Juliet: “What’s in a name? That which we call a rose
By any other name would smell as sweet.”
Romeo and Juliet (II, ii, 1-2)
Shakespeare asked about names centuries ago to call into question the validity of the feud between the Montagues and the Capulets. The answer, as we were shown while the play went forward, is that a name can be everything.
The dynamics of the importance of a name can also be seen with Long-Term Care Insurance (LTCi). The National Bureau of Economic Research (NBER) has stated that only ten percent of the elderly have a private LTCi plan. The NBER went on to state that a 65-year old woman has a forty-four percent chance of entering a nursing home during her lifetime. Once in a nursing home she faces an average stay of two years.
Long-term care is extremely expensive, according to a MetLife survey. The national average daily rate for a private room in a nursing home in 2012 was $248, while a semi-private room was $222, which were up from $239 and $214 respectively from 2011.
Given the highly probable expense of over $180,000 for a two-year stay in a nursing home, you would think a lot more than ten percent would have purchased the coverage.
In 2011 United States fire departments responded to 370,000 home structure fires. These fires resulted in $6.9 billion in direct damage. There are 125,000,000 homes in the United States according to HUD. The math would state that the odds of having a reported fire are one in 338, and the average fire is under $19,000.
Why . . . when it is almost unthinkable to go without homeowner’s insurance . . . would only ten percent of the elderly purchase coverage for something that will seemingly happen much more often and be more expensive?
I think part of the answer is in Shakespeare’s wisdom of the importance of a name. I’ve been in the insurance business for forty-three years. When I first became aware of LTCi it was commonly known as “Nursing Home Insurance”. It’s doubtful they could have named it anything worse.
Social Security Is Only Part of the Retirement Solution
It’s hard to read a newspaper or listen to a newscast without hearing about how the government is reducing the benefits paid by Social Security. Whether you’re a liberal or a conservative, people understand that the number of people receiving benefits is growing, while the number of people paying into the system is shrinking.
According to the Social Security Administrations publication (#05-10024, March 2012) “Social Security was never meant to be the only source of income for people when they retire… To have a comfortable retirement, Americans need much more than just Social Security.”
A long term care policy (LTC) is a product that offers one piece to the retirement puzzle. It can play a vital role in help a senior maintain their preferred lifestyle. It can provide the funds for the extra care that is needed when you are unable to perform certain Activities of Daily Living (ADLS).
Even though the concept of Long Term Care is simple, the planning and implementation can be critical. A local independent insurance agent can be your best source of information in obtaining and selecting a policy that is right for you and your family.
What is Long-Term Care?
“The biggest shock for people entering the Medicare system is learning that it won’t pay for custodial care in a nursing home,” said a recent article in the Los Angeles Times. That is usually when people realize they should have purchased Long-Term Care Insurance from their local, independent insurance agent.
“Medicare was designed to pay for acute illnesses and medical treatments. It won’t pay for someone to help you bathe or dress. Unless you have someone to care for you, you go into a nursing home, at about $70,000 per year, and pay for it yourself…The average nursing home resident is a woman in her late 80s who needs help with four of the six basic activities of daily living: using the toilet, bathing, dressing, eating, getting in and out of bed, and moving around the house.”
If you need help with these activities of daily living (ADLs), many times this assistance is provided by what is known as Long-Term Care. The need for Long-Term Care may be caused by an illness, injury, or old age. Even though it has been given the name “Long-Term” Care, its need may only be for a few months, yet it could be for years. It is not just the elderly who need special help: 37% of persons who require Long-Term are younger than 64 years of age.
Much of Long-Term Care is not medical attention, but simply assistance with the basic activities of daily living. What isn’t readily apparent is that you don’t have to go into a nursing home to qualify for payment under Long-Term Care Insurance. Only about 30% of claims paid under Long-Term Care Insurance involved a nursing home; over 40% were home care situations.
According to the National Clearinghouse for Long Term Care Information, about 70% of people over age 65 will require some type of long-term care services over their lifetimes.
The Basic Components of Long Term Care Insurance
As you consider the purchase of long-term care insurance, here are five terms you may not yet be familiar with:
- Daily benefit amount – The daily benefit is the maximum amount your policy will pay once you become eligible for benefits. (We’ll discuss eligibility under point number 4.) Your daily cost for long-term care can vary greatly, depending upon the area of the country in which you live.
- Benefit period – The length of time an insurance company will provide benefits. You may want to take this into consideration: the average nursing home stay is just under three years.
- Benefit pool – This amount is calculated by multiplying the daily benefit amount by the benefit period. For instance, a $300 daily benefit with a 3-year benefit would result in a benefit pool of $328,500.
- Elimination period – The waiting period is the period of time the policyholder would need to wait before receiving benefits from their long-term care insurance, usually 30, 60, 90, 180 or 365 days. As you might imagine, the shorter the elimination period, the more expensive the premium. Think of the elimination period for long-term care insurance in the same way you think of a deductible for your other types of insurance.
- Inflation protection – This component of long-term care insurance allows the policy to keep pace with increases in the cost of providing long-term care. Current increases are averaging about five percent per year.
This should allow you to have a basic understanding of some of the terms used to describe long-term care insurance. Because there is such a wide variety of costs and benefits, long-term care insurance is an extremely complex type of insurance to buy.
What Should I Look for in a Long-Term Care Insurance Policy?
According to the Department of Health and Human Services as reported by the National Clearinghouse for Long Term Care Information, “Once your benefits begin, most policies pay your costs up to a pre-set limit. Other policies pay a pre-set cash amount for each day that you meet the benefit trigger whether you receive paid long-term care services on those days or not. These ‘cash disability’ policies offer more flexibility but are much more expense.”
Factors That Increase The Likelihood Of Long-Term Care
- Age – the older you get, the more likely you will need help
- Living alone
- Gender – women are more likely to need Long-Term Care than men, primarily because women tend to live longer
- Lifestyle – poor diet and exercise habits will increase the chances that you will need Long-Term Care
- Family history
Long-Term Care may be provided in facilities known as nursing homes, personal care facilities, or residential continuing care facilities. Long-Term Care can also include a variety of services administered at home, including physical therapy and occupational therapy.
The purchase of Long-Term Care Insurance is quite complicated since it involves a large number of variables. Call your local independent long-term care insurance agent for help in making your decisions regarding this coverage.
Benefits of Long Term Care Insurance
These benefits must be offered by all participating insurers as part of all plans:
- Nursing home care
- Home care
- Personal care
- Assisted living care
- Skilled nursing care
- Adult day care
- Respite care (14 nursing home equivalent days per year)
- Care management (2 days of long-term care planning services by a professional)
- Alternate level of care
- Nursing home bed reservation (20 days per year)
- Hospice care
- Inflation protection equal to 3.5% or 5% compounded annually
- Guaranteed renewable
There would seem to be several names that could have been picked that would have been much better than “nursing home insurance”.
Who would want to purchase insurance that would facilitate you being placed in a “Nursing Home”? Nursing homes have gone through a great deal of change over the last forty years. They are much more user-friendly, but still aren’t a place we’re eager to call home. No one wants to become older in our youth-oriented society, but it is inevitable and Boomers are demanding solutions that are palatable for them . . . and positive marketing.
Beyond the negative name, selling LTCi requires a discussion of the conditions for payment of loss. Many policies require that the insured can no longer perform at least two Activities of Daily Living (ADLs). There are six basic ADLs: eating, bathing, dressing, toileting, transferring (walking) and continence. An individual’s ability to perform ADLs is determines what kind of long-term care and coverage the individual needs.
One can only imagine what a sales turn-off it is to discuss ADLs around the kitchen table with prospective buyers. They don’t want to think about growing old, let alone have a discussion about incontinence.
The Long-Term Care industry also seems to have been very poor at predicting actuarial outcomes. Over the last few years ten of the top twenty largest LTCi companies have pulled out of the market. They cite low investment income from bonds, larger than expected claims due to medical advances that allow people to live longer, and the inability to achieve necessary rate approval from state regulators.
Industry insiders also suggest that many companies over-estimated the percentage of people who would allow their LTCi to lapse. Companies need a certain percentage of policyholders to allow their policies to lapse, because when that happens they can claim all of the premium paid to that point as fully-earned . . . because there is no chance for a paid claim on a lapsed policy. It seems that people who purchase LTCi hold onto it.
A recent article in Forbes suggested that failure to purchase LTCi could destroy your retirement. Unfortunately, the average premium for LTCi for a sixty-five year old in 2012 was $4,862.12.
Because of this high premium, which is about five times the cost of the average homeowner’s policy in the United States, many people think LTCi is “too expensive”. The market has reached the contrarian position of the insurance companies deserting the market because they feel they can’t make a reasonable profit and, at the same time, people thinking the coverage is too expensive.
People also avoid LTCi because they believe the coverage decision is “too complex”. It is complex; and you should involve an independent agent, but there are some parts of the buying decision that have become a rule-of-thumb. For example; a long-term care policy isn’t worth it for those with relatively few assets, some say less than $250,000. Odds are they’ll eventually turn to Medicaid if necessary. People with more than $2 million in assets have the financial means to self-insure.
Personally I believe self-insurance to be a poor decision. Asset protection is asset protection no matter what amount of money you have. However, I also believe that many LTCi policies are designed to cover ALL your long term care expense when what you need to cover . . . is what you cannot comfortably afford to cover.
Top 10 reasons for buying Long-Term Care Insurance
- The odds of needing Long-Term Care are far greater than having your house catch on fire or totally demolishing your car, yet you probably already have insurance for both of those events.
- Long-Term Care insurance can allow you to maintain your independence, so you won’t need to rely on a spouse or children to take care of you.
- You can protect your assets against the ravenous costs of Long-Term Care.
- Long-Term Care insurance gives you more options about whether you move into an assisted living facility, a nursing home, or remain at home.
- A preferable Long-Term Care facility may not accept you unless you can demonstrate that you can pay for some of the costs yourself.
- Medicare doesn’t cover most Long-Term Care. Even if they do cover your care, they generally won’t pay for a private room.
- Long-Term Care insurance can help to protect your children’s inheritance.
- If you are in poor health, you will eventually need to have someone provide for your care.
- The longer that you wait, the higher your Long-Term Care premium will be and the greater your chances of being turned down for coverage.
- You want to maintain your current standard of living throughout the later years of your life.
Failing to plan is planning to fail, so everyone needs to have an overall retirement strategy. As part of that strategy, determine how you will provide for your Long-Term Care.
“You’ll need to consider getting long-term care insurance in advance of the time when you can no longer complete ordinary, daily living activities such as bathing, using the bathroom, preparing your own meals, and following medical directives — including taking prescription drugs. Paying for help with these activities can be very high,” states Steve Vernon of CBS Money Watch.
“There are very few pieces of Long-Term Care that involve medical treatment,” explains Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute. “If you need help taking your medicine, Medicare would tend to pay for that sort of thing. But helping you take a shower in the morning? That’s not a medical activity.” Long-Term Care takes the guesswork out of grey area coverage issues.
Long Term Care Insurance Premiums
LTCi premiums are determined by six main factors: age, daily (or monthly) benefit, how long the benefits pay, elimination period, inflation protection, and health rating (preferred, standard, and sub-standard). Age and health are mostly pre-determined for you, but the other four require analysis to determine what coverage best suits your needs and financial ability to pay.
People also avoid buying LTCi because they feel it is too hard to get. It is hard to purchase, if you wait until you’re quite old to buy it. Insurance companies are constantly trying to avoid adverse selection. The debate over Obamacare succeeding centers on whether young people will take part in the pool. To force them to take part there are penalties built into the Affordable Care Act. Insurance companies also need younger people to buy LTCi to make the pool profitable.
According to the American Association for Long-Term Care Insurance, at age 49 and under only 7.3% of applicants are declined. The declination rate increases to 13.9% in your fifties and 22.9% in your sixties. Those who apply in their seventies will suffer a 44.8% rejection and if you apply in your eighties you can expect to be declined 69.8% of the time.
If you have any of the following you probably will be most likely be declined:
- AIDs or HIV infection
- Alzheimer’s Disease
- Amyotrophic Lateral Sclerosis (ALS)
- Cystic Fibrosis
- Hepatitis C, Non-A, Non-B, or Autoimmune
- Kidney Failure
- Liver Cirrhosis
- Memory Loss
- Multiple Sclerosis (Mid – Advanced)
- Muscular Dystrophy
- Parkinson’s Disease
- Post-Polio Syndrome
- Sickle Cell Anemia
- Systemic Lupus Erythematosus
You will also probably be declined if you must have assistance with dressing, bathing, toileting, or feeding . . . or have incontinence, or need assistance with getting from a bed to a chair. You will probably be declined if you use a multi-pronged cane, walker, crutches, oxygen, or wheelchair. If you need assistance with grocery shopping, using a bus or taxi, or need help with the telephone or banking, you probably won’t qualify. If you are currently receiving special care, you will more than likely be declined.
It is very important to start coverage when you’re in good health and preferably when you are younger.
Women have greater use for LTCi than men. Until recently rates have not reflected this difference, but that is changing rapidly.
One of the main reasons women use LTCi more is that women tend to be the caregivers. If men need long term care, the first place they look is to their spouse. Since women out-live men (the life expectancy in the U.S. for women at birth is 79, and for men is 72), they often do no have the option of having their spouse take care of them.
Women are susceptible to many diseases that don’t effect men.
More than seventy percent of the residents of long term care facilities are women. One in nine women age 75 or older, and one in five age 85 or older, needs assistance with daily activities.
LTCi can be purchased as a rider on some life insurance policies. This method allows a person to use part of their death benefit under the life policy for long term care.
One of the reasons that people don’t purchase LTCi is that people are counting on the government to provide for their Long-Term Care through either Medicaid or Medicare. These programs have a place but are not equitable replacements LTCi.
Are You Prepared For Tomorrow?
Many people are approaching a decision in their life concerning the care they expect when they become unable to care for themselves. Will they, in addition to their retirement savings, prepare a contingent plan for the long term care they would need if they became disabled? Or would they depend on the government to provide the extra care that will probably be needed?
Beyond the moral questions of not funding for that eventuality, availability becomes a real concern. While no one believes they will be left out on the street, the quality of care they would receive in a government provided facility is a very real issue. It only takes a brief visit to a low income retirement home, to detect the differences in the type of life they enjoy.
Those who prepare for the future with a long term plan of care will decide which type of care they will receive. As in all things, what you prepare for financially is what you will have for sure.
Generally to be eligible for Medicaid you must be one of the following:
- 65 or older
- Permanently disabled as defined by the Social Security Administration
- A child, or the parent or caretaker of a child
Further, you must meet the following:
- U.S. citizenship (or meet certain immigration rules)
- A resident of the state where you apply
- Valid Social Security Number
In addition you must have limited income and assets.
To qualify you must have very limited assets or spend down your assets in an approved manner. You will not be allowed to accumulate wealth. You will have some input into how and where you will receive care, but not to the extent that you would if you have LTCi insurance to cover the expense. LTCi does not ask that you meet any of the above requirements, only the policy terms.
Medicare will help pay for a short stay in a skilled nursing facility, for hospice care, or for home health care under the following conditions:
- A recent prior hospital stay . . . at least three days
- Admission to a Medicare-certified nursing facility within thirty days of your prior hospital stay
- You have a need for skilled care, such as skilled nursing services, physical therapy, or other kinds of therapy
Medicare will ONLY pay for SOME of your costs for up to one hundred days. For the first twenty days, Medicare pays all of your costs. Days twenty-one through one hundred, you pay your own expenses up to $140.00 per day (as of 2013), and Medicare pays the balance.
Nursing Home Insurance
If you have a long-term care insurance policy, you likely are going to have to pay higher premium costs. Medicaid and other health programs for seniors do not cover the full cost for extended stays in long-term care facilities or home based needs. This makes long-term care insurance and nursing home insurance all the more important.
Group Long-Term Care Insurance
Employer-sponsored group coverage for Long-Term Care can be a savior for people with certain otherwise-disqualifying health conditions. What could be higher rates for individuals can be compensated by a fixed group policy and maintaining a group long-term care insurance plan.
Critical Care Insurance
Critical Care Insurance is an alternative for those who were declined or ineligible to apply for LTCi. It is a newer coverage that allows many more people access to the kinds of protection offered by LTCi. It is more commonly referred to as Critical Illness Insurance.
Critical Illness Insurance
Critical Illness Insurance is much like LTCi. It is a supplemental health policy. If you have been diagnosed with cancer, stroke, or heart attack, Critical Illness Insurance is designed to help cover the many expenses that your health insurance doesn’t cover. This could include deductibles and co-pays, drugs, treatments and care. It also will cover nonmedical expenses, including mortgage or rent, utilities, car payments and insurance premiums and lost income.
The rates depend on your current health, gender, age, use of tobacco products, and coverage amount.
One in eight of elderly (over 65) in the United States has Alzheimer’s. Nearly half of those 85 and older have Alzheimer’s.
People 65 and older survive an average of four to eight years after a diagnosis of Alzheimer’s disease, yet some live as long as 20 years. This indicates the slow loss of memory and thinking abilities, as well as loss of independence. A person with Alzheimer’s will spend time in the most severe stage of the disease. Much of this time will be spent in a nursing home. Seventy-five percent of those over age 80 with Alzheimer’s will be admitted to a nursing home, compared with only 4 percent of the general population.
Most LTCi policies cover those who become unable to care for themselves due to Alzheimer’s.