Long Term Care Planning
Long-term care insurance provides custodial care in various forms, including home health care, nursing home care, adult day care, home modifications for medical necessities, hospice care, and consultation for selecting appropriate providers. Many people assume that Medicare or a Medicare supplement policy pays for such expenses. However, benefits under Medicare are very limited and only provide skilled medical care.
The basic features of the long-term care policy include the following:
- Elimination period
- Daily Benefit amount
- Home health care benefit
- Institutional care benefit
- An inflation protector
- Additional features
The elimination period provides a means to manage costs. Increasing the elimination period lengthens the time of self-insurance, reducing the cost of the premium.For example, with a ninety day waiting period, the insured would begin receiving the benefit ninety days from the time that he or she became eligible. A person qualifies for long-term care when she loses two of the daily tasks (eating, toileting, dressing, continence, bathing, mobility) and completes the review by a medical specialist.
The long-term care benefit is calculated daily, ranging from $50-$500 per day. The average long-term care costs in one’s geographical region is a reasonable estimate for determining appropriate levels of coverage.Some policies offer a monthly benefit to offset the problem of expenses exceeding the daily limit. The monthly benefit reimburses the insured a specific amount, regardless of how many days care was received. The pool of money may extend beyond the benefit period and is available until fully depleted. Policies offer the benefit as a cash indemnity or as a reimbursement of actual expenses.Most experts recommend the monthly benefit.
On average, 70% of individuals who purchase long-term care insurance require three years of custodial care. Individuals 65 and older have approximately a 70% chance of needing some type of custodial care. Consequently, a reasonable amount of coverage provides a three-year benefit period.The costs of long-term care can easily derail a retirement plan if not planned for carefully. For example,home health aide averages $45,760 ayear (based upon 44 hours per week), and a private room in a nursing home costs approximately $91,250 in 2015.
To lessen costs, individuals may decrease the Home Health Care coverage. However, the U.S. Department of Health & Human Services indicates that individuals employ home care for longer periods than in facilities. Consequently, individuals should consider retaining the entire coverage (100%) for their Home Health Care Benefit.
The Institution Care Benefit covers adult day health care, assisted living facilities, and nursing home care.The inflation rider increases the benefit over time to keep up with inflation. Typically, policies offer 3% compounded, 5% compounded, and 5% simple interest. Some policies offer a return of premium up to a certain age. Others offer a cash reimbursement if the benefit was not received, although this rider is very expensive.
When couples purchase long-term care, they have two options. First, each spouse owns a separate policy. If one spouse exhausts their maximum benefit, he or she can access the other spouse’s benefit. Any remaining benefit transfers to the remaining spouse at death, who continues to pay for his or her single premium policy. The second option allows spouses to purchase a joint policy. Both policies are combined into one single pool of benefits. If one spouse dies, the other retains all of the remaining benefit, but is only responsible to pay the single premium.Most policies offer a spousal discount.Insurance companies may also reduce premiums due to good health.
The Qualified Long-Term Care Partnership Program is a coalition between the U.S. Department of Health and Human Services, the state agency administering the program, and the insurance industry. The Partnership provides long-term care policies and Medicaid Asset Protection. These policies provide $250,000 in benefits and protect $250,000 of assets. The program allows the individual to remain eligible for Medicaid.
While previous generations have relied upon family members to assist with custodial care needs, this practice has become less prevalent due to the geographical disbursement of the family unit. Furthermore, evidence indicates that families become overstressed and eventually lack the medical ability to care for their loved ones.
In closing, families must carefully consider how long-term care costs would impact their financial plan. Purchasing long-term care insurance may bolster their financial security.