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Long Term Care Insurance: The BASICS

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The facts of long term care insurance

You are taking an important step towards securing the financial future for you and your family. Your greatest financial risk today and in the foreseeable future is not your hospital or doctor bills, but the very high cost of long term care.

Over 40% of all Americans over the age of 65 will spend some time in a nursing home due to a prolonged illness or disability. That's almost one out of two. Will it be you or your spouse? Your risk of needing long term care is probably much greater than you realize. Assistance may be needed on a temporary or permanent basis for performing such daily activities as bathing, dressing or cooking.

Care might be provided in an assisted living facility, an adult day care center or a hospice. Or it might be provided in a nursing home, an extended care facility, or in your own home. You may need long term care services if you have an illness or injury and you're not able to perform one or more activities of daily living at home, or you have accident causing a nursing home stay, or you are stricken with Alzheimer's Disease or senility.

In 1983, Medicare began a new program called the Prospective Payment System. Instead of reimbursing hospitals for the actual cost of treating patients, this program now pays a set fee according to 467 Diagnostic Related Groups, or DRGs. Once a patient reaches the arbitrary number of days in the hospital, Medicare payments stop regardless of the individual patient's actual condition or the need for continuing care.

When Medicare payment stops, patients are released from the hospital as quickly as possible. Most patients must then finish their recovery from illness or injury in some type of nursing home facility, or, when possible, arrange for nursing medical services in their own homes.

With Medicare covering only 2% of the bill, the cost is overwhelming for most. The National Association of Insurance Commissioners (NAIC) explains: "Purely custodial care (the type of care most persons in nursing homes require) is not covered by Medicare or most Medigap policies. The only nursing home care that Medicare covers is skilled nursing care that is provided in a Medicare-certified skilled nursing facility."

Just one year in a nursing home can cost $36,000 to $60,000. Currently, the average cost in a long term care facility in America is $41,000 per year. The average cost of a visit by a home health aide is $52. Daily visits would cost you almost $19,000 per year. Skilled nursing at home, to administer medication or oxygen, for example, five days per week for a year would cost you an average of $94 per visit, or $24,440 per year.

It's no wonder that half of all elderly people living alone will spend themselves into poverty after only a thirteen-week stay. And Medicaid will only pay for home health care and nursing home care if you are already "poor" or literally impoverish yourself (and your spouse).

Who Pays for Long Term Care?

It's not prudent to count on health care plans or the government. Health care plans and Medicare combined pay only about 3% of the costs of long term care. State Medicaid programs rescue only those families who descend to the poverty level. The rest comes out of pocket - nest eggs, funds earmarked for retirement, life savings - or from a long term care insurance policy.

Who Should Consider Long Term Care Insurance?

If you are over 50 years old and have assets to protect, but aren't wealthy enough to comfortably pay for long term care out of your savings, you should be comparing long term care insurance policies now. It's especially important if there's a history of serious illness in your family.

It's also very important to apply while you're still healthy. If you do not have a long term care policy when your health situation requires you to have one, no insurance company will issue you one. It will be too late.

These policies are usually guaranteed renewable, meaning once you qualify, you'll remain eligible as long as you pay your premiums. Another good reason to plan ahead? The premium is based on your age at the time you purchase the insurance - and it's usually locked in for the life of your policy.

Can You Choose The Options That Meet Your Needs?

With the better policies, the answer will be yes. It's important to find a policy that lets you make choices, so you can customize your coverage. Here are some key options to explore:

  • Location of Long Term Care: in-home, in a nursing home, in an adult day center or an assisted living facility.
  • Type of Long Term Care: skilled nursing care, custodial care, home health aides.
  • Options of Long Term Care: amount of daily benefits and length of coverage.
  • Flexibility of Long Term Care: alternate ways of applying benefits (sometimes called, "alternate plan of care").
  • Waiting Periods for Long Term Care: length of time before coverage begins once a need has been established with the insurance company.
  • Coverage of Long Term Care for Organic Illnesses: organic mental illness, such as Alzheimer's, is not always covered.
Look Into The Company Behind The Insurance

Because long term care insurance claims must often be paid ten or twenty years after the policy is written, it's always important to check the financial strength of the long term care insurance company. The best way to gauge financial strength is to be sure the insurance carrier has received excellent ratings from the industry's major rating services: A.M. Best, Standard & Poor's, Moody's, and Duff & Phelps.

By planning ahead, you'll be providing peace of mind for your family's future. Long term care insurance policies offer a practical and affordable way to protect your assets - and your independence.

Statistics of Long Term Care

1. 70% of people who are older than 65 will need long term care services.

2. 77 million Americans will turn 50 over the next 18 years. That's 1 person every 7.5 seconds.

3. 43% of individuals age 65 will enter a nursing home sometime in their lifetime, with 50% staying an average of 2.5 years.

4. The national average cost for 1 year in a nursing home is approximately $41,000; in larger cities from $50 to $60,000 annually.

5. 50 percent of all couples and 70 percent of single persons are impoverished within one year of entering a nursing home.

6. For every person receiving care in a nursing home, there are 4 people receiving care outside a facility.

7. The annual cost to companies for lost productivity from elder care responsibilities is $17 billion a year or $3,142 per employee.

8. By 2020, 1 in 3 workers will provide some type of elder care.

Sources:

Life Insurance Selling, December 1992
CBS News - Census Bureau
New England Journal of Medicine, February 1991
American Association of Homes for the Aging, 1989, Leimberg, 1992
HIAA, "Long Term Care -- Needs, Costs and Financing (1992)
Leimberg's "Think About It" Stephan R. Leimberg, JD, CLU (November 1992)
U.S. Administration on Aging, July 1991
USA Today, July 19, 1994
Wall Street Journal, July 19, 1995
USA Today, July 19, 1994