Should you be considering insurance for long-term healthcare?
A common assumption about health insurance is that it inherently includes long-term care, which can leave people in a tough spot when they discover this isn’t true. Such an oversight has the potential to wipe out your life savings, and if long-term care (LTC) insurance is purchased after the need arises, the coverage may not be available or offered only with restrictive provisions.
The need for LTC insurance generally varies with age, family history, and health. Realistically, the older you are, the greater the chances of needing this type of coverage. According to the Department of Health and Human Services, around 10 percent of people will have a disability that may require LTC between ages 40 and 50, which increases to about 70 percent by the age of 90. From a general standpoint, nearly 70 percent of people will require LTC at some point after turning 65.1
In addition, approximately one in four 20-year-olds will experience some form of disability before retirement with 12 percent, or more than 37 million people, disabled before age 65.2
Life expectancy tables indicate women will outlive men on average by five years. The loss of a spouse, partner, or significant other usually leaves patients without someone to help them with daily tasks, prompting LTC intervention.3
Family history may predispose an individual to a greater chance of developing an illness or disability that requires LTC. The need for LTC also increases with the onset of organic disease, i.e., hypertension, diabetes, and a history of poor self-care. Inactivity may predispose an individual to chronic problems that might otherwise have been avoided.3
Many seniors have the impression that Medicare will pay for all medical expenses, but this coverage is specific and limited when it comes to LTC. (It’s worth noting that the Department of Veterans Affairs offers LTC, but the benefits may be restricted and difficult to obtain.)
Specifically, the AARP indicates that “Medicare covers up to 100 days of skilled nursing facility care, but only after a hospital stay of at least three days and only for people with a daily need for skilled care.” Furthermore, “Medicare’s home healthcare benefit pays for intermittent skilled nursing and therapy visits for people who are homebound and have a doctor-certified medical need for services.”4 With this in mind, LTC copayments can add up quickly, and after 100 days, you are fully responsible for noncovered services.
Additionally, Medicare supplemental insurance usually pays its portion after Medicare authorizes services. Therefore, if Medicare denies a claim, so will supplemental insurance. Importantly, the patient must be admitted for care into a hospital for the three-day clock to begin for skilled nursing facility eligibility. Observational care, as hospitals may use, will not count as a prerequisite for coverage. Ask questions about this distinction should the occasion arise.
The need for custodial care will require an LTC claim. This generally is determined by the health of a patient with the inability to perform a combination of the following activities of daily living: bathing, dressing, eating, mobility, and personal hygiene.
LTC insurance may also include mental incapacity as a definition for eligibility. Depending on the insurance contract terms and policy provisions (Medicare, Medicaid, or a private policy), care may be rendered in a nursing home, the patient’s home, or a skilled nursing or assisted living facility. Care may begin immediately or may have an elimination period.
Many options are available for purchase with LTC policies. Policy riders—enhancements added at the time the policy is written—influence the final cost. Riders might include the quantity of benefits paid per day and the time period that the benefits will last. Other options like a longer elimination period will reduce the premium. A guaranteed renewal should be considered, which ensures some protection against premium increases.
Inflation, another factor to consider, will erode purchasing power, and you can purchase various levels of protection to account for it.
Consult a professional
The process of choosing the most appropriate LTC insurance policy can be an overwhelming and distressing maze. But working with a knowledgeable financial adviser such as a CFP professional can help ensure the best selection is made for the right reasons.
CFPs consult with LTC insurance colleagues to ascertain client needs. After performing a thorough analysis, he or she can determine the most prudent action steps.
A variety of LTC insurance products are on the market for purchase. Reimbursement and indemnity policies are considered traditional LTC insurance plans. Hybrid products may include a life insurance policy with an LTC rider.
Other options include living benefit riders, guaranteed purchase options, return of premium, and more. As with most insurance policies, premium costs vary depending on your health, policy provisions, and riders selected. Some of the costs paid for LTC insurance may be tax deductible.5
LTC as wealth insurance?
There are three groups of individuals who might consider purchasing LTC insurance. The first may fall in the lower economic class where LTC is unaffordable. After spending almost all of their assets, these individuals will likely become Medicaid eligible.
Middle class individuals may have the ability to pay for LTC insurance at some benefit level. They might wish to maintain a level of choice if the need for LTC would arise.
The final group is composed of those whose net worth allows for LTC insurance to be an option. This group might have the ability to self-insure for LTC. But such individuals must decide if it is more cost effective to purchase insurance and protect their portfolio.
Purchasing insurance is a transfer of risk. In this case, a determination must be made regarding whether to mitigate potential risk by shifting responsibility to another party or managing it personally. For example: Alzheimer patients with no other physical or organic disease may live many years. The economic drain can quickly reduce a sizeable portfolio.
Whatever approach you decide on, the goal remains to protect yourself from the unknown and your estate from unexpected depletion. Hybrid products might be enough to cover LTC over a few years, but a longer period of time will likely warrant a traditional policy.6
Research shows that fear of outliving your money and having decisions made for you by a third-party administrator may supersede your fear of dying.7 Plan ahead, be prepared, ask questions, and be comfortable with your choices after consulting with an adviser.
William Wolfson, DC, FICC, MS, MPAS(SM) is a financial consultant and adviser. He is a member of the Financial Planning Association of Long Island, the New York State delegate to the American Chiropractic Association, and a member of the New York and Florida chiropractic associations. He retired after 27 years of chiropractic practice and can be contacted at firstname.lastname@example.org.
DISCLAIMER: The information in this article is for informational purposes only and not provided as legal advice. Contact your attorney to obtain advice with respect to specific legal issues. The opinions expressed are solely those of the author.
1 U.S. Department of Health and Human Services. “The Basics.” LongTermCare.gov. http://longtermcare.gov/the-basics/. Accessed February 2015.
2 Council for Disability Awareness. “Disability Statistics.” http://www.disabilitycanhappen.org/chances_disability/disability_stats.asp. Updated July 3, 2013. Accessed February 2015.
3 U.S. Department of Health and Human Services. “Who Needs Care?” LongTermCare.gov. http://longtermcare.gov/the-basics/who-needs-care/. Accessed February 2015.
4 Komisar H. “Medicare Does Not Pay for Long- Term Care.” AARP. http://blog.aarp.org/2013/08/22/medicare-does-not-pay-for-long-term-care/. Published August 22, 2013. Accessed February 2015.
5 Elder Law Answers. “IRS Issues Long-Term Care Premium Deductibility Limits for 2014.” http://www.elderlawanswers.com/irs-issues-long-term-care-premium-deductibility-limits-for-2014-14375. Updated May 20, 2014. Accessed February 2015.
6 MacDonald J. “3 ways to buy long-term care insurance.” Bankrate. http://www.bankrate.com/finance/insurance/buy-long-term-care-insurance-2.aspx. Published April 10, 2012. Accessed February 2015.
7 Gilbert S. “Compared to running out of money, fear of death is no biggie.” DailyFinance. http://www.dailyfinance.com/2010/07/07/compared-to-money-shortage-fear-of-death-no-biggie/. Published July 7, 2010. Accessed February 2015.