Preferred Financial Group

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Long Term Care Insurance 101

 

Wouldn’t it be nice if the need for Long Term Care Insurance was non-existent? Well, it is, for those who have a financial net worth of twenty million or more. Unfortunately, that group represents less than 1% of US families, leaving the balance of the families somewhat on their own to deal with the issue of financial complications derived from a family member requiring specialized health-related care not provided for through traditional health plans. Traditional coverages, like personal health plans and some private and public disability programs (health insurance, Medicare or Medicaid) provide extensive coverage in the health and medical arenas, but these programs extend out only so far. While most will cover doctor, pharmacy and hospital expenses they typically do not include coverages related to a person’s basic “activities of daily living” (ADL) needs.

Examples of ADL needs include:

  • dressing
  • bathing
  • eating
  • toileting
  • continence
  • transferring in and out of bed
  • mobility

In this context, “long term care” refers to the assistance people need for these “activities of daily living” (ADL’s) resulting from chronic illnesses, disabilities, accidents or because of aging, over an extended period of time. As you delve into the topic of long term care insurance, it is important to remember this: Long-Term Care Insurance does not cover any medical procedure that you might need inside a private facility. Those costs are the responsibility of the patient and need to be paid from health care insurance, Medicare, Medicaid or personal assets.

General Need:

  • Chances are you know someone who has required some form of long term care. It may have been provided in their home with assistance from an “unpaid” caregiver, most likely a family member, friends or a combination of the two. O they may have been placed in a facility-based nursing home, one providing the most comprehensive range of services, including skilled nursing care and 24-hour supervision. The middle ground here covers home care services with a “paid” caregiver, or other facility-based programs such as assisted living, board and care homes, and continuing care retirement communities.

Here are a few statistics according to the U. S. Department of Health and Human Services that puts into perspective the likelihood that a person will require long term care during their lifetime:

  • Someone turning age 65 today has an almost 70% chance of needing some type of long term care services during their remaining years
  •  30% of 65 year-olds may never need long term care, but 20% will need it for more than 5 years
  • About 40% of those receiving long term care today are between 18 and 64

While the likelihood of requiring long term care during one’s lifetime is somewhat predictable, the cost of the care is less so. In the best case, the cost is minimal or even nonexistent, due to a short duration, with an “unpaid’ caregiver providing service in the home. Fortunately, this scenario accounts for about 80% of home care service. The worst case is a long term care requirement costing $250,000 or more. While this may not be a problem for the wealthiest few who have the financial wherewithal to cover the costs, or for the poorest, who could rely on a public program (like Medicaid) to provide care, the vast majority of people fall somewhere in between.  Paying for long term care could be devastating to a family’s overall financial wellbeing, unless they have taken some precautionary steps, beginning with an analysis, which might have factored in the cost of purchasing long term care insurance.

Personal Need:

  • While there are a wide variety of reasons why someone should consider the purchase of long term care insurance, the primary reason is indisputable. If your need for long term care will create a financial hardship for your family, you need to consider Long-Term Care Insurance. That’s the easy part. The difficult part is quantifying the financial hardship. This is best determined by first defining your financial needs (cash outflow) then matching them against your financial abilities to pay (cash inflow) from your savings, retirement, any public or private insurance plans.   If your financial ability does not adequately cover your financial needs, then you need to consider a Long-Term Care Insurance plan. Here’s an outline that will help you analyze your needs and abilities.  This may be an easy exercise if you have a previously established family budget  If you don’t have one, you should:

Financial Needs (“cash outflow”):

Family financial needs can be categorized as current ongoing living expenses and the need to set aside funds for retirement purposes. While they are both vitally important in a family’s overall financial plan, the most immediate concern in a disability situation are the current ongoing living expenses. The rational here is that most long term care needs are not of a permanent nature.  It is assumed that at some point in time the LTC needs will vanish, either due to recovery or death. Here is a list of some of the more basic ongoing living expenses:

Financial Abilities (“cash inflow”):

  • Food—You should have a good estimate of this monthly expense based on recent historical past
  • Shelter— Mortgage payment, property taxes
  • Utilities— You should have a good estimate of this monthly expense based on recent historical past
  • Insurance— Homeowner’s, auto,  life & health
  • Credit Card Payments— You should have a good estimate of this monthly expense based on recent historical past. It’s important to prioritize this along with any other obligations that impact your credit score.
  • Miscellaneous— This is a catchall category that might include things such as: clothing, entertainment, maintenance, etc.
  • Long-Term Care Costs— Depending, of course, on a variety of factors, here are some estimates:
    • Paid In-Home Caregiverabout $25 per hour, 10 hours per day, 7 days per week, equates to approximately $250 per day, $1,750 per week, $7,500 per month and $90,000 per year
    • Assisted Living Facilityabout $3,500 per month and $42,000 per year
    • Nursing Home:
  • (semi-private room)—about $6,500 per month and $78,000 per year
  • (private room)—about $7,500 per month and $90,000 per year.

Family financial abilities can cover a wide array of sources, some of which are not likely to be available to most. Here is a list of some of the more common sources of cash inflow:

    • Savings— bank accounts, investment accounts, life insurance cash value
    • Retirement— public and/or private (Social Security, employer)
    • Credit— home equity line of credit (HELOC),  401(k) loan
    • Family Assistance— gifts, loans

 

Public Disability Insurance Programs: These are governmental programs available at both the federal and state level that address long term care. The two most notable are Medicare and Medicaid.  What each provides in terms of long term care differs greatly and is often misunderstood:

Medicare:

  • There is a common misconception that Medicare covers long term care.  It generally does not. Here’s a quick summary:
    • Medicare only pays for long-term care if you require skilled services or rehabilitative care under these situations:
      • In a nursing home for a maximum of 100 days…..(However, it is worth noting the average Medicare covered stay in a nursing home is approximately 3 weeks)
      • At home only if you are receiving skilled home health or other skilled in-home services…….Generally these services are provided for short periods of time.
      • Medicare does not pay for non-skilled assistance with ADL’s which make up the overwhelming majority of long-term care services

Medicaid:

  • A blessing for many, but eligibility requirements can put it out of reach for others. Here’s a quick summary:Medicaid does pay for the largest share of long-term care services
  • To qualify, your income and or assets have to be below minimum levels, often associated with being “impoverished”.
  • You must meet certain state-specific requirements that are based on the amount of assistance you need with your ADL’s

Private Insurance:

  • Whereas Medicare and Medicaid are considered public programs, Individual Long-Term Care Insurance is a private program and generally comes from two sources, through an employer

Employer Plans:

  • Some individuals may have some long-term care insurance coverage through their employer in the form of a group policy, or through their union or other association.

Private Plans:

  • Private plans are offered by insurance companies and are available to most individuals through insurance brokers. There are two main types of long-term care insurance: Tax Qualified and Non-Tax Qualified. Within each type, options and choices are wide enabling you to design a plan that satisfies your need within your budget (See “What are the two types of long-term care insurance offered in the U.S.?” in FAQ’s).

Long-term care protection can be costly, but there are a variety options available to help with creating an affordable plan. Rates are determined by six main factors:   age; daily or monthly benefit; benefit period; elimination period; inflation protection and health rating. Visit “Comparisons for Long-Term Care Insurance” to get a better feel for costs and options as they might relate to you.