Protection From the Perils of Aging

By Jessica Ashton

The news isn’t good. According to some experts, long-term care insurance, around in various forms since the 1970s, is too risky and too expensive for most people. But there are even more sobering facts. By 2020, one in every six Americans will be 65 or older, and by 2021, nursing home populations are expected to mushroom, since the oldest baby boomers will then be 75. The average rate for a private room in a nursing home is expected to be $480 per day or $175,200 per year. And with 60% of adults 65 and older needing nursing home care today, do the math to figure out how many of us will be in need 16 years from now.

Many think Medicaid, Medicare and Medigap will pay for long-term care needs. Not true. First of all, Medicaid is the federal government program that pays for the indigent. To qualify, assets must first be greatly diminished, and there are strict rules about transferring them to heirs within three years of needing a nursing home. Additionally, patients must then apply all of their remaining income before Medicaid will pick up any expenses. Medicare, also a government program, will pay 100% of skilled nursing in a nursing home for the first 20 days providing at least three days have been spent at the hospital for the same condition, the nursing home is certified and the skilled care is received within 30 days of the hospital discharge. From the 21st to the 100th day, Medicare will pay 100% of skilled nursing costs in the same facility except for a co-pay picked up by Medigap, a private insurance policy that supplements Medicare coverage.

But beyond day 100, you’re on your own.

There is much to consider when deciding whether or not to invest in a long-term care policy. Net worth (how much of it you’re willing to spend on healthcare and how much you’d like to leave to your heirs) is an important factor. Age and marital status are others. The United Seniors Health Council recommends policies be considered only by those whose assets are between $100,000 and a million dollars (excluding home and car), who expect to have an annual retirement income of at least $25,000 to $35,000 annually, who can pay premiums comfortably without lifestyles being adversely affected and who can absorb the inevitable premium increases without difficulty. A good rule of thumb is to ensure a premium does not exceed five percent of your current income. Indeed, long-term care insurance should not be purchased by those whose only source of income is a social security benefit or SSI (supplemental security income), if there are limited assets, if paying for daily living expenses like food, medicine and utilities is a stretch, if the premiums are unaffordable or if the policy doesn’t offer enough benefits to make it worthwhile.

Okay. So say you’ve decided to purchase a long-term care policy. When should you do it? Experts caution that these policies do not need to be purchased until consumers are 65 years old. However, it is important to be in good health when you apply. One in four applications for long-term care insurance is turned down. Only if you have a chronic disease or there is a history of serious illness in your family should purchasing earlier than age 65 be considered. Waiting until after 65 is also not wise, since it will be harder to pass the medical tests and premiums will be higher. Salespeople will try to convince you to buy when you’re young, but realize that significant commissions ride on this for them. The fact is that less than one percent of people under 65 need nursing home care. These numbers grow to four percent for those 65-74 and 19 percent for those 85 and older.
Use the following guidelines to help make the decision to purchase long-term care insurance coverage solid:

Choose an insurer who is stable and solid. Since you’re purchasing coverage that you may not use for some time, research the company with AMBest, Standard & Poor’s, Moody’s or the Weiss Ratings Database. Look for companies rated in the top two financial strength categories by at least two of the ratings services.

Seek out a policy that offers flexibility in the application of benefits. While you can choose the amount of the daily benefit (from $100 to $250 a day currently), understand that the premium will go up accordingly based on your decision. The daily benefit should make up the difference between your income and the cost of nursing home care in your area. Choosing to protect your policy against inflation will also increase premiums but will shelter you in the long run. (Note: The inflation option is a choice that is made at application; choosing “yes” increases the dollar value of your policy by five percent each policy year to keep pace with estimated inflation in the cost of long-term care.)

Read the policy carefully to find out what’s covered. Is skilled nursing care covered? Home health aides? Custodial care? Are particular conditions with which you may suffer covered, for example Alzheimer’s and Parkinson’s?

Choose the maximum daily benefit that the company will pay out per day. This ranges between $50 and $200, and premiums increase as the daily benefit escalates; however, you’ll want the maximum amount since costs of services will only increase as the years go by. You should also determine how the daily benefit is calculated – is it each day’s actual charges or a daily average calculated monthly? (Note that the latter is better in the case of home health care since home health aides may visit many times in one day but not at all on another.)

In choosing how long the company will pay for care, different decisions come into play. Some people will choose life-time coverage, the longest period available; quite expensive but nevertheless secure. Others will throw the dice and try to determine based on statistical evidence and family history what the best timeframe is likely to be. It’s a fact that the average nursing home stay lasts just under three years. Choosing a three-year coverage period would reduce your premiums significantly, but there’s obviously a gamble involved. Some say that those between 50 and 65 should opt for lifetime benefits with compound inflation options. Those 65 to 75 should consider a six-year or lifetime benefit with simple inflation options. And those older than 75 should consider purchasing the maximum daily benefit for as long a period as they can afford.

Understand the eligibility criteria! Participants become eligible for benefits on most long-term policies when help is needed with two or more activities of daily living, called ADLs. The ADLs are cooking, eating, bathing, dressing, toileting, maintaining continence, and mobility. It is wise to choose a policy where these ADLs are easily triggered. One of them should be bathing since an inability to bathe often means an inability to bend or move properly, and so multiple ADLs are affected when it becomes an issue. Know who determines eligibility. It is better if your personal physician can make this decision as opposed to one who is working for the insurance company.

Determine how soon payments will begin after you become eligible. The elimination period is the period of time, much like an insurance deductible before benefits kick in and when the payment has to come from your own personal resources. Choices are generally zero days, 30 days or 90 days.

Last bit of homework. Before you commit to a long-term care provider, ask yourself the following questions after you’ve obtained their rating from the services mentioned earlier in the article:

What is their history on payouts?

How long has the company been writing this insurance?

Is there a company history of premium increases?

What care settings are covered – nursing homes, assisted living facilities, home care?

How do they treat pre-existing conditions?

Congratulations! You’ve done it. You’ve bought the policy, and now you feel secure. One of the biggest benefits is that most long-term care policies are guaranteed renewable for as long as you pay your premiums. Additionally, the premium is based on the age you were at enrollment and is usually locked in for the life of the policy.


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