Long Term Care Insurance 

We want to thank Larry Oxenberg for submitting the following information to us.  We are not “experts” in the subject of Long Term Care Insurance so we are learning the same time you are.  Therefore although we cannot accept responsibility for the information presented here, we have found it very helpful in our learning process. 

So, this brings us to Lesson #1. Why Long Term Care Insurance?

Long Term Care Insurance makes sense for working families who want to protect their lifestyle and assets.  In the absence of this insurance, it may be necessary to pay for long- term care expenses out of pocket.  This could involve selling off assets, borrowing from an investment or retirement account, or even taking a loan against your life insurance.  These options, although possible, are probably not what you had in mind when you purchased life insurance or began saving for your future.  Long Term Care Insurance may be an affordable way to help protect a much larger portion of your financial and retirement plan against an unexpected need for care.

Long Term Care Insurance may also make sense for retirees and pre-retirees who want to preserve their nest egg and financial independence.  If the choice is made to retain the risk and self-fund the potential cost of long-term care, you must set aside a considerable portion of your assets as a "rainy day" fund.  By insuring part of this risk, those assets are free to support the quality of life you expect for you and your spouse in retirement or to be used for other worthwhile purposes, such as charitable donations or special trusts and gifting to family members and friends. 

Long Term Care Insurance may also make sense for concerned parents who don't want to become a physical or financial strain on their children or adult children who want to make sure their elderly parents receive the quality care they deserve.

A bottom-line issue in long-term care is control.  If you someday need long-term care services, you may find that you are not in a position to control how the funding of those costs is to be handled.  Would you object if your family decided to liquidate some assets or sell something you value, such as a cherished collection, antiques, or a vacation home?  If you were to become incapacitated, you might not have a say in the matter.  By insuring part of the risk, you help increase the possibility that your assets will be handled and distributed according to your wishes.  Another important element of control is deciding where care will be provided.  Long-term care services may be provided in any number of settings including your home, an assisted living care facility, adult day care, or nursing facility.  Being able to decide where you wish to receive care is often tied to your financial resources at the time.

For example, my in-laws had purchased a Long Term Care Insurance policy many years ago, which turned out to be inadequate for their needs. It did not include a home care rider, which meant that whenever we cared for them at home, they were not eligible to receive any benefits. In addition, they received no benefits in assisted living facilities, day care and certain rehabilitation centers. And we were still paying the premiums! The only time they were eligible to receive any money was when they were in nursing home facilities.

So, this would be a good time to have Lesson #2. What are the parts of a Long Term Care Policy and how do you make sure it will be sufficient?

The first part is the Daily Benefit.  This is the maximum amount of money payable for any one day of care in a facility, at home, or in a community-based care setting.  It can range from $50 to $400 per day. 

The second part is the Benefit Period.  This can be two years to unlimited.  The number of days in the benefit period times the daily benefit will equal the policy lifetime maximum benefit or the “pot of money” from which you draw your benefit dollars.  Your benefits will be paid until the “pot of money” runs out.  This may be calculated on a daily, weekly, or monthly basis.  (Example: 3 year benefit (1,095 days) x $200/day = a “pot of money” of $219,000).  Statistics show that, on average, a person lives only 2.5 years once they are on benefit.

The third part of the policy is the Home Care Rider.  What percentage of your benefit dollars do you want available to you when you are at home or in a community-based program?  You may choose from 50% to 100%, and most people choose 100%. 

The fourth part is the Elimination Period.  This is like a deductible and it is the initial number of days that you must receive care or services before the benefit payments begin.  This ranges from zero days to one year and Medicare or health insurance paid days count towards the elimination period days.  The most common elimination period is 90 days.

The fifth part is the Inflation Rider.  The purpose of this rider is the keep your policy lifetime maximum benefit growing to keep up with the increasing cost of care over your lifetime.  The younger you are, the more important it is to choose this option.  This rider could increase your benefits by simple inflation, compound inflation, or by the actual consumer price index inflation percentage each year.

The above five policy parts are the basics of a Long Term Care Insurance policy.  There are many other aspects of a policy that may or may not affect the premium. Extended care coverage, homemaker services, durable medical equipment, care coordination, informal caregiver training, and informal care respite care, hospice care, world wide coverage, alternate plan of care, waiver of premium, restoration of benefits, elimination period payback, shared pot of money, spousal premium waiver, survivorship benefit, spousal elimination period, and non-forfeiture are all features that can be discussed and included.

Now back to my story. Since the Long Term Care Insurance that my in-laws owned was insufficient, we spent many hours battling with billing departments of medical facilities, pharmacies, ambulance companies, home health care companies, oxygen companies, and government offices. We naively believed that since they had Medicare parts A & B and the best supplemental health insurance available, why wasn’t everything covered? And whose responsibility was it to figure out which bills are sent to which payer? And who fronts the money while all of these endless battles are waged?

Lesson #3: What pays for what?

Medicare pays the cost of skilled nursing in a skilled nursing facility for 20 to 100 days after at least a 72-hour hospital stay, if a medical professional verifies that the care is likely to lead to improvement of the condition or situation.  Medicare may pay for some types of rehabilitation at home for the first 20 days. A Medicare supplement and/or health insurance will pay for the deductibles and co-pays, if any, for your hospital stay and rehabilitation period. 

Medicaid will only pay if the patient is considered low income or destitute.  After the 20 to 100 days of initial care, personal assets, family resources, or income streams such as social security and pensions are left to pay. 

Long Term Care Insurance is the only other way to pay for some or all of your long-term care needs.

Lesson #4: Is everyone eligible for Long Term Care Insurance and is there an approval process?

Companies that sell Long Term Care Insurance medically "underwrite" their coverage. They look at your health and health history before they decide to issue a policy. You may be able to buy coverage through an employer or another type of group without any health underwriting, or with more relaxed underwriting, but these policies are limited in scope. Insurance companies' underwriting practices affect the premiums they charge you now and in the future.

Some companies do what is known as "short-form" underwriting. They ask you to answer a few questions on the insurance application about your health. Most companies, however, do more underwriting. They may ask more questions, look at your current medical records, and ask your doctor for a statement about your health.

Like life insurance, the premiums on Long Term Care Insurance policies are based in part on your age at the time of purchase, and are therefore more affordable the earlier you buy. The longer you wait to secure coverage, the greater the chance that you will develop a health problem that may make your coverage more expensive, or difficult to obtain.

Lesson #5: When are you not likely to be insured?

An applicant would be uninsurable for Long Term Care Insurance if he or she:

• Suffers from cognitive impairment, including Alzheimer's disease, dementia or other organic memory or mental health problems, which interferes with a person's ability to think clearly, live safely alone, and care for themselves independently
• Requires prompting, supervision, cueing or physical assistance from another individual to perform one or more Activities of Daily Living (bathing, continence, dressing, eating, toileting and transferring).
• Is unable to walk around both inside and outside
• Has been recommended to have surgery or diagnostic testing or is still in a recovery period
• Uses a wheelchair, walker, or a quad cane or oxygen.

Lesson #6: When are you eligible for benefits?

Now we understand why it is important to have Long Term Care Insurance and let’s assume you been approved for a great policy with all the right features. So when do you get the money? 

The term usually used to describe the way insurance companies decide when to pay benefits is "Benefit triggers". This term refers to the criteria and the methods that the insurance company uses to evaluate when you are eligible for benefits, and the conditions you must meet to receive benefits.

The inability to perform Activities of Daily Living, as described in Lesson #5 above, is the most common way insurance companies decide when you are eligible for benefits.. Typically, a policy pays benefits when you need human assistance in performing two of the six.

Most Long Term Care Insurance policies also pay benefits for "cognitive impairment". The policy usually pays benefits if you are unable to pass certain tests of cognitive function. Coverage of cognitive impairment is especially important if you develop Alzheimer's disease or other dementia.

The choices you make now, could affect the quality of life for you and your loved ones well into the future. Considering Long Term Care Insurance today is as important to your future as estate, financial and health insurance planning.