What is Long-Term Care?
Long-term care is the kind of care needed by persons requiring assistance or supervision with the everyday activities of daily living due to physical or cognitive impairments or for persons needing medically necessary care for an acute or chronic condition. Care can be provided at home, an adult day care center, an assisted living facility or nursing home. More than 85% of care today is received outside of a nursing home setting.
The Need for Long-Term Care
Americans are living longer. As you age, you may find any number of unforeseen medical issues arise. When this happens, you may need care that is not covered by traditional medical insurance or by Medicare. Providing that care can create a giant emotional and financial impact on your family and retirement portfolio. Establishing a plan in advance about how you would want to be cared for and providing a way to fund that plan could greatly reduce the burden on your family and help protect your retirement portfolio. The time to consider this coverage is not when you need it later in your life because at that point the coverage may be very costly and you may not be eligible for it depending on your health. The time to consider this type of insurance is when you are in your 40’s. At the very least, this is the time to educate yourself on this important coverage and look at the cost and options. Then you can make an educated and informed decision if it is appropriate for you.
Who Pays for Long-Term Care?
People with assets usually end up paying for long term care out of their own pockets.
Government programs cover much less than most people think. Medicare doesn’t pay most nursing home bills. Certain conditions apply and for those who qualify, coverage is typically for short-term skilled care. Medicare does not pay for custodial care.
Medicaid (Medi-Cal in California) pays a large portion of nursing home expenses for those who have spent down their assets to the state required level ($2000 or less in most states). Even then it may not cover most care at home, where many people would prefer to be when receiving care.
Long-Term Care
The most popular coverage is a comprehensive plan that covers Home care, Adult daycare, Assisted Living and Nursing Home. Regardless of the type of policy, there are four basic choices in creating a plan: the maximum daily benefit, the benefit period, the elimination period and the inflation option.
Maximum Daily Benefit
This is the maximum daily amount the policy will pay when you are receiving care. Some policies will pay when you are receiving care. Some policies use a weekly or monthly maximum for home care, which gives greater flexibility.
Benefit Period
The length of time you want your policy to pay benefits. Typically 3, 4, 5, 6, 10 years or Unlimited.
Maximum Lifetime Benefit
This is the total amount the policy will pay during your lifetime for all benefits provided by the policy. This is figured by multiplying the maximum daily benefit by the benefit period. For example:
3 years = 1095 days
1095 x $200 maximum daily benefit
= $219,000 initial maximum lifetime benefit
This is your “pool of money” you can use for any type of care covered by your policy. If you are spending less than the maximum daily amount the policy will last longer until the pool is exhausted.
Inflation Option
Options are available to increase the value of the policy over time. This could be an automatic 5% compound or simple annual increase in the daily benefit. Both the daily maximum and the maximum lifetime benefit increase with the option. At 5% compound $219,000 would inflate to approximately $438,000 in 15 years and $876,000 in 30 years.
Elimination Period
This is the number of days of paid care that you are required to pay for before the policy provides benefits. Think of it as a deductible. The most common choices are 30 or 90 days. Most policies have one elimination period per lifetime.
Benefit Eligibility
Generally, you become eligible for benefits when a licensed health care practitioner certifies that you need substantial assistance with two activities of daily living for a period expected to last 90 days – or when you need substantial supervision due to a cognitive impairment. The activities of daily living are bathing, continence, dressing, transferring, toileting, and eating.
The Cost of Waiting
If you decide that long term care insurance is the right decision to protect your assets and your family’s financial future, the best time to buy is now. Buying while you are young and healthy means a lower premium. Even though you pay that lower premium for more years the cumulative lifetime premiums are much less. In addition you avoid the risk of developing a condition that would make you uninsurable later.
Tax Benefits
Congress passed legislation effective in 1997 that gives tax breaks to purchasers of long-term care insurance policies that meet certain federal standards. Policies that are labeled as “Federally Tax Qualified” use the federal standards for paying benefits. Benefits received at claim time are income tax free regardless of whether an individual or a business paid the premium. Some or all of the premiums for these policies may be tax deductible depending on the business entity involved. Ask your agent for the free publication that details these deductions.
Group Plans
Group plans through an employer are often eligible for discounted premiums. Plans can be established for employees of a company or members of an association. In addition select family members are also eligible for the discount. Employee plans can be fully or partially employer paid or voluntary.
How to Buy LTC Insurance
Many companies offer LTC insurance policies. These policies offer a substantial number of options and the premiums and underwriting criteria varies. Our office has access to a wide range of companies from which to select your coverage taking into account your personal situation such as age, health, income, assets..