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What Senior Citizens Need To Know About Private Long Term Care InsuranceLong term care is a major concern of American senior citizens and their families. Studies have shown that Americans rank long term care second, behind saving for retirement, when prioritizing financial needs. Unfortunately, many Americans do not want to think about needing long term care and, therefore, fail to plan for it. Others wrongly assume that Medicare or standard health insurance policies will cover the costs of long term care services. As a result of this failure to plan, tens of thousands of Americans are impoverished each year by the costs of long term care. The best time to plan for long term care is before it is needed. Start thinking about long term care when you plan for retirement. If you are already retired, it is not too late to begin planning for potential long term care needs. Private long term care insurance is an excellent way to finance long term care. This brochure will guide you through the important process of selecting the right long term care insurance policy. This booklet provides information on long term care services, what to look for in a long term care insurance policy, and a glossary of terms. Finding a good policy will take some effort, but the effort will be worthwhile. Here are some steps to take when considering the decision to purchase a long term care insurance policy:
The decision to purchase long term care insurance is not a simple one, but thorough investigation and thoughtful planning now can offer you and your family financial protection for the future, and, most importantly, peace of mind. Long term care includes a range of nursing, social, and rehabilitative services for people who need ongoing assistance. Most people in long term care facilities are older, but many young people need long term care during an extended illness or after an accident. Assistance with routine personal needs such as bathing, dressing, eating, toileting, and taking medicine is the most common long term care service. Long term care facilities also provide skilled nursing and rehabilitative care, which is ordered by a physician and supervised by skilled medical personnel such as a nurse or licensed therapist. Nursing facilities are the primary settings for people who require medical care daily or intermittently. You must have a physician specify needed services in a written treatment plan for admission to a nursing facility. Many nursing facility stays are short periods of recuperation from an acute medical episode such as a hip fracture or surgery. Assisted living facilities or residential care facilities provide general supervision, housekeeping services, medical monitoring, and planned social, recreational, and spiritual activities for people who are still independent and ambulatory. Assisted living facilities do not provide medical care. Facility care services include skilled nursing care, speech, physical, or occupational therapy, facility health aides, or help from facilitymakers. Sometimes, family members, or caregivers, provide most of the care with the help of facility aides and skilled professionals. Adult day care services are available in many communities, providing personal care, skilled care, and recreational services. The cost of long term care varies by the level of care needed, the setting where the care is provided, and geographic location. Nursing facilities, assisted living facilities, and facility care services provide different levels of care to different resident populations; therefore, costs are not comparable. On average, round-the-clock long term care services in a nursing facility cost $40,000 per year, or $112 per day. Assisted living costs vary dramatically—anywhere from $900 to $3000 per month depending on room size, amenities provided, and services required. Facility care, if needed daily, also can be quite expensive. In 1996, an average facility care visit from a registered nurse (RN) cost $99. RN visits for facility care typically do not exceed 2-4 hours per day, so care is not round-the-clock. Eight hours of adult day care can cost an average of $45 per day. Nursing Facility Care: About one third of the costs of nursing facility care are paid directly by individuals and their families. Two government programs may pay for some of your care. Medicare, a health insurance program for people age 65 or older, only covers skilled facility care and up to 100 days of skilled care in a nursing facility if you are admitted after a three-day hospitalization (not required if you are an HMO member) and your physician prescribes skilled care in your treatment plan. Many people think that Medicare is the primary payor of nursing facility stays, but Medicare accounts for only 9 percent of nursing facility expenditures. Medicaid, a program for the poor, pays for approximately 52 percent of the nation's nursing facility care, but only for people who have spent almost all their assets and become impoverished. Due to lack of planning for long term care, Medicaid is the source of payment for nearly 70 percent of people in nursing facilities! Unless you have long term care insurance, qualify under limited conditions for Medicare coverage, or become poor, you will pay out of your savings for nursing facility services. Assisted Living: About 90 percent of the nation's assisted living services are paid for with private funds. The Supplemental Security Income, Older Americans Act, and Social Services Block Grant programs pay for some assisted living services, while about one-fifth of the states allow the federal Medicaid program to pay for some service components. Facility Care: Private funds pay for about 46 percent of facility care costs; Medicare covers 32 percent; Medicaid, 22 percent. Adult Day Care: There are some out-of-pocket expenses for adult day care; however, the majority of funding comes from public sources either the state exclusively, or, in some states, Medicare and Medicaid. Private donations from corporations and charitable groups such as the United Way also supplement the costs of adult day care. Because long term care insurance premiums are based on age at the time of purchase, the younger you are when you purchase a policy, the less expensive the annual premium. These premiums for most policies stay level each year as you age. If you buy at age 55 a policy that cost $800 per year, you will continue to pay the same premium. However, if you wait until you are 65, the same policy will cost you $1,700 per year. The best policy for you depends on several factors, including your family arrangement, your financial situation, your preferences regarding long term care choices, and the level of risk you are willing to accept. There is no one best company or one best policy for everyone. You should select a policy that meets your needs. Before you buy a policy, make sure you know the product you are buying and from whom you are buying it. Be sure your agent is licensed to sell insurance in your state and has received specific training on long term care insurance. Consult friends, consumer guides, and information from your state's insurance counseling program or local agency on aging. More than 115 companies now offer long term care insurance products, according to the Health Insurance Association of America . Contact your state insurance commissioner's office for a list of companies authorized to sell long term care insurance in your state. Investigate the financial health of any insurance company that you are considering. Look for ratings from insurance rating services, such as Moody's or A.M. Best. The insurance company should be rated in one of the top two categories by at least two services and have no low ratings. You can find these rating services in the reference section of your library, or you may call Moody's at 212-553-0300, or A.M. Best at 908-439-2200. Long term care insurance is sold in the form of individual policies, individual policies through an organization, and group policies. An individual policy is sold directly to you, usually by insurance agents or financial planners. You have tremendous flexibility selecting the company, the policy, and the amount of coverage. Some individual policies are sold through groups, such as an association or organization. Although you do not have a choice of companies, you have the advantage that the organization selected a good company and policy to offer you. But you may have fewer choices in the amount of coverage and options in the policy. A group policy is usually offered through your employer, who contracts for the insurance plan. Group policies may cost less than comparable individual policies, but your choices are also limited. The most important factor in selecting a policy is the set of conditions required to qualify for coverage. Buying a policy that covers long term care services will not help if you do not qualify for benefits. Many policies require a policyholder to have an acute medical condition before he or she can qualify for benefits. The best policies are not contingent on an acute medical condition: They will pay for the long term care of a person with a physical or cognitive impairment. People who have a physical impairment need assistance with the activities of daily living (ADLs) feeding, dressing, transferring, bathing, taking medications, and toileting. Policies differ in the number of impairments a person must have before they qualify for benefits. Avoid policies that require physical impairment due to a medical condition, or that require assistance with ADLs to be medically necessary. People who are cognitively impaired have Alzheimer's disease or other forms of dementia. A policy's definition of cognitive impairment should never refer to the activities of daily living. People with dementia usually can perform ADLs if prompted, but often exhibit inappropriate or bizarre behavior. Another important factor is which entity or gatekeeper decides whether or not you qualify for benefits. Most policies require your physician to certify the reasons you need long term care services. Some policies require your physician to write a treatment plan. Some insurance companies offer a care (or case) manager to determine if you qualify or continue to qualify for benefits. Some care managers also help you find and monitor long term care services available in your community. Most long term care insurance policies pay a maximum fixed dollar amount for each day you receive covered services. When you buy a policy, you decide the value of the fixed dollar amount and the length of time your benefits will run. For example, if you buy a policy that pays $100 per day for three years, the policyvalue is $109,500 a figure that is computed by multiplying 365 days times 3 years for the maximum number of days multiplied by $100, the amount the policy will pay per day. Remember that no policy guarantees to cover all costs of long term care without a limit. Because most retirement income is fixed and may not keep pace with inflation, your ability to afford premiums may diminish. Buying too much insurance may mean that you cannot afford to pay the premium later. The four components used to determine how much insurance to buy are:
Benefit Amount is the maximum fixed dollar amount that a policy will pay each day. A potential purchaser of long term care insurance usually has the option to choose a daily benefit amount ranging from $40 per day to $200 per day for nursing facility coverage. Most policies offer a daily benefit for facility care that is equal to half of the nursing facility daily benefit, while some allow you to select the benefit amount you want for facility care. To determine the benefit amount best for you, find out today's cost of a nursing facility of your choice, then decide how much from your income you could afford to spend per day. Couples, likely to need the entire income for the other spouse, should figure that no income will go to cover long term care costs. The difference between the cost of a good nursing facility and the amount from your income is the benefit amount you should buy. Generally, this is 80 percent to 100 percent of today's long term care cost. Inflation Adjustment is the increase of the benefit amount to cover the effect of inflation. The cost of long term care services increases every year due to inflation. A policy paying $100 per day will cover most of the cost of a nursing facility today. However, this same policy probably will cover only a fraction of the cost in future years unless you buy inflation protection. There are several optional policy features. The best, and most expensive, is an inflation adjustment that increases the benefit amount by a certain percentage (usually 5 percent) compounded for the life of the policyholder including while you are receiving benefits. In other words, the benefit amount increases 5 percent annually over what the policy would pay the previous year. Instead of a compounded rate, you can buy a simple rate inflation adjustment, which increases the benefit amount by 5 percent of the original benefit, instead of the previous year's benefit amount. The difference is small in a short period of time, but quite substantial over a long period of time. Policies may limit the length of time the inflation adjustment will increase the benefit amount. Some policies limit the increase of the benefit amount to a specific number of years generally about 20 or until the policy doubles, which is about 16 years for a compounded rate of inflation, and 20 years for a simple rate. Some policies will increase the benefit amount until the policyholder reaches a specific age. Any limit on the benefit amount increase will reduce the cost of the inflation adjustment option. You may want to consider an inflation adjustment restriction, if the option would not leave you without inflation protection. If you are 60 years old and expect to live into your nineties, a policy that stopped increasing the benefit amount after 20 years would leave you with 10 or more years without any inflation adjustment to your benefit amount. Meanwhile, the cost of long term care has continued to increase. It is worth it to pay a little extra to ensure that you are protected. However, if you are 70 and believe you will need long term care by the time you are 80, you could save some money by buying a policy that has a simple rate inflation adjustment for 20 years. A few policies allow you to purchase additional benefit amounts in future years. However, you will buy these additional amounts at the higher premium based on age. You may want to consider this option if you are under age 50. However, for older ages, this option is substantially more expensive than the automatic annual inflation adjustment option. Ask your financial advisor to compare various inflation options and the resulting premiums. You should select the inflation option that is best for your situation. Benefit Period is the length of time the policy will pay for covered services. Policies offer benefit periods ranging from two years to an unlimited benefit period. You should first determine the benefit amount before you consider the benefit period. Many people worry about the potential of a very long stay in a nursing facility. However, there is a very small probability (less than 8 percent) that you will stay more than five years in a nursing facility. The primary consideration is how much you can afford in premiums. The average length of stay in a nursing facility is two-and-a-half years. If all you can afford is two years of coverage, it probably will be adequate. If you can afford a longer benefit period, you should buy it. Deductible Period, also called the elimination period, is the number of days that you pay for covered services before the policy pays. Consumer advisors recommend a deductible period between 20 days and 100 days. Policies with longer deductible periods have lower premiums, but you will have to pay for needed services until you meet the deductible. The length of the deductible period you should buy depends on the assets you have available to pay for services during the deductible period and how much you can afford in premiums. The most important service a policy should cover is custodial or personal care. A good long term care insurance policy will cover all levels of care, especially personal care, and all settings, including facility care, community adult day care, assisted living facilities, and nursing facilities. Policies usually differentiate between nursing facility care and facility care. Under facility care, most policies include the community services of adult day care and respite care (temporary overnight care to relieve family caregivers). Most policies pay a different benefit amount for facility care, usually amounting to half the nursing facility daily benefit. However, many are now offering equal benefit amounts or the option to choose a benefit amount. Assisted living facility services are usually covered under facility care. If a policy requires you to purchase facility care services from a facility health agency, it may not cover assisted living facility care because the facility provides the service, not a facility health agency. Some policies cover assisted living facilities under nursing facility benefits. If you are interested in assisted living facilities, make sure you know how the policy handles the service. Like all insurance policies, long term care insurance contains limitations and exclusions. Without limitations and exclusions, premiums would be unaffordable. In general, the following conditions are NOT covered:
Some policies offer a nonforfeiture benefit, which provides a return of some premiums paid or a reduced benefit if the policyholder stops paying the premium after some period of time. You should consider the likelihood of not being able to pay your premium if the premium increases or your income decreases. Because this benefit significantly increases the cost of the premium, carefully review the available nonforfeiture benefit options. For policies that offer a reduced benefit for the premiums paid, it is usually preferable to have a policy that will pay the full benefit amount for a shorter benefit period. On the other hand, if your financial situation is secure, and you foresee no risk of losing your coverage because you cannot pay the premium, you might choose a lower premium with no nonforfeiture benefit. It is helpful to keep in mind the comparison between investment and insurance. If you are considering long term care insurance as an investment, paying a higher premium now and having some protection against lapsing in the future makes sense. The other option for those seeking an investment, rather than pure insurance, is to purchase a life insurance policy with a long term care rider or accelerated death benefits, or to invest the additional premium amount in a high-return investment. The cost of a long term care insurance policy primarily depends on your age. The older you are when you purchase a policy, the higher your premium. The annual premium for a low-option policy for a person at age 50 is about $400. This same policy for a 65-year-old person is about $1,100 per year; for a person age 79, the policy would cost more than $4,300. Of course, the younger person pays the premium for a longer period of time. However, if long term care is needed at age 85 in each of these cases, the 50-year-old person would have paid a total of $14,175 for long term care insurance, compared to the 79-year-old person paying $26,232. In addition, the 50-year-old will receive a higher benefit amount from the inflation adjustment. Simply, the earlier you buy the policy, the less expensive it will be in the long run.
Of course, there is nothing you can do about your age. But you can control the premium by controlling the amount and options you purchase in a policy. Higher daily benefits and special features, such as inflation protection and nonforfeiture benefits, increase your premium. Studies of the cost of long term care insurance show a three-fold difference from a low-option policy to a high-option policy in every age category. The following chart will help you compare the premiums of different insurance policies. Indicate the amount of insurance and the option you select for each policy.
Most premiums for long term care are level. After you have purchased a policy, the premiums do not automatically increase as you get older. However, level premiums do not mean that the premium will never increase. It means that the company cannot raise the premiums due to increased age or the health of an individual policyholder. The insurance company may raise premium rates for an entire class of people in the state, with permission from the state insurance commission. The best policy to buy is guaranteed renewable, meaning that the insurance company cannot cancel the policy for any reason, except if you do not pay the premium. Most companies selling individual policies clearly state that the policy is guaranteed renewable. Some policies provide lapse protection for individuals who develop dementia. Thus, if a person who has regularly paid premiums for years develops Alzheimer's disease or some other condition affecting mental health, and forgets to pay the premium, coverage will not be canceled. Some companies offer to notify a third party if a premium is not paid on time. All insurance companies ask questions regarding your current health status. The better companies will medically underwrite the policy by asking you to complete a medical history form and supply the name of your physician. The insurance company may contact you or your physician to verify your answers or clarify your medical conditions. If you have medical conditions in your history or have current medical programs, the company may refuse to insure you. Medical underwriting is not an exact science. Therefore, if you are denied a policy, appeal the decision. Ask the company why it refused to insure you. At the time you submit a claim, a few companies will claim that you failed to disclose your entire medical history when purchasing a policy, and state they would not have sold that policy to you if they had known your full medical history. This procedure, known as post claims underwriting, is illegal in many states. Be sure to purchase a policy from a company that asks the detailed medical questions up front. A good company will sell a long term care insurance policy only to people who are reasonably healthy and at relatively low risk of needing long term care in the near future. Some companies will not sell to a person over age 85, or will sell only a lower benefit policy to people between 80 and 85 years of age. Some companies require a waiting period for any pre-existing conditions. Regardless of these consequences, you should fully disclose your medical conditions. You should review the actual policy before buying. If your agent will not leave a sample policy for you to review at your leisure, then find a new agent. After you buy, you have a right to review the policy for 30 days with the option to cancel for a full refund. If you have any complaints regarding the agent or the company that sold you long term care insurance, write to the consumer affairs or insurance department in your state. Your complaint will trigger an investigation, which could help you, as well as other consumers. The policy should explain how to file a complaint, where to get information from your insurance company, and how to appeal a claim denial. There might be situations in which canceling an existing policy and buying a new one makes sense. You should carefully compare the increased premiums to the added benefits of the new policy. Remember that your premium is based on your age at the time you initially purchase a policy. Insurance companies introduce new products about every two or three years. Ask your agent about the company's record regarding policy upgrades. Many companies automatically notify existing policyholders and offer the new policy at a higher premium. Some companies automatically upgrade existing policies to new policies. However, some companies do not always notify policyholders of newer, better products, and require you to buy the improved policy as though you were a new buyer. Long term care insurance can protect your assets and provide you with peace of mind. You and your financial advisor should discuss whether long term care insurance is right for you. If long term care insurance fits your needs, purchase from a reputable company a policy that offers benefits that cover physical or cognitive impairment. Carefully consider how much insurance and the options you need. There is no one best policy. However, with a little research, you will find a policy that fits your needs at a premium you can afford. Accelerated Death Benefits — Some life insurance companies offer life insurance policies with a special feature that allows payment of the death benefit when the insured person is still alive. Such payment usually is limited to situations in which the individual is terminally ill. The benefits are available to cover the costs of long term care services. Activities Of Daily Living (ADLs) — The physical functions necessary for independent living. These usually include bathing, dressing, using the toilet, eating, and moving about (transferring). Some long term care policies pay benefits based on an individualÕs need for assistance to perform several ADLs. Cognitive Impairment — A diminished mental capacity, such as difficulty with short-term memory. Case Management — A system in which one individual helps the insured person and his/her family determine necessary services, and the best setting for those services. Custodial Care — Board, room, and other personal assistance services (including assistance with ADLs, taking medicine, and other similar personal needs), that do not include a health care component and may be provided by people without medical skills or training. Deductible or Elimination Period — These terms refer to the waiting period, the initial number of days before the benefits are paid by the insurance company. Most policies offer a choice of waiting periods, ranging from 0 to 365 days, during which policyholders pay for needed services out of their own pockets. Dementia — Progressive mental disorder that affects memory, judgment, and cognitive powers. One type of dementia is Alzheimer's disease. Exclusion — Any condition or expense for which a policy will not pay. Free-Look Period — After purchasing a policy, you usually have 30 days to review it. You may cancel the policy for a full refund during this time. Guaranteed Renewable — With this policy provision, an insurance company cannot cancel a policy unless you fail to pay premiums when due. Premiums cannot be raised unless there is a rate increase for all policyholders in a particular group. Facility Care — Health services rendered to an individual in his or her facility. Facility care includes a wide range of services, such as part-time skilled nursing care, speech therapy, physical or occupational therapy, facility health aides, or facilitymakers. Indemnity Benefit — A flat payment made directly to the policyholder, rather than to the nursing facility or facility care agency for services rendered. Inflation Protection — One of several mechanisms that can be built into insurance policies to provide for some increase over time of the daily benefit to account for inflation. Addition of this feature to a policy can be important depending on your situation, but it also raises the price of the policy. Lapse — To allow insurance coverage to expire by not paying premiums. Level Premiums — The company cannot raise the premiums due to age or medical condition. The company may raise the premium rates for an entire class of people with permission from the state insurance commission. Medicaid — The federally supported, state operated and administered public assistance program that pays for health care services to low-income people, including elderly or disabled persons. Medicaid pays for long term nursing facility care and some limited facility health services. Medicare — The federal program providing hospital and medical insurance for people aged 65 and older, some disabled persons, and those with end-stage renal disease. Medicare provides only very limited benefits for skilled care, and under specific conditions, for nursing facility and facility health care. Medigap — Private insurance that supplements Medicare. While Medigap policies typically cover Medicare's deductibles and coinsurance amounts, they do not provide benefits for long term care. Like Medicare, Medigap policies primarily cover hospital and doctor bills. Nonforfeiture Benefit — A policy feature that provides for some return on premiums paid or reduced benefits, even if the policyholder quits paying the premium after a minimum period of time. This feature makes the insurance purchase more of an investment than true insurance, and raises the basic policy price. Outline Of Coverage — A description of policy benefits, exclusions, and provisions that makes it easier to understand a particular policy and compare it with others. Out-Of-Pocket Payments or Costs — Costs borne without benefit of insurance, or payment required under insurance cost-sharing provisions. Period Of Confinement — The time during which you receive care for a covered illness. The period ends when you have been discharged from care for a specified period of time, usually six months. Preexisting Conditions — Medical conditions that existed, were diagnosed, or were under treatment before you took out a policy. Long term care insurance policies may limit the benefits payable for such conditions. Post Claims Underwriting — A practice whereby a claim is denied on the basis of the individual's health status at the time the policy was purchased. Most reputable companies do medical underwriting at the time a policy is sold, rather than at the time a claim is submitted. Skilled Nursing Care — Nursing and rehabilitative care that can be performed only by, or under the supervision of, skilled medical personnel. Skilled Nursing Facility — Under Medicare, an institution (or a distinct part of an institution) that provides daily skilled nursing care and related services for patients who require medical, nursing, or rehabilitative services.
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