Lesson 4f: Long-Term
Care (LTC) (continued)
Objective: Determine
if long-term care insurance is right for you.
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Before considering what long-term care covers, it is important
to understand what the other programs, such as Medicare and Medicaid,
cover (or do not cover).
What does Medicare cover?
- Custodial care (non-medical assistance with daily living)-
not covered on its own but may be covered as a part of a nursing
or rehabilitation
service
plan
- Home health care - benefits for medical care given under a home
health plan established by a physician
- Skilled nursing facility - benefits for care received at a skilled
nursing facility, if deemed necessary by a physician, and the individual
was
treated as an inpatient in a hospital for at least 3 days
in the
previous 30 days. Medicare covers the first 20 days in full,
and an additional 80 days are covered with a co-pay.
What does Medicaid cover?
- Service is provided by a joint state and federal program, thus benefits
and criteria vary by each state.
- Medicaid covers a wide range of services based on the individual's
savings (i.e., net worth usually minus the value of any home).
- Medicaid pays for most long term-care needs for those that qualify
based on net worth.
- Currently 46% of all long-term
benefits
are paid by Medicaid.
Medicaid pays for a large portion of all benefits, because most
Americans have very small retirement savings, and these savings
are already used up by the time long-term care benefits are needed.
What does long-term care insurance cover?
- LTC insurance will cover custodial and nursing home care costs for
an individual that can not perform 2 out of 6 daily life functions
(e.g.,
eating,
bathing, dressing, transferring from bed to chair, going to the toilet,
and maintaining continence or control of bodily fluids).
- Coverage varies from policy to policy in terms of specifics (e.g.,
daily benefit amount, benefit period, waiting period, and
inflation protection),
so make sure you understand when
benefits kick-in and how much the policy will pay.
- For retirees with small savings, long-term care insurance is not
needed because the cost of long-term care will be covered by Medicaid.
So should you buy long-term care insurance?
Based on advice from various financial advisors,
| |
More Likely to Need
LTC Insurance |
Less Likely to Need
LTC Insurance |
| Retirement Income |
Between $35,000 to $75,000 |
Less than $35,000 or More than $75,000 |
| Retirement Assets (excluding home) |
Between $150,000 to $1.5 million |
Less than $150,000 and more than $1.5 million |
| Family Medical History |
Prone to Alzheimer's or strokes |
No known neurological problems |
| Family |
Out of town |
In town |
| Family Culture |
Little family expectations |
Children takes care of elderly parents |
| Personal Beliefs |
Want life support |
No life sustaining measures |
| Age |
Closer to retirement age |
Younger than age 40 |
What are benefits of having long-term care insurance?
- It preserves your estate for your children to inherit.
- It may allow you a greater choice of facilities than if you were
covered by Medicare or Medicaid alone (i.e., some facilities may not
take Medicare or Medicaid).
- Medicaid payments may change in future years (reduced benefits) as
more baby boomers need long-term care.
What are the pitfalls of long-term care insurance?
- There is no guarantee that future premiums will not increase. Some
premium increases may force you to drop coverage after years of payment,
with no benefits
paid to you.
- It provides profits for insurance companies
and agents who sell the policies at your cost.
This is a bet that insurance companies will not lose on. If
the cost of coverage goes up for them, they will pass the cost
on to you to maintain their profits.
- One may need skilled nursing home care but still not meet the company's
criteria for not performing 2 out of 6 daily life functions.
Remember the statistic that the average stay in a nursing home
is 2.5 years? The average length of claim payment, per a
Society of Actuary study, is only 1 year. Some may want to
go into a custodial care facility when they can not drive or cook
for
themselves, but long-term care insurance will not cover this
if the person can
still perform
the other basic life functions.
- Many policies limit the time covered (e.g., maximum 3 years in a
nursing home), provide only a limited dollar amount per day,
or do not
provide inflation protection, thus it is important to be aware of these
details. If you do buy LTC insurance, it may be wise to spend
the extra
money to
protect
yourself
against
the risks of a long stay, inflation, or a higher per day cost of care
if you live in a state/city with higher costs. Remember insurance
should provide protection against large risks (e.g., needing long-term
care insurance for more than 3 years).
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