One can hear stories over and over again; still, until it becomes "personal," it does not sink in. Elderly folks can be completely independent living in their own homes 1 month and then suddenly need the highest levels of assisted living care shortly down the road of life. Among the many lessons I learned during this family journey is the fact that assisted living can cost a huge amount of money. There are group-home types of assisted living that cost at least $3,000-4,000 per person. Another type of assisted living includes larger facilities. There are those where a large sum if deposited up front (I have heard $20,000-$80,000) and the monthly rent is closer to $4,000-$5,000. Without this hefty deposit, monthly rent can be $7,000 per person and up to unknown heights.
Thinking that I have been responsible in my adult life readying for retirement (some day), I have low debt, a 401,000, even pre-paid/arranged funeral expenses, but there is no way I could pay these prices if I had to live my last four-plus years in assisted living (and hopefully, it won't be for decades-so consider inflation and much higher costs). Therefore, I started looking into Long-Term Care Insurance (LTCI) and it just may be more complicated and convoluted than other forms of insurance that case managers have dealt with over the decades. Consider this a basic primer of some of the things I learned. Also note that there are state-specific laws on what these insurance policies can and cannot cover.
In addition to personal experience, statistics are giving me a pause to look at LTCI. According to the Department of Health and Human Services, at least 70% of people older than 65 years will eventually need long-term care (LTC), either at home or in a nursing home. The average stay for a woman entering a nursing home is almost 4 years; if she's in a semiprivate room, that costs about $270,000 total. Case managers are quite aware how expensive that can be and also that health care insurance/Medicare does not pay for these costs (Orman, 2010).
Some case managers who have been keeping up with the health care reform law may have heard about the "Community Living Assistance Services and Supports Act," which was established by the Affordable Care Act. This would have given some LTC assistance, although at potentially low levels of support. However, early in 2012, the House voted to repeal the long-term care insurance program because it was "unsustainable" (Fiegl, 2012). On New Year's Day, the House and Senate passed the American Taxpayer Relief Act of 2012 (HR 8), legislation to delay the automatic spending cuts established in the Budget Control Act of 2011 (PL 112-25) for 2 months by revising tax policy and cutting spending. President Obama signed the bill into law on January 2. This law repealed the Community Living Assistance Services and Supports Act, leaving in its place a newly established Commission on Long-Term Care, whose charge is to develop a plan for the establishment, implementation, and financing of a high-quality system that ensures the availability of long-term services and supports for individuals (National Association of States United for Aging and Disabilities, 2013).
One of the most helpful resources I found on LTCI was from the National Association of Insurance Commissioners (NAIC), as their Shopper's Guide to Long-Term Care Insurance (link in the references) contains a wealth of information, glossary, and worksheets (NAIC, 2011). This information and that on http://LongtermCare.gov will give you food for thought. This Editorial will touch on the hem of this giant poodle skirt and try to simplify what really cannot be simplified; there are too many variations and choices. Here is a "starter kit" of information.
Tax incentives. In an effort to incentivize Americans to purchase LTC protection, the government has offered tax incentive. Much like health insurance, LTCI may be deducted. There are some stipulations such as the policy must be "tax-qualified." The deduction also depends on your age. For example, if you are 40 years old or less (2013 deductions), you may be allowed to deduct $360; if you are 71-plus years old, you may be able to deduct $4,550 (LTC Partner, 2012).
Must-haves. According to Suze Orman, if you want to pursue this coverage, work with an agent who specializes in it, and follow these rules (Orman, 2010):
Buy only what is affordable. Do not stretch to buy a policy that covers 100% of anticipated future costs. It is far smarter to buy the amount of coverage for which you are sure you can keep making the premium payments. It makes no sense to buy a policy today that you will have to abandon in a few years because it is too expensive; you will get no benefit if that happens. Focus on what is safely achievable: Better to buy a policy that will cover 25%-50% of future costs than no policy at all.
Insist on an inflation adjustment. The cost of care rises each year; you need a policy whose benefit will also increase. Given the above-average inflation rate for health services, look for a 5% annual inflation adjustment.
Aim for the shortest possible elimination period. This is the time before your policy kicks in; for example, if you have a 30-day elimination period, you'd pay for your first 30 days of care out of pocket. The shorter your elimination period (30 days is a typical minimum), the pricier the policy. If it's 90 days or longer, make sure you have other assets that you could use to pay for your care for that length of time.
Decision points. Long-Term Care Insurance is pricey and what you choose can make it affordable or not. Here are some issues that can bring the premiums higher or lower:
1. Daily coverage: The lower the daily coverage, the lower the premium. But consider if you can pay the remaining costs.
2. Elimination period: As above, this "waiting period" before benefits kick in can be shorter or longer. The shorter wait before benefits kick in, the higher the likely premium cost.
3. Length of coverage: The average stay for a woman entering a nursing home is almost 4 years. That may be an unaffordable length of coverage for many people (the shorter the coverage, the lower the premium).
4. To wait or not to wait (to buy): once you become incapacitated or have chronic conditions, the premium will be higher.
5. Choose your coverage details: Do you want assisted living, home health aides, skilled nursing facility level of care, and so forth?
6. How to pay the premiums: Depending on your age, your health, and your chosen benefits/options, the premiums vary widely: $300 annually for a 40-year-old to more than $7,000 annually for a 79-year-old (NAIC, 2011). Because income typically reduces as one retires, consider other several options (rather than continuous monthly payments for the rest of your life). Not every company or every state has these payment options. These "limited payment options" include the following:
a. Single pay (one lump payment),
b. 10-pay or 20-pay (to be paid off in 10 years or 20 years),
c. Pay to 65. Premiums depend on many options, but you will pay until you are 65 years of age, then the payments end.
7. The insurance company you choose: This may be the most important consideration: after all, if the company goes belly-up, you could be left with an empty policy. There are several rating agencies and state insurance departments cited in the Shopper's Guide to Long-Term Care Insurance. Review the carrier's record with your state insurance commissioner's office and use only those with an "A" financial rating.
8. Factor in predictable rate hikes: Ask about the company's history of rate hikes, but be prepared; unfortunately, this is likely to occur.
So, what did I decide? Will I or won't I? Suze Orman (who is probably a multimillionaire) says it is a "must" and that her mother refused to allow her to buy LTCI-a mistake that cost her dearly at her end of life. I will factor in tax incentives, take Ms. Orman's advice under consideration, and make my decision soon.
References