Increasing the elimination period (the time period when the individual pays for care before the insurer starts making payments) or benefit period can reduce premiums, but those also reduce your coverage in the event that you need it.
Specific policies vary, so consumers should make sure the policy covers the type of care they would want before they buy. “Some policies cover more home care, and some cover nursing home care,” says Mahan. “Ask yourself: Am I going to need assistance only at home? Do I absolutely not want to go into an institution?”
Don’t succumb to high-pressure sales, Praeger cautions. “That’s usually a red flag,” she says. “Check with your state’s insurance department. You can check to see when the last rate increase was and look at the complaint ratio. You want a low complaint ratio, which tells you how easy it is to get a complaint paid.”
Thinking about needing this type of care may not be pleasant, but it’s necessary.
“Most people prefer not think about it, but they’re creating a potential financial disaster and maybe a personal disaster,” as Weisbart says. “The issue is financial but it’s also psychological. The good news is we’re learning a lot about nutrition and medicine so we can live a long time. The bad news is there might not be a light at the end of the tunnel unless we’ve made arrangements.”
National Clearinghouse for Long Term Care Information: http://longtermcare.gov/LTC/Main_Site/Index.aspx
Care Conversations, a new website from American Health Care Association (AHCA), the National centre for Assisted Living (NCAL), and America’s Skilled Nursing Caregivers: http://careconversations.org/home.aspx
Order NAIC’s Shoppers Guide to Long-Term Care or take the Insure U Long-Term Care Quiz: http://www.naic.org/index_ltc_section.htm
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