Long Term Care Insurance 101

This short video and information below is designed to help educate you about the importance of planning for Long Term Care, as well as the options available to you when considering purchasing Long Term Care Insurance.

If you have any additional questions, please feel free to email us at info@ltcplanningpartners.com, and speak directly with a LTCi Advisor.

LTC Basics

What is LTC? Long-term care is the kind of care that you would need to help you perform daily activities if you had a chronic illness or disability. It also includes the kind of care you would need if you had a severe cognitive problem like Alzheimer’s disease, or other forms of dementia. It can include help with what are referred to as the “activities of daily living”, which include: eating, bathing and dressing, transferring, toileting, and continence. Long-term care can also include assistance with basic tasks such as grocery shopping, transportation, housecleaning,  or preparing meals. This type of care isn’t received in a hospital and is not intended to cure you. It is not “acute care”. It is chronic care that you may potentially require for the rest of your life. It can be received at a nursing home, assisted living facilities, or usually preferred, in the comforts of your own home.

What is LTC insurance? Long-term care insurance (LTCi) is insurance that helps you pay for long-term care services, such as home care or care in a nursing home or assisted living facility. To qualify to receive benefits from your LTCi policy, you must either (1) be unable to perform 2 of the 6 Activities of Daily Living (ADLs) or (2) have a cognitive impairment that requires substantial supervision.

Who needs LTC? The need for LTC is generally defined by an individual’s inability to perform the normal activities of daily living (ADL) such as bathing, dressing,eating, toileting, continence, and transferring. Conditions such as AIDS, spinal cord or head injuries or accidents, stroked, mental illness, Alzheimer’s disease or other forms of dementia, or physical weakness and frailty due to advancing age all result in the need for long-term care.

“Approximately 70% of those Americans who live to the retirement age of
65 will need long-term care services at some point in their lives.”
US Dept of Health and Human Services

What is the Cost of LTC? Apart from the unpaid services of family and friends, long-term care is expensive. The cost of long-term care depends on where you live and the kind of care you receive. There are generally three kinds of long-term care: nursing home care, assisted living facility care, and in-home care. Nursing home care is the most intensive kind of care, and therefore usually costs the most. Assisted living facility care is for someone who doesn’t need nursing home care, but who is unable to remain in their own home. Home health care is the least expensive kind of care, and is generally for someone who can still function well on their own as long as they have some assistance with certain activities of daily living from a home care aide. The table below lists national average costs for typical long-term care services.

Cost of Care Pic
*Courtesy of Genworth

Healthcare and LTC. The problem with long-term care is that it can be quite expensive. It can easily deplete your savings, which is only one of several reasons you might consider purchasing long-term care insurance. It is important for you to know that most health plans do not cover long-term care. While health insurance plans generally cover hospital stays and doctors’ bill, they will usually provide limited or no benefits for nursing home care or home health care. And while they may cover some of the skilled medical services you may need when you can’t care for yourself after an illness or injury, this is usually for a limited period and only as long as you are showing improvement. Health insurance plans typically do not cover ongoing chronic care such as an extended stay in an assisted living facility, or a continuing need for a home health aide to assist with activities of daily living.

Medicare and LTC. Just like your health insurance plan, Medicare typically does not cover long-term care. Medicare is a Federal health insurance program for people who are age 65 or older, some people with disabilities under age 65, people with End-Stage Renal Disease, and people with Lou Gehrig’s disease (ALS). Medicare will cover the first 100 days of care in a nursing home if: (1) you are receiving skilled care, and (2) you have a qualifying hospital stay of at least 3 days and enter the nursing home within 30 days of that hospital discharge. There are also some deductibles and co-payments. Medicare also provided very limited coverage of home visits for skilled care.

It’s very important to realize a few things about long-term care versus Medicare’s coverage:

1. Most long-term care is not skilled care, it is custodial care typically carried out in one’s own home.

2. Most long-term care does not take place in a nursing home.

“Over 80% of LTC insurance claims in 2014 were for Home Health Care.”
US Dept of Health and Human Services

3. Most nursing home stays do not immediately follow a hospital stay

4. Most people who require care in their home need more or different types of care than Medicare covers

5. Most people won’t start Medicare coverage until age 65.

Therefore, don’t expect that Medicare will cover your long-term care needs.

Medicaid(Cal) and LTC. Many people also believe that Medicaid (MediCal in CA) will cover their long-term care needs. However, Medicaid is a state-based program supplemented by Federal funds that acts as a safety net to provide health services only to the extremely poor and impoverished. Medicaid covers long-term care services and might cover you if you meet your state’s poverty criteria and receive care that meets your state’s guidelines. Usually this means expending all but $2,000 of your assets and savings (except for perhaps your house and your car). It also means receiving care from a limited number of state-approved caregivers (mostly institutions like nursing homes) that are willing to accept Medicaid payments. If you don’t have much in the way of assets and income, Medicaid is probably your best bet for long-term care. If you can afford long-term care insurance, want to control the type and location of care that you receive, you may want to consider purchasing a long-term care insurance policy.

Paying for LTC . The bottom line is that many of us are going to need long-term care at some point, and we know that health insurance, Medicare, and Medicaid are most likely not going to pick up the tab. This means that there are generally three options for paying the cost of long-term care: (1) “self-insuring,” which means saving enough so that you can pay for your long-term care needs from own assets and savings, (2) relying on family members to provide care, or (3) purchasing a long-term care insurance policy.

If you are interested in “self-insuring,” know that you are going to need to set aside a very large nest egg to provide for your potential long-term care needs. If you are married, be sure to consider the possibility that you or your spouse may eventually need long-term care services in a facility, while the other remains at home. Therefore, you need to have enough saved to cover both the cost of a nursing home or assisted living facility and the cost of maintaining your home. Considering the fact that long-term care is already fairly expensive, and that these costs are rising, self insuring is probably not going to be a viable alternative for most people.

Of course, the advantage to self-insuring is that you won’t have to pay the cost of long-term care insurance premiums. The downside is that you may require long-term care services sooner than you expect and before you are able to generate sufficient savings to pay for your care out-of-pocket. Another problem is that you may run out of money to cover your long-term care and other retirement needs. Finally, you may exhaust your estate so that you have little to leave to your heirs.

Some people believe they don’t need long-term care insurance because they plan to rely on their family members to provide this care when the time comes. Unfortunately, this expectation is not always practical. Family members may not have the necessary training to provide such care, particularly if skilled nursing care is needed. Additionally, work schedules or their own ill health may interfere with their ability to provide such care over a lengthy period. Relying on family members to provide long-term care may seem like a good solution in theory, but may not be the best plan in reality. In any event, if you intend to rely on family members to provide you with long-term care, you need to sit down with them and have a frank talk about your expectations and plans. You don’t want to be in a situation where you forego purchasing long-term care insurance only to discover that your expected caregiver(s) are unwilling or unable to provide you with the necessary care.

The third option is to purchase long-term care insurance. The two primary reasons for purchasing long-term care insurance are: (1) so you can rest assured that you will receive the necessary care if you develop a chronic illness or disability, and (2) to protect your savings and assets for your own needs, your spouse’s needs, if any, and/or for your heirs.

Be aware that there are a wide variety of long-term care insurance plans available, so if you decide to purchase long-term care insurance, we suggest that you spend some time looking for the best plan for you and your budget.


Long-Term Care Settings

 

Where is long-term care provided?

When talking about long term care, most people will think of a nursing home. However, today, approximately 80% of long term care services are provided at home*. Professional long-term care services can be provided in a variety of different settings, and many long term care insurance policies give you the flexibility to receive care in the setting of your choosing.

Home Health Care: Services provided at home
Assisted Living Facilities: residential care setting that provides housing and support services for people needing assistance with activities of daily living
Memory Loss Units: typically a unit of an assisted living facility that provide 24-hour support and locked premises to assure nobody wanders off
Adult Day Care: Community-based, daytime supervision providing social, recreational or health assistance off-site during working hours
Nursing home: Full-time care in a dedicated facility

*“Over 80% of LTC insurance claims in 2014 were for Home Health Care.”
 –U.S. Department of Health and Human Services


Why Plan?

Think of your long term care insurance policy like your homeowner’s or automobile policy. The best outcome is that, if fact, you’ll never have to use it! The chances of losing a home to fire is 1 in 1200. Chances of being in a car accident is 1 in 240. But would you go without either your homeowners or auto policy? The chances of needing long term care is 1 in 2. Can you afford not to insure against this real risk?

I’m perfectly healthy. Why should I plan ahead? 

Many people do not think they will need long-term care insurance because they are healthy. However, and unfortunately, the odds are that you will require long -term care at some point in your life, and you may need it sooner than you think. About 40% of people needing long-term care are adults ages 18-64. They may have had an accident, a stroke, developed multiple sclerosis, or some other illness.

Approximately 70% of those Americans who live to the retirement age of 65 will need long-term care services at some point in their lives. Moreover, the longer you live, the higher the odds that you will need long-term care eventually. While more than half of those going into a nursing home will have stays of fewer than ninety days, those who remain in nursing homes will stay an average of 2 ½ to 3 years. This is particularly true for women, who tend to live longer than men, and who consequently often develop chronic disorders that require long-term care.

When is the best time to start planning? 

Waiting too long to purchase a policy can be very costly. Because rates are based on age and health, it is best to start shopping for a policy when you’re young and healthy.

A good time to purchase is when you’re in your 40s or 50s. You can certainly buy a policy when you’re in your 60s or even older, but expect to pay considerably more. Plus, if you wait too long and develop a condition that may require long-term care, you could become uninsurable.

What happens if I never need long term care?

Think of your long term care insurance policy like your homeowner’s or automobile policy. The best outcome is that, if fact, you’ll never have to use it! The chances of losing a home to fire is 1 in 1200. Chances of being in a car accident is 1 in 240.  But would you go without either your homeowners or auto policy? The chances of needing long term care is 1 in 2. Can you afford not to insure against this real risk?

Many traditional LTCi policies offer Return of Premium riders that you might consider. Other LTCi policies (known as “hybrid” or “asset-based”) policies have either Return of Premium or return of Cash Value (may be greater than your premiums after a time period) features.