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Lesson 4f: Long-Term Care (LTC) (continued)

Objective: Determine if long-term care insurance is right for you.

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.
  • Peace of mind

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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