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Long Term Care

The information in this article is general and condensed. It is not intended to be and should not be regarded as legal, medical or financial advice in a particular situation. Decisions about future care, including whether to purchase long term care insurance, and if you do, what policy to purchase, are important decisions that require careful investigation and thought. This article may provide a starting point in the process.

  • Who will need long term care?
  • What does Medicare cover?
  • What about Medicaid?
  • What is long term care insurance?
  • Major concern: solidity of company
  • Do you need it?
  • Can you afford it, now and in the future?
  • What features are best for you?
    • Daily benefit.
    • Length of coverage.
    • Type of care covered.
    • Inflation coverage.
    • Elimination or waiting period.
    • What triggers benefits?
    • Tax qualified policies.
    • Other provisions
  • Resources.

Who is likely to need long term care?

All of us are likely to need some assistance if we live long enough. Modest needs for assistance may be met through life adjustments, either at home or in assisted living facilities. Most senior care in this country is provided at home, largely by family members, and financed from individual or family resources.

Most older people do not end up in nursing homes for long periods. For seniors who do eventually need nursing home care, the average stay for those under 85 is usually a year or less, and for those of all ages, two to two and a half years. But increased life expectancy does increase the likelihood of living to an age at which disabling illnesses are more frequent. The costs of long term care either at home or in an institution are enormous when they do occur. Only the very affluent have incomes and resources to cover extended care of the kind that most of us would prefer for ourselves or our loved ones.

From 65 to 69 the likelihood of spending some time in a nursing home is about 10% (some stays are very short); from 75 to 80, about 20%; after 80 the percentage of those who will spend time in a nursing home is almost 45%, and 25% can probably expect stays of 3 years or more. With annual costs for a semi-private nursing home room in Alabama around exceeding $55,000 in 2009, even a two-year stay (plus medical and other expenses) is enough to wipe out many people’s savings, especially if it follows several years of high medical bills.

Costs of around-the-clock home care for a chronically ill person are higher than care in a nursing home and it is not easy to arrange for good care. It is nearly impossible to maintain a sick person at home unless there is at least one family member willing and able to shoulder most of the load, and it is a heavy load. There are options like day care (in some areas) and respite care to extend the period that a family caregiver can carry the burden, but as an ill person’s needs increase, at present a nursing facility may eventually be the only way to provide the level of care needed

What does Medicare cover?

Very little and often nothing. If a Medicare beneficiary is hospitalized for at least three days (not counting the day of discharge) and is certified as needing skilled care, Medicare will pay all costs for up to 20 days in a skilled care facility. If the beneficiary continues to be certified as needing skilled care Medicare will pay part of the costs for up to another 80 days, but the co-payment in 2009 is $ 133.50 per day. This co-pay is covered by Medigap policies C through J, but in Alabama most beneficiaries have Medigap A or B. (The Blue Cross/Blue Shield “C+” policy popular in Alabama is actually a Medigap B policy).

Medicare will pay for a limited amount of home health care under certain conditions, but even the maximum available reimbursement is not enough to cover twenty-four hour care. Care for a chronically ill person at home is simply not feasible without family members who can provide the bulk of it, or enough money to supplement family and volunteer care.

What about Medicaid?

Medicaid pays for care only after other resources are exhausted. There are strict asset limits to qualify, and in Alabama there is also an income cap, although there is a way to qualify despite income over the cap. (See separate article on Medicaid on this web site .)

What is long term care insurance?

Long term care insurance is commercial insurance. Like other private insurance the terms and costs vary substantially among companies. LTCI usually pays a fixed amount per day for qualifying care. The periods of coverage may range from two years (none we have found covers only one year) to life. There are many variables that affect the cost of premiums: length of the deductible period, period of coverage, amount of daily benefit, whether there is an automatic inflation factor built in, what kinds of care are covered, and others.

The range of benefit and feature mixes is complicated and the wording of policies can be confusing. Expect to look at several policies and do a lot of reading before making a decision about this coverage. A well-chosen policy can be a godsend but a poor choice can be an expensive disappointment.

Major Concern: Long-term stability of insurer

Long term care insurance is usually purchased many years before need, so it is important for the company selling such coverage to be solid. The cheapest policy may not be the best buy; if a company offers policies for too little it must either increase premiums or risk not surviving to pay off later.

Many advisors suggest buying only from companies with five or even ten years of experience in the field. All consumer advocates emphasize that any firm considered should be well rated by at least two of the major insurance rating firms. (See the Resources at the end of the article @ note 1.) Some consumer advocates consider only a handful of long term insurance companies sufficiently sound to depend on coverage long into the future.

DO YOU NEED IT?

(a) Women are more likely to need nursing home care than men, especially married men, and they are less likely to have incomes and resources to pay for it. Married men are likely to be cared for by spouses, while women on average live longer, into ages at which disabling illnesses are common.

(b) What are your resources? If you are single with less than about $ 75,000 in resources plus a home, or married with combined assets of less than $ 100,000 plus a home, the cost of long term care insurance may not be justified by the amount of resources to be protected.

(c) What is your personal and family health history? Your health must be good to get coverage. Your risk of needing long term care is a mix of heredity, the way you care for yourself, and luck. Someone with several close family members with Alzheimer’s may be more likely to need long term care than one whose history suggests a likelihood of dying of a heart attack at 79.

CAN YOU AFFORD IT? WILL YOU BE ABLE TO AFFORD INCREASES?

These policies are expensive, so you do not want to purchase one without being reasonably confident that you can pay the premiums even if they increase.

Premiums are much cheaper if a policy is purchased at an earlier age, but that is no guarantee that premiums will not increase in the future. While premiums may not be increased for one person (because of illness, for instance) they may be increased for a whole class of persons if that is necessary for the company to remain able to pay claims.

While you can find policies with “non-forfeiture” features, they are prohibitively expensive. Many experts recommend paying no more than 5 to 7% of your annual income for long term care insurance premiums. For a (healthy) 65 year old, a policy with a fair mix of benefits including inflation protection might cost upwards of $ 1,500a year. For the 50% or so of retirees whose incomes are well under $20,000 per year, long term care insurance is simply too expensive, especially when added to medical costs not covered by Medicare.

WHAT FEATURES DO YOU NEED AND HOW DO THEY AFFECT COSTS?

1. Benefit rate. The choice of benefit level will be major factor in cost. A good rule of thumb is to select a daily benefit at least as high as the current usual cost of nursing home care in your area; $100 a day is a common benefit amount and it may not be adequate. You will have some income to offset costs, but there will also be costs of care in addition to what is included in the basic rate.

2. Term of Coverage. 90% of nursing home residents between 65 and 95 will stay in a facility less than four years; the average stay is a little over two. Very few will experience stays of five years of more. Alabama Medicaid allows those with long term coverage for at least three years to shield resources in an amount equal to that paid for care by insurance and still qualify for public assistance. Lifetime coverage may be expensive.

3. Type of care covered and at what rate. You should probably get a policy that will cover assisted living facility as well as nursing home care. There may be restrictions on qualifying assisted living facilities and the benefit may be less, although some assisted living facilities, including those with dementia units, are nearly as expensive as nursing homes.

There will certainly be restrictions on covered home care. Care at home is likely to cost more and the policy will pay less, probably much less than would be needed for twenty- four hour care or even waking-hours care. Many polices pay half the daily benefit rate for home care; some will not allow family care, others allow it but reimburse at half of the reduced daily benefit. If the rate is $100 a day the resulting $50 home rate might
pay for an aide for four or five hours; a family member, if permissible, might make $25 for the same period, or less than minimum wage. The policy may require that home care be
provided by a home health agency, the most expensive source. Most of us would prefer to be cared for at home but few people realize how expensive and difficult it is.

Pool of money option. A few companies offer this option. You choose the benefit rate, type and length of coverage; for example, comprehensive coverage (including home care) of $100 a day for four years. You can use the maximum that the policy would pay for any care you choose, but the amount you use for one type of care is deducted from the pool left for other types. There would probably still be restrictions on who could provide the care, but it is possible this option would provide greater flexibility.

4. Inflation coverage. This is expensive but vital. The rate of increase in costs of nursing home care has far exceeded the rate of inflation in general and that seems likely to continue. Over the last ten years the average cost of a semi-private nursing home bed nationwide has increased at a much greater rate than the average cost of living. They increased over 20% over the last five years in Alabama.

Some insurance salesmen do not like to talk about inflation coverage because it can increase premiums by 70%. Without inflation protection, however, there is almost no point in buying a policy. If nursing home costs continue to increase at the same rate, by the time a 65-year-old is likely to need the bed that costs about $135 a day today will face costs many times that. Her original policy will cover only a fraction of her care.

The best inflation protection offered is 5% per year, compounded. It will probably not cover the whole need but it is the most realistic protection available. It may increase the basic premium by as much as 70%.

Insurance salespersons may offer other options that sound good but are poor choices. An agent may suggest buying a higher daily benefit to begin with; say, $200 a day instead of $ 150. But without some other provision, that $ 200 will still be in place 15 years later when a bed costs $ 500 or $600 a day.

Another suggestion may be an option to periodically increase coverage. The early years’ premiums are less this way than they would be with inflation protection. But premiums increase with age, so the costs of increasing the daily benefits in later years will therefore be much higher. Ultimately you will be paying far more for a benefit comparable to what you would have had with a reasonable daily benefit plus good inflation protection at the outset.

Another option is to buy inflation coverage at 5% a year but not compounded. That is, a 5% increase is added to the original benefit each year, rather than to the previous year’s benefit. That might be enough if the insured is, say, 75, and may need benefits in a relatively short period. It is almost surely inadequate if the buyer is only 65 or less. Get exact figures for the difference between simple and compound inflation protection. A premium difference of $ $500 a year is insignificant in the face of a possible $9,000 monthly increase in nursing home costs.

5. When coverage begins. All long term insurance has a deductible or elimination period; that is the initial waiting period for coverage to kick in. This can be as little as 20 days or as much as 100 days. The shorter the waiting period the higher the premium, but remember that you will have to pay for your care during that period; consider whether you will be able to pay for your care for 60, 90 or 100 days at future high rates. If not, the higher premium for a 20 or 30 day waiting period may be well worth it. Tax-qualified policies have 90-day elimination periods.


A Medigap supplemental policy that will cover the co-pay for the 21st through 100th day in a nursing home is one option. If the cost is not much higher
than a less comprehensive supplemental policy it may be a good gamble, although most people do not go to nursing homes from a hospital but from home. A surer option would be to have adequate savings to cover the waiting period.

6. What triggers benefits? Determining what is required to qualify for coverage is one of the thorniest aspects of comparing policies.

Generally, to determine if you are sufficiently disabled to need long term care, the policy measures your inability to perform one of the activities of daily living (“ADLs”). These are eating, walking, transferring from bed to chair, dressing, bathing, toileting and remaining continent.

The longer the list of activities included as “ADLs” and the fewer you must fail, the easier it is to qualify for coverage. Some policies require that you be unable to perform three of the seven named above. Others cut the list to five or six and require that you be unable to perform two or three. It is important that bathing be included in the list of ADLs, as that is the usually the first thing a frail elderly person needs help with. It can be important how “inability to perform” is measured; does inability to eat mean needing someone to supervise, or being actively fed by someone else?

Another way to qualify is to be cognitively impaired, as with late stage Alzheimer‘s or other dementia. With non-tax-qualified plans, still another way to qualify is through medical necessity, such as having congestive heart failure or some other condition that makes you too frail to care for yourself even though you might be able to perform most of the ADLs.

7. Tax-qualified policies. There are some tax deductions for certain kinds of policies. The cost of premiums may be deducted on your income tax return, but only if your total medical costs exceed 7 ½ % of your income. If you are healthy enough to qualify for coverage and affluent enoughto pay for it, you may not have that many medical expenses. The deductions are also limited; very limited in the early years when you would most welcome them.

The real benefit to tax qualified policies is that benefits are not taxed. What is not clear is whether benefits from non-qualified policies would be offset by medical expenses. Other health insurance benefits are not treated and taxed as ordinary income, and it would seem inconsistent for the IRS to take the position that long term benefits, used to pay for medical care, would be. But as of this writing (2009) the IRS has thus far not given a definitive answer on this.

Unfortunately, “tax-qualified” policies include some provisions that some advocates argue could make it harder for the insured to collect. The company may choose any of six ADLs, for instance; and bathing may be the one left out. There are other restrictions; a licensed professional must certify that you have been unable to perform at least two of six ADLs. In order to qualify as cognitively impaired you must require “substantial supervision”, which may be defined in different ways. It is not possible to qualify because of “medical necessity” as is possible with a non-tax-qualified policy. And there is a 90-day exclusion
or waiting period. Over time, as the market expands and consumers become more sophisticated, policies may improve.

OTHER PROVISIONS

These are extras only; do not overlook more important features.

A Advice/counseling for someone in need of care. This can be helpful but is sometimes provided by someone under contract with the insurance company, who may be more interested in serving the company's interests than yours.

B. Bed reservation benefit, to hold your nursing home bed until your return if you must be temporarily hospitalized.

C. Respite care benefit that pays for a substitute caregiver while yours takes a break.

D. Waiver of premium benefit that pays the premiums once you are in a facility. Some companies waive the premium once you are in a facility, most impose a waiting period of 60-90 days.

E. Lapse provisions: Elderly people may let policies lapse because the premiums have become burdensome or because they simply forget to pay the premium. Some companies will send notice of a missed premium to a third party; some allow a longer grace period; others permit reinstatement after five months if non-payment resulted from cognitive impairment.

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New provisions are coming along as the concept of long term care insurance becomes more common. Non-forfeiture provisions allow a person who can no longer pay premiums to receive some benefit from a policy, perhaps by applying the amount of premiums paid to costs of care as long as they last. These provisions add 20-50% to the premiums.

The Federal Employees Retirement program and other government entities, including the Alabama Retirement System, offer more affordable long term care insurance to their employees. As these large numbers of employees begin to buy coverage the pool of covered persons will likely become large enough to hold down costs and improve coverage.

Alabama Medicaid permits those who have long-term care policies that pay for at least three years of care to shield assets from spend-down to the extent that insurance has paid for care, and still qualify for assistance. This could be an incentive to purchase insurance, especially for someone likely to experience a stay of several years in a nursing facility

OTHER RESOURCES

1. The Alabama Department of Insurance and other states’ insurance departments have a booklet that offers helpful suggestions for determining whether long term care insurance is likely a good idea for you, and how to go about investigating possibilities and making a selection. Budget constraints in Alabama may not allow distribution of a print version but it is available online at www.aldoi.gov. Go to "consumer " for a list of online publications and select Shopper's Guide for Health Insurance for Senior Citizens. For more information, call the Insurance Department at 1- 242-241-4141, or the Alabama Department of Senior Services at 1-800-243- 5463.

2 Area Agency on Aging Insurance Counselors provide free information and advice to seniors of any income on health care financing, including long term care insurance and other financing options. In Alabama call your Area Agency on Aging, or call the state office at 877-425-2243 or 334-242-5743.

3 Consumer Reports, Consumer Digest and other consumer and popular publications periodically offer information on this and other elder-related topics. AARP offers helpful publications on the subject.

4 For those wanting to do more intensive research on long term care insurance, the National Association of Insurance Commissioners developed a Model Long Term Care Insurance Policy and Model Long Term Care Insurance Regulations several years ago. Most states adopted some part of the Policy or Regulations or both, but many, like Alabama, have not adopted some later important improvements.

5 A copy of Alabama’s long term care insurance regulations may be found in the Alabama Administrative Code, Insurance section, or obtained from the Alabama Department of Insurance (Alabama Regulation # 91).

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