Retirement News : Seniors : Long-term care insurance important for seniors

Long-term care insurance important for seniors

Date Added: 28-03-2005

A hot topic for senior citizens is long-term care insurance.

For national general insurance carriers, at least, this is a relatively new insurance product designed to protect against the high costs of nursing home and skilled nursing care.

For many folks, this also could be called nursing home "avoidance" insurance, because most modern policies provide benefits based upon the lost of certain life skills (called "activities of daily living") or cognitive impairments, rather than confinement in a nursing home. Thus, a person who might qualify to go into a nursing home may find a way to stay home longer, using long-term care insurance payments to accomplish this.

There are many need-based government programs available to give help. The Area Agency on the Aging is an excellent resource to learn about these. Long-term care insurance, however, allows a person to pay his own way and to choose both the provider and the type of care, rather than having some government agency guidelines determine these results.

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 age 85 -- suffered limitations from at least one activity of daily living.

A 1998 study by the Health Care Financing Administration noted that in 1988, slightly more than 5 percent of the total cost of nursing home care was paid by insurance. This increased from 4.1 percent in the earlier years. Of the cost, 32.5 percent was paid by individuals from their own savings and income. The balance was paid largely through federal and state Medicaid programs, with those paying 46.3 percent. This is slightly down from when Medicaid paid 50 percent of coverage in 1980.

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 Web site.

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.

The activities of daily living are generally recognized as dressing, eating, ambulating, toileting and hygiene. But various agencies categorize life's activities 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 for the premium it is collecting.

Remember: The first answer of insurance companies to most questions regarding payment is "no," although your knowledgeable local agent often can act as your advocate in dealing with a large company.

There are several other factors that are important in reviewing long-term care policies. These include 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 long-term care insurance policy that is triggered by your inability to perform three activities of daily living. You find yourself in the situation where you cannot dress, eat or take a shower without assistance and this is a trigger for coverage under your policy. The elimination period is the time between the point at which you qualify for coverage and when the insurance company actually begins to pay. This might be considered similar to a deductible on a casualty liability insurance policy.

Many people have Medicare, which pays for all or part of the cost of some nursing home stays after three days in the hospital, or personal resources that can be expected to cover the cost of care, at least for a short time. A longer elimination period to reduce the cost of coverage is often warranted.

The length of coverage is another important consideration. Insurance policies can provide coverage for life or for a stated period of time, for example three years. The longer the coverage, 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, that person would have a deficit of almost $160 each day. If that person had other income or other 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 presently one of the highest rising costs in our daily lives.

As a result of these rising costs, probably the most important feature of nursing-home coverage is an inflation rider. This provides that coverage goes up with inflation so as to have some relationship to the actual cost of nursing-home care. This is typically a fairly expensive coverage, but it is probably better to agree to a longer elimination period and even a smaller daily rate so to reduce the premium in order to be able to afford this rider.

Finally, under the Health Care Affordability and Accountability Act, some long-term care insurance premiums have been able to receive favorable tax treatment. If the policy meets the federal standards, it is defined as "qualified" and premium payments are deductible to some extent, and benefits are not taxable.

In order to meet the favorable tax-treatment qualifications, the long-term care policy must not require a "medical necessity trigger" or benefits. That is, the policy must allow for coverage for 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. Long-term care insurance premiums are deductible together in a group with other medical expenses, so the deductibility of premiums is often not an important factor for healthy individuals (except for small business owners who can often deduct the whole cost directly), since there is such a large threshold for this deduction.

For persons actually in a nursing home, since the nursing-home expenses are deductible under the same threshold, typically the fact that the benefits payments are not taxable may be less important also.

Other factors include reimbursement (as opposed to indemnity) plans, waiver or premium, non-forfeiture, restoration of benefits and bed reservation coverage. Companies also are beginning to offer hybrid products which may include life insurance provisions and return of premium possibilities.

There are many other differences between long-term care insurance policies. A worksheet for comparing policies is available on our Web site at www.centrelaw.com. A knowledgeable local insurance representative is a consumer's most important ally in selecting and purchasing long-term care insurance. There are many excellent representatives here in the central Pennsylvania area, and persons should be suspicious of mail order, television and "seminar" agencies selling this insurance.

For More Information:

http://www.centredaily.com/mld/centredaily/living/11240659.htm