Long-Term Care insurance is a private insurance policy to help pay for some long-term medical and non-medical care. This includes assistance with activities of daily living, as well as paying for sudden, unexpected, large continuing expenses that would deplete or exhaust your financial resources. As Medicare generally does not pay for long-term care, this type of insurance policy may help provide coverage needed in the future. Some long-term care insurance policies offer tax benefits; these are called "Tax-Qualified Policies." Long-Term Care insurance policies are actually designed to and may be the only thing that keeps you out of a nursing home when you need care for an extended period of time. When you are unable to take care of yourself, you need to hire someone to do it.
Paying for Long-Term Care - The Medicare Misconception
Many people think Medicare covers Long-Term Care expenses, such as nursing homes, elderly care and home health services. However, Medicare only provides short-term benefits (a maximum of 100 days) for skilled care in a nursing home following a three-day hospital stay. Medicare pays only for part-time skilled home-health visits and nothing for 8-hour shifts at home. Most Long-Term Care is custodial and not skilled, so you can't count on Medicare to pay for it.
Medicaid pays for nursing home care only after you have spent your assets and become impoverished. It pays nothing for assisted living or home health care. Therefore, Long-Tem Care is an expense that needs to be paid for privately.
Why Do I Need Long-Term Care Insurance?
If you can't take care of yourself, there are plenty of resources from which to choose: home-health services, adult day-care centers, assisted-living facilities, or nursing homes. Finding the money to pay for such help however, presents a dilemma.
What If You Have an Accident or a Stroke?
The average cost of Long-Term Care today is $247 for a private room and $174 for a semi-private room, and the average stay is 2.7 years. That equates to an average of $63,418 per year. Long-Term Care can last for several months or years. The chances are that you will need Long-Term Care at some point in time.
Waiting Can Be a Costly Mistake.
Not everyone qualifies for Long-Term Care insurance. A change in your health can result in increased premiums by as much as 50% for the same protection prior to your health problem. It's possible that a change in your health could make you completely ineligible at any price. If you buy a policy at age 75, the premium can be more than double than if you had bought the policy at age 65.
Are There any Negative Aspects to Long-Term-Care?
Research indicates that for some people, long-term-care insurance can be risky and expensive. As with health insurance, you must keep paying to keep it in force. If premiums rise, you may have to drop the coverage, possibly losing everything that you've paid. The policy's benefits may cover only a portion of the total expense. Many policies are packed with catches that can keep you from collecting. Finally, there's no guarantee that long-term-care insurers, some of which have weak balance sheets, will be around 20, 30, or 40 years from now when you need them to pay. While Long-term-care insurance may not be the greatest deal, right now it's just about the only thing that's available.
Your Insurer May Not be Around for the Long Haul.
Some long-term-care insurers have shaky finances at best. If a company goes under, you could lose your coverage, and some of the money you paid, or face stiff premium increases if the business is bought by another insurer.
HOW TO CHOOSE
Use this established criteria to determine the worthwhile hedge against the costs of long-term care, if you can afford it. If you decide that you want a policy, follow these shopping guidelines.
- Consider buying at around age 65
- Look for a strong Insurer
- Buy a flexible policy
- Make sure the daily benefits increase along with the price of care
- A four-year benefit plan should be sufficient. Nearly 90 percent of all people over age 65 who enter a nursing home stay fewer than five years. The average length of time for current residents is 2 1/2 years. If you're willing to play the odds, a four-year benefit may be a reasonable gamble. If you do require nursing-home care for a longer period, four years will give you and your family time to prepare for the financial demands of a longer stay.
- Pick a 30-day elimination period. A policy with a 90-day period might cost 15 percent less a year than one with a 30-day period. But with inflation, a nursing home that currently costs $181 a day will cost $538 in 20 years, bringing the total for those 60 additional days to $32,280.
You can pay to get some money back. If you have to cancel your plan, you can recoup money you invested by adding a non-forfeiture clause to your policy. That allows you to collect a daily benefit when you need long-term care based on the amount you paid in. But you can claim only as much as you paid in, and inflation won't be covered even if you opted for inflation protection. The non-forfeiture provision will likely add 30 percent to your premiums.
Your premiums may be partially deductible. So-called tax-qualified plans, which meet federal standards, allow you to deduct your annual premium up to a limit based on your age. But along with other medical expenses, the amount is deductible only to the extent that it exceeds the federal government's 7.5 percent threshold of adjusted gross income. You may be able to deduct only a small portion of the expense.
Hold any group plans to high standards. More than 5,000 employers, including the federal government, offer group long-term-care plans that may give employees a discount and allow them to pay premiums with pretax dollars, further lowering their cost. If your workplace plan doesn't offer the features we recommend, you would be better off buying on your own.
Check Out Partnership Plans.
In four states--California, Connecticut, Indiana, and New York--you can buy a "partnership" plan that protects some or all of your assets from being depleted. In California, Connecticut, and Indiana, you can get coverage equal to the amount of assets you want to shelter. If you want to protect $100,000, you buy a policy that comes close to paying out $100,000. If you become eligible for Medicaid, you can keep $100,000 of your assets above Medicaid's limit. In New York, you can buy a policy with three years of nursing-home coverage and six years of home-health care. You become eligible for Medicaid after exhausting your benefits, but without spending any more of your assets. Such policies protect assets, but you may not exceed Medicaid income limits. If you move out of state, you may keep the plan, but you lose the asset protection. On the plus side, most of these plans cover assisted-living care.