How Much Long-Term Care
Insurance Coverage Is Enough?
These relentless facts are driving the
demand for long-term care (LTC) cost protection nationwide:
- One in three people over 65 will need
nursing care.
- Neither private health insurance,
Medicare, nor your Medicare supplement will pay for
long-term “custodial care” –
help with mobility – when it is
the only type of care you need.
- Only 9 percent of older baby boomers,
ages 43 to 52, have thought about preparing for the need
for nursing care.
- The cost of long-term nursing home care
today averages $40,000 per year, per person. With
inflation, that could rise to $97,000 annually by 2030.
 The federal government now sponsors group
long-term care for its employees and retirees, and Congress
has created tax incentives for LTC plans that meet federal
guidelines. Still, many considerations are involved in
determining LTC coverage that will be adequate for you;
there is no “average” policy or premium. Following are
suggestions on crafting a LTC policy that fits your needs.
What does LTC insurance pay for?
Good individual LTC plans pay for skilled,
intermediate, or custodial care, including “homemaker
services” – cooking, cleaning,
shopping, laundry, etc. – wherever
the care setting is appropriate. Payment for homemaker
services, as a part of home health care, must be included
without restriction. Read the fine print.
LTC plans reimburse custodial care
expenses incurred in your own home, someone else’s home,
assisted living facilities, adult day care, or nursing
homes. In addition, top plans will pay non-licensed
individuals – even adult children
in some cases – to help with home
care for a parent or loved one. Policies that pay only for
care in a facility, or only for home care, are also
available.
Care Coordination If a policy utilizes
“care coordination,” it often means that the insurer,
through a designated or approved individual, will play a
“gatekeeper” role in the choice of services and care
providers. Some group policies require that the insurer or
group representative approve all services. (Carefully
compare low-priced group plans!) The best LTC products rely
on a licensed health care practitioners’ plan of care for
proof of need for, and reimbursement of, care expenses. Look
for a policy that offers liberal choice of care providers
and minimal carrier involvement.
Maximum lifetime benefit amount LTC plans
can pay the daily benefit amount for lengths of time2 years
to unlimited – or draw from a
designated “pool of money” – say,
$200,000. You can make choices based on your own individual
goals and what you are willing to pay for “peace of mind.”
How much coverage is needed?
 If you want to ensure that your legacy
will be preserved for your heirs, you might consider a
higher benefit amount and “unlimited” protection. If you are
single, or are a couple with a larger “safe income” (i.e.,
Social Security, pensions, annuity or conservative
investment income, required minimum distributions, etc.) and
choose to “spend your kids’ inheritance,” consider a lower
benefit amount and limited maximum coverage. And, make sure
you factor in the living expenses of the healthy spouse
remaining at home.
How is your health?
Most LTC insurers require a health review.
Each company has different medical underwriting criteria.
They can choose to offer coverage, or not, depending on an
applicant’s health history. Applicants with health
challenges should consider applying to two companies,
particularly when an upcoming birthday could increase the
cost of coverage. When health is an issue, submitting an
application is the only way to verify insurability.
Daily/weekly reimbursement benefit amount
What is the maximum amount the policy will reimburse for the
cost of one day or week of care? You select this amount when
applying for coverage. Coverage maximums generally range
from $50 to $250 per day (or the daily amount times seven
for a weekly cumulative total). When reviewing daily
coverage amounts, remember to consider your safe income,
which can be used to offset potential care costs and thus
reduce your premium.
Elimination or Deductible Period
This is the number of days you must pay
for care yourself before your LTC coverage kicks in.
Depending on the policy and personal choice, the deductible
can range from 0 days up to a full year. Consider:
Medicare pays up to 100 days in a “Skilled
Nursing Facility” only if your condition meets Medicare
criteria.
In 15 years, the cost of nursing home care
could double.
Are the days that count towards satisfying
the deductible required to be “consecutive days of service”
or simply calendar days? How long do you have to satisfy the
deductible days?
If couples choose a deductible, remember
that it must be satisfied twice: once for each spouse. Since
most couples have only one “nest egg,” consider the
financial impact if each spouse had to pay for professional
care for the full deductible period. Inflation protection In
general, the premium remains the same, and the daily benefit
amount is guaranteed to increase over time. Policies might
offer simple, compound, or Consumer Price Index (CPI)
increases to protect against inflation. Very generally,
applicants should consider compound inflation up to their
mid-sixties, and simple inflation from the mid-sixties to
mid-seventies. Applicants in their mid-seventies and older
should consider altering the daily benefit amount rather
than buying a built-in inflation factor.
Conclusion
The risk of long-term care and its
potential financial impact on you and your family must be
considered for complete financial and estate planning. LTC
plans that pay for care at home are an excellent way to help
you stay in your residence of choice. Considering your “safe
income” to offset some financial risk can have a dramatic
impact on the premium; as stated at the outset, there is no
“average premium.” By integrating individually designed LTC
insurance into estate and financial plans, and without
breaking the bank, you take a large step toward achieving
your own financial and personal goals.
David C. Wilbar CSA, CLTC is a
Certified Senior Advisor (CSA) and a charter member of the
Corporation for Long Term Care (CLTC). Mr. Wilbar can be
reached in Norfolk, Virginia, at 757-620-4042, or dave@ltc-center.com.
Please visit his web site at: www.www.ltc-center.com
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