Get the Low Down on Long-Term Care
Carlene Hamilton
OSURA Communications
Among the questions in life are, what if I can’t take care of myself when I’m older? What if my parents are no longer able to live alone? How can we pay for care? What can or should we be doing now to prepare for that possibility? Should we consider purchasing long-term care insurance?
Recently, The Ohio State University Retirees Association published a document, “Long-Term Care Insurance—LTCI. Some Basics and Caveats for OSURAns.” Thomas H. Rockwell, a member of the OSURA Benefits Committee, wrote the document, drawing from material provided by the Ohio Department of Insurance, the federal web site (www.longtermcare.gov), and the consumer law web site (consumerlawpage.com).
The entire document is available on the OSURA web site. Following is a summary, which may help those still employed as they contemplate their own futures or how to care for parents or other loved ones.
LTCI Intended to Protect Savings
LTCI is designed to protect savings by easing the costs of LTC in nursing homes, assisted living centers, and in the home1. By paying premiums, the insured can receive benefits to cover all or part of the expense of long-term nursing care once eligibility criteria are met.
LTCI is based on these factors: age, gender, lifestyle, health, and family history of LTC use. Based on estimates from the U.S. Department of Health and Human Services, 58 percent of men at age 65 will require some LTC, while 79 percent of women will require it. Half of this group will need LTC for one year or less, and 20 percent will need it for more than five years. Only five percent of those over age 65 have LTCI, and of these numbers, half who purchase LTCI will not maintain coverage until they are age 80 because of a difficulty in paying premiums.
What about Medicare?
It is important to remember that Medicare is of little value for LTC since it pays only for skilled nursing care in a nursing facility for a limited number of days after a hospital stay, and home health care is limited. Medicare does not pay for ongoing personal care or custodial care needs (i.e., help with activities of daily living, or ADLs), nor does it cover costs of assisted living or similar facility options, continuing care retirement communities, or adult day services.
What to Look for When Considering LTCI
Many companies offer LTCI. You should investigate them in terms of the issues below and your own circumstances.
- Eligibility criteria. This generally means the inability of the insured to perform two of the six ADLs: toileting, eating, bathing, dressing, continence, and transferring (moving from one place to another); loss of mental competence; or certain medical conditions at the time of application (some conditions which can disqualify an applicant include a history of cancer, heart disease, Alzheimer’s, and Parkinson’s disease).
- Benefit amounts. Benefits are daily payments of dollar increments, which may cover some but not necessarily all costs of nursing home, assisted living, and home health care costs, depending on location and facility.
- Inflation protection. Most policies can adjust future benefits to cover some part of inflation costs (with added premiums).
- Premium waiver. Most policies will waive premiums once benefits are paid.
- Duration of benefits. Policies can be written for two to seven years or the lifetime of the insured. Longer-term benefits, of course, mean higher annual premiums.
- Settings for benefits. Benefits can apply to nursing homes, assisted living centers, adult care centers, hospice care, and home health care, depending on the policy.
- Home health care. Some policies limit home health care benefits to 50 percent of the benefits to nursing homes, but at twice the duration. The costs of professional skills are covered (e.g., nursing, therapeutic, social services, and medical equipment).
- Tax-qualified plans. Some policies allow benefits to be tax-free and premiums may be deductible as a medical expense on income tax returns if the taxpayer itemizes expenses on Schedule A.
Premiums, Policies, and Provisions
Premiums are dictated by the applicant’s age; benefits desired; length of elimination period, or day that benefits begin after a claim is approved (20-120 days); a loss of two or more ADLs; cost-of-living provisions; and years of benefits covered. Calculators are available from insurance company and government web sites to give rough estimates of premiums based on these factors.
When buying LTCI, look carefully at the policy’s provisions. Some common pitfalls include: failure to account for inflation in benefits or premium changes; claim limitations (e.g., ADLs, pre-existing conditions, level of care); assuming LTCI will protect all assets; and cost of added benefits (e.g., non-forfeiture of benefits, death benefits). You should also investigate whether or not the insurance company is fiscally sound. In these days of insurance company bailouts, it is realistic to be concerned about the issuing company surviving the current economic crisis.
Making Your Final Decision
This article is not suggesting that you avoid LTCI—it is suggesting that you make decisions carefully. Older people, often alone and in poor health, can be victims of high-pressure sales pitches. Decisions also depend on your financial estate, fiscal obligations, and family history of LTC needs. If you have limited resources, Medicaid will likely be the source of your future skilled care needs, however, this may require you to eliminate assets until there is no longer enough money to pay for care. Experts agree that LTCI policies are complicated instruments requiring careful selection.
1The OSURA publication, “Guide for Evaluating Continuing Care Retirement Communities” includes a description of these levels of care.
It is available at hr.osu.edu/osura.