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Long-term care insurance (LTCI) is designed to help people who can no longer care for themselves afford long-term care. LTCI can be expensive, but it’s a lot cheaper than long term care itself. For many families now facing down the high costs of a loved one’s long term care facility, LTCI remains the best funding strategy available.
In 2011, more than 200,000 people in the United States received benefits from their LTCI, and this number doesn’t include the people who received LTC benefits from Medicaid or paid for long term care on their own. As you can see here, the vast majority of people apply for LTCI before they are senior citizen – more than half, 56%, between the ages of 55 and 64. Another 22% apply between the ages of 45 and 54, so large numbers of people who are not seniors also maintain LTCI.
What Is Long-Term Care?
Long-term care insurance is coverage designed to cover a patient’s expenses if an illness, disability or impairment suddenly interferes with their daily functions. The phrase “activities of daily living,” or ADL, refers to six major activities of everyday life: bathing, continence, dressing, eating, toileting, and walking. When people can’t do these basic things on their own, they have little hope of earning a livable salary. That’s where LTC comes in. While people of any age can have trouble performing ADLs, coverage and benefit rates are understandably higher among the elderly. (For more on ADLs from the Health and Human Services Department, look at this report.)
LTC is not the same as regular medical care in that it does not treat an illness or seek to improve your health. Instead, the goal of LTC is to maintain the quality and routine of your lifestyle much as possible. LTC service providers do their best to make sure that you’re eating healthy meals, getting to the places you need to go, taking your medications regularly and as directed, and maintaining your hygiene. And for patients with severe disabilities like advanced Alzheimer’s, LTC can also provide supervised, in-home care.
There are two levels of LTC: personal care and skilled care. Personal care is just like it sounds. It helps you do normal activities that you’d do around the house. This is the first and basic-level of LTC care. Many people receive personal care in their homes, and many also receive it in a care center or nursing home.
The next level of LTC care, skilled care is reserved for patients that require the regular presence of some sort of medical professional, though not a doctor. Usually these tasks can be performed by a nurse or therapist of some kind. For the most part, these kinds of services are received in care centers and nursing homes, not in individual residences.
The Dollars and Sense of LTCI
Because LTC is so specific and only deals with this one aspect of health, LTCI is a supplement. It covers these LTC costs that health insurance, Medicare and Medicaid might not cover, but it is never used in the place of primary health insurance.
Studies show that LTC is expensive. The average daily rate in America for a private room in a nursing home was $248 in 2012. That’s an annual cost of $90,520 for private room care. And semi-private rooms in nursing homes aren’t much cheaper. Last year, the daily and annual rate for a semi-private room was $222 and $81,030, respectively. By comparison, the average annual rate for residence in a U.S. assisted living communities was $42,600. (Keep in mind this figure does not factor in the additional administrative, health or transportation costs.) For adult day care services the average daily rate in the United States was $70 in 2012. That means adult day care averages about $25,550 per year. As you can see, depending on how much care is needed, the costs of LTC vary widely.
The cost of LTCI is also highly variable, (see here, for example) but rates have been consistently rising in recent years. For a single person at age 55 to buy a policy with a $150 maximum daily benefit over a three year period it costs between $1,325 and $2,550 per year, $1,480 on average. The value of the benefits to that 55 year old person would be $169,000, and that value would increase to $305,000 by the time they were 75 years old.
These rates have been rising sharply in recent times because fewer people are allowing their policies to lapse before their insurance companies originally predicted. As providers lose enrollment numbers, costs for enrollees will necessarily rise. Also, a John Hancock study found that between 1990 and 2010 the number and length of claims as well as the use of benefits were much higher than expected.
What Does LTCI Cover?
People who are in relative good health will usually qualify for LTCI. Unfortunately, if you have any pre-existing problems that indicate you will need LTC or any sort of assistance with ADLs in the future, you will probably not qualify. Similarly,if you have a degenerative disease like MS or a severe mental disorder, you will probably not qualify for LTCI.
LTCI can cover a long list of costs that include adult day care, home care services, assisted living facilities, respite care, hospice care, nursing homes, Alzheimer’s facilities, and home modification costs.
- Adult day care facilities are like activity centers for seniors that provide some supervision and a minimal level of care. Some employ social workers and medical personnel.
- Home care services include help with everyday tasks like cooking, cleaning and bathing.
- Assisted living facilities are for people who need help with ADLs but do not need nursing.
- Respite care provides private family caregivers with breaks so they can maintain their own lives, jobs and families while ensuring that their loved one receive the necessary care. Respite care varies from part of each day to several weeks at a time and can include home-based care, adult day care, and short term institutional care.
- Hospice care provides end of life care for people who are close to death and need of palliative care.
- Nursing homes provide both ADL assistance and medical care for residents.
- Specialized nursing homes have wings or units that provide care for diseases like Alzheimer’s; these sections are disease-specific and tailored to the needs of their residents.
- Home modification costs include costs to remodel bathrooms for wheelchair accessibility, for example.
There are several types of service providers who are generally involved in LTC: live-in caregivers, companions, housekeepers, therapists, and private duty nurses. The services of these workers are typically covered by LTCI:
- Live-in caregivers assist people who need 24 hour a day care but not consistently enough to prevent a single caregiver from sleeping. They are not medical workers. Live-in caregivers typically work shifts of a few days at a time and go home between their shifts.
- Companions are a flexible sort of LTC provider. They can provide as much care as a live-in caregiver or as little as a few hours of personal care each week. Typically, they have the same kinds of qualifications as live-in caregivers and are not medical workers.
- Housekeepers generally provide the kind of services you’d expect: they perform the daily chores that keep the household running, but do not do personal care work.
- Therapists are skilled providers who typically provide a very specific kind of care. Therapists generally do not provide services other than those related to their therapeutic area.
- Private duty nurses provide skilled in-home nursing care to private patients. They can provide any services that nurses can provide in a home setting.
Remember as you consider these expenses that costs for LTC are tax deductible.
How To Shop For LTCI
Like any other kind of coverage, LTCI can be complicated. In order to clarify your goals before you shop, be sure to ask yourself:
- How much of a benefit will you need? Figure out if you have other assets or income that could help you pay for LTC. The less you need, the better, since your premium will be lower.
- How much time can you pay for on your own before your benefits kick in? Your “elimination period” is like a deductible for your LTCI. For example, if you have a 90 day elimination period, you will have to pay the full cost of those first 90 days. Make sure you can. Also, make sure you know how they calculate those days. Some companies only count the actual days where you receive care.
- Is your policy inflation-proof? Make sure you have inflation protection in your policy. This ensures that your benefit will rise as the cost of care does.
- Do you have to keep paying premiums throughout your benefit period? Make sure you have a waiver-of-premium benefit in your policy. This ensure that you can stop paying premiums once you start receiving benefits after the waiting period.
- Do you understand how your premiums work? Typically, premiums on LTCI policies increase over time. For policies that don’t have fixed rates, companies can raise the premiums for everyone in your rate class (not just you) no matter how your health might have changed or how many claims you’ve made.
You need to know what your policy includes, but what doesn’t it include? Be sure you understand any limitations or coverage gaps in your plan:
- Make sure you know exactly what is and isn’t covered. If you think you’ll be able to apply LTCI to your 24 hour in-home nursing care bills, make sure your policy guarantees this. These personalized types of care are very expensive and most policies only cover them in special cases.
- Make sure you understand how your insurer defines ADL and the disabilities that interfere with them. In almost all cases a licensed health care provider will have to attest that you require help with two or more ADLs for 90 days or longer. Other kinds of illness can also trigger benefits; Alzheimer’s patients, for example, may technically be able to achieve all ADLs on their own, but still qualify for care under many policy terms.
- Make sure your intended insurer is viable. The reason rates have been growing so quickly is that companies that provide LTCI have been selling less policies than they anticipated. If they can’t stay in business, they can’t provide you with benefits. And if they get into too much financial trouble, they might hike your rates so high you have to drop the policy.
The Bottom Line
Long-term care expenses are an increasingly common reality for a world population who is living longer. For the millions of Americans who make too much to qualify for Medicaid coverage of LTC, but far too little to cover the high-cost of care themselves, LTCI can be the best and only option to prepare oneself for the development of a life-disrupting disability.