In our first article, Long-Term Care Considerations, we shared some information about costs and potential issues. As you look more into this complex product, you will find additional layers of complexity, additional potential issues. Fortunately, not all of them are serious, nor do they make this an undesirable product.
Regardless of complexity, long-term care is so important (it deals with the future you may have) that the issues, no matter how complex, cannot be ignored. A lifetime of savings can be wiped out in a few months or years at the cost levels of care reviewed on page 2 of our last article. As the average life expectancy reaches well into the 80’s, long-term care coverage becomes increasingly important. When those concerns are combined with the fact that 90% of the Boomers want to remain in their homes as long as possible, being able to afford some home care when it becomes necessary becomes even more important.
Let’s start with a touch of good news: If you purchase long-term care insurance, you may be able to get a limited tax deduction. Plus, benefits received under a “qualified” long-term care policy are generally tax-free. However, like most tax breaks, Uncle Sam imposes several limitations:
• Premiums paid for qualified long-term care insurance may be able be deducted, but only up to an annual limit, based on the age of the insured person.
• Long-term care insurance is a medical expense for tax purposes but it is limited by the age of the insured. The same restrictions still apply, to be deducted, medical expenses including long-term care must exceed 10% of your adjusted gross income.
That means that long-term care isn’t a benefit strongly encouraged by the tax laws. The tax benefit increases as you get older, but still not enough to do more than provide a limited tax benefit to some who purchases long-term care coverage.
Why is this benefit not worth it for many? The truth is that most people never have to live in a nursing home for a long time. Often what is available through Medicare assisted by a Medicare Supplement or an Advantage Plan is sufficient. But there remains a concern in the hearts of many and when long-term care coverage does fit the budget, it makes sense to have that insurance coverage and protection.
But what about …
1. Health insurance coverage? Won’t it help? Probably not! You will need to sit down with your health insurance agent and examine the coverage language carefully. Most health insurance policies do not pay for nursing home care.
2. Medicare? Medicare pays for 100 days of skilled nursing home care if an admission follows a hospital stay. Beyond that, you are on your own, although if you have an advantage plan or a supplement, you may get additional protection. Check on it and know for sure!
3. Medicaid? Medicaid will pay towards nursing home costs, but government regulation varies from state to state and you will not qualify if you have meaningful assets (although some skilled elder care legal assistance may help with that somewhat). You may have to deplete many of your assets before you qualify. Do you really want to be at the mercy of government budgeting and low-cost nursing care?
4. Your family? Without long-term care coverage, you may become dependent upon your family for support, maybe even housing and home care. Even if that works for a time, it is difficult at best and can strain family relations. Are your family members strong enough physically (and mentally) and skilled enough to provide the level and quality of care you need?
5. Increasing costs? The cost of all medical care is increasing and appears likely to continue to increase in the future. Nothing appears likely to change that in the foreseeable future.
So, what do I look for?
The short answer is either “a lot” or “everything you can get.” Start with these features and issues, ask questions about each, have the agent show you where in the policy provisions there is the feature you want and, most importantly, ask several agents and not just one.
How financially strong is the company? Choose a highly rated insurance company. Look for the financial strength and track record of the company. Many have paid years of premiums only to find the carrier out of money and out of business when it came time to receive the benefits. Nothing can guarantee the future of a company, but financial strength and good management are a necessary starting point.
What is the benefit amount? Long-term care policy benefits are usually described in terms of maximum amount per day. Is that enough at the time you buy the coverage? If the coverage amount is too limited, the amount you have to make up each day may make the quality care you want unaffordable. The daily limit must be high enough to make the long-term care coverage useful.
A benefit period may range from two years to the lifetime of the insured. By choosing a shorter benefit period, lower premium costs will be incurred. The average nursing home stay is far shorter than three years, so that amount of coverage is likely to be enough. Needless to say, lifetime coverage is quite expensive.
Is there inflation protection? We’ve all seen the cute novelty items for sale showing the price of an item or items many years ago when you were born.
50 years ago, the cost was:
Gas cost 24.5 to 29.9 cents per gallon.
Bread cost 25 cents a loaf.
The minimum wage was $1.65/hr.
A doctor or lawyer made $50,000.
Homes in Los Angeles averaged $30,000 to $50,000.
A new Toyota Corolla was $1,800.
A new Cadillac was $9,000.
A Mustang GT was $8,000.
A cola was 8 to 10 cents each.
A scoop of ice cream at Baskin Robbins was 35 cents.
The compounding impact of inflation on the real cost of living can be dramatic. You will likely not receive benefits for many years, so you need to be as certain as possible that your benefits will be enough, that they will keep up with inflation.
What is covered? Of course, you can’t know what care you will need, but persons needing long-term care most often need at least some amount of skilled nursing care, intermediate care, custodial care, and likely also home health care and/or adult day care. Ask about each and what the requirements are before you can receive care at any of the different levels.
The levels are skilled nursing, intermediate, or custodial care and it is the language in the policy that determines what level is available, how much and when. Be certain that custodial care is included because some policies only pay if intermediate or skilled care is involved. Custodial care is the level most commonly needed, so a policy without it may omit what you need the most. Medicare also does not provide any coverage for custodial care.
Although Medicare will cover nursing home care if that care is a part of the treatment for a covered illness or injury, neither Medicare nor supplements will pay for nursing home care that is needed due to normal aging processes. Medicare and supplements do pay for skilled nursing care, but the coverage is limited. The care must immediately follow a period of hospitalization and are typically limited to 100 days. Those weaknesses in Medicare and supplement coverage show the importance of long-term care.
Respite care is often but not always associated with hospice care. With respite care as a benefit, the patient is admitted to a nursing home for needed care, often rehabilitative care, for a short period of time. The policy might also pay for the cost home health care for a short period of time to support the family’s care for the insured at home.
Most long-term care policies provide limited coverage for home health care. Typically home health care is required to begin within a limited period of time following a hospital or nursing home stay. A home health benefit is often 50 to 60% of the amount of the nursing home benefit. Ask about this coverage carefully because home health care is a usually an extension of intermediate custodial care. For intermediate care, the patient does need some health care, but can function without the need for the full level of care in a nursing home.
Additionally, many long-term care policies also provide for adult day care. This allows the family care giver to continue working. Adult day care is a combination of social and health care services for adults with sufficient limitations. Ask to verify that coverage includes transportation to and from the adult day care center as well as a variety of stimulating mental and physical activities. Adult day care most often includes meals and may offer limited medical services. Adult day care often has specialized care for persons with Alzheimer’s or dementia.
Some long-term care policies provide chore services, a benefit that amounts to exactly what it sounds like, the coverage provides for specified chores or errand to be done.
What triggers benefit payments? You do not want coverage that requires that you be hospitalized before lesser benefits become available. A limited number of older policies require a hospital stay of up to three days before coverage begins. Similarly, you do not want to need skilled nursing care before you can have a lesser level of care such as custodial care. It is far better for you to gradually advance in the level of care than for you to only be able to receive care after a major medical event such as a hospitalization.
Similarly, can you receive home health care if you are in independent housing in a continuous care facility? Some policies require that you be at home and not in an assisted living facility.
Typically, a policy requires certification by a physician that long-term care is necessary. Ask who makes the determination that long-term care is medically necessary.
What physical inabilities trigger benefit eligibility? You should be able to start receiving care when you can’t perform two or three “activities of daily living” such as bathing, dressing, eating, walking, transferring from a bed to a chair, using the bathroom or remaining continent. You do not want a policy that is too restrictive or requires you to be unable to do virtually anything to help yourself before benefits become available. You will likely need the help a lot sooner!
A harder condition to anticipate is cognitive impairment. It is difficult at best to say when the need for care arises as dementia, Alzheimer’s disease or similar conditions progress. Understand those conditions and read carefully the long-term care policy provisions so you understand if they provide meaningful coverage in the event cognitive impairment becomes a developing problem. Ask directly about the coverage that is available for these. The unfortunate truth is that some carriers do not provide benefits for anything other than physical inabilities.
What can cause coverage or benefits to end? You need a policy that is guaranteed to be renewable. You cannot afford to pay for coverage for years only to find the policy lapses due to your age or a health condition. Fortunately, almost all LTC policies are guaranteed renewable. But you need to ask whether premiums are fixed or can increase. Guaranteed renewable policies still can have premiums increase under certain circumstances, i.e., if the premiums for an entire class of insureds increases. Typically, only noncancelable policies have fixed premiums.
Is there a nonforfeiture benefit? Such a benefit is required by some states and it keeps at least some amount of insurance in force if you let the policy lapse. This provision is required by some states, but not by most. Ask!
Does the carrier provide for third-party notification? This is a policy provision causing notice to a relative, friend or professional adviser in the event the insured forgets to pay a premium.
What is the waiting period? Your financial ability determines the reasonableness of a waiting period. You need to have sufficient financial reserves to be able live and pay for care that you need until the coverage benefits become available. The longer the waiting period, the lower the premiums will be, but always be able to get the care you need.
Is the policy one of indemnity or reimbursement? Most long-term care policies pay on a reimbursement basis, up to the limits of the policy. That means that if the benefit is $150 per day but you only spend $130 per day, the policy will pay only $130. However, if the policy is an indemnity policy, $150 per day will be paid as long as the insured needs and receives the long-term care.
Is there a waiver of premium provision? This is a provision in a long-term care policy that indicates no more premiums are due once benefits begin. Ask and make sure the policy has a waiver of premiums.
With this list you at least have a chance of asking the right questions and hopefully getting the right and the best answers. The decisions you make may alter your life and lifestyle. You should ask in order to protect and benefit yourself and your family. However, you need to be aware that LTC policies are a relatively young product. State and federal governments are still developing regulations to deal with new problems. The National Association of Insurance Commissioners (NAIC) provides multiple documents assisting consumers including 10 Things You Should Know About Buying Long-Term Care Insurance and A Shopper’s Guide to Long-term Care Insurance.
Long-term care remains a difficult coverage to purchase because its need is so difficult to predict. If you can afford it and want to protect yourself against the potential risks and disabilities of aging, it may be a coverage you should consider.
About the author:
John Campbell has retired from a 40 year legal practice as a trial attorney in Tampa. He has served in multiple volunteer roles at Idlewild Baptist Church in Lutz, Florida where he met Jesus. He began serving as the Executive Director of the Idlewild Foundation in 2016. He has been married to the love of his life, Mona Puckett Campbell, since 1972.