Long-Term Care Insurance Important for Seniors
By: Amos Goodall
Seniors should consider long-term care insurance. The earlier – and healthier– a purchaser is, the lower the premium is.
This type of insurance also can be called nursing home "avoidance" insurance, because most modern policies provide benefits based upon the loss of certain skills (called "activities of daily living") or cognitive impairments, rather than simply requiring confinement in a nursing home. Thus, a person who might qualify to go into an institution may find a way to stay home longer, using insurance payments to accomplish this.
Nevertheless, most people think of nursing home admissions when they think of long-term care insurance.
According to the National Aging Center, more than 65 percent of people over age 65 – and almost half of those over 85 – suffered limitations from at least one activity of daily living.
A study published in the New England Journal of Medicine in 1991 found that among individuals turning 65 the year before publication, 43 percent would spend some time in a nursing home before death, and slightly more than half of nursing home residents would have total lifetime nursing home stay of more than one year. One in five nursing home residents would spend more than five years in the nursing home. Females are considerably more likely to be in a nursing home and are about twice as likely to have a five-year or more stay in a nursing home than their male counterparts.
There are a number of variables affecting the quality and cost of the long-term care insurance policy. Foremost is the financial soundness of the insurance carrier. A well-qualified insurance agent is a prime source of information regarding this and other features of insurance, crafting a policy to suit an applicant’s particular needs, and guidelines for evaluating insurance companies are provided by the Long Term Care Insurance National Advisory Counsel’s website.
The Pennsylvania Insurance Department also maintains financial information about companies licensed to sell insurance on its Web site, and the State of California maintains a list of insurers who have raised their rates nationally.
Most policies pay when a person is unable to do a certain number of activities of daily living, or suffers a cognitive impairment. Activities of daily living are generally recognized as dressing, eating, ambulating, toileting and hygiene, although theses are sometimes categorized differently. It is important to read the definitions in an insurance policy to be certain that one understands exactly what the insurance company is offering to cover.
Other factors that are important in reviewing long-term care policies are the "elimination period," the period of coverage, the amount of daily benefits and inflation protection rider and whether the policy is "qualified" or "non-qualified."
Suppose you have a policy that is triggered by your inability to perform three activities of daily living. The elimination period would be the time between the point at which you establish that inability and when the insurance company actually begins to pay. This is similar to a deductible on a casualty liability insurance policy.
Many people have Medicare and Medicare Supplement Insurance, which pays for all or part of the cost of some nursing home stays for up to three months – after three days in the hospital, or personal resources that can be expected to cover the cost of care for a short time. A longer elimination period sometimes dramatically reduces the cost of coverage.
The length of coverage is also important. Insurance policies can provides coverage for life or for a standard period of time, for example three years. The longer the length, the higher the price.
Another factor is a benefit rate. Typically, insurance benefits are paid on a "per day rate." In Pennsylvania, for example, the average cost of nursing home care last year was $5,787.38, or roughly $190 per day. If someone is receiving social security payments at the rate of $1,000 per month, the person would have a deficit of almost $160 each day. If that person had other income or resources, the deficit might be smaller.
In today’s dollars, a plan that paid more than the anticipated shortfall might not be economical. Of course, medical care is one of the highest rising costs today.
As a result of these rising costs, a very important element is an inflation rider, which provides that the benefit rate goes up as the actual cost of nursing home care rises. The is typically a fairly expensive coverage, but it is often better to agree to a longer elimination period and even a damiller daily rate to be able to afford this rider.
Under the Health Care Affordability and Accountability Act, some insurance premiums have been able to receive favorable tax treatment. If the policy meets the federal standards, it is defined as "qualified." Premium payments are deductible to some extent, and benefits are not taxed as income.
In order to be "qualified," the long-term care policy must not require a "medical necessity trigger." That is, the policy must cover functional impairments that are not purely medical in nature, such as Alzheimer’s Disease. Also, the policy must require that the beneficiary’s condition be likely to continue for at least 90 days.
Finally, the benefits must be payable if the covered individual either has a cognitive impairment or requires substantial assistance with two of the activities of daily living. "Qualified" insurance premiums are deductible together in a group with other medical expenses, so the deductibility of premiums is often not an important factor (except for small business owners who can often deduct the whole cost directly), since there is such a large threshold for this deduction.