Note: This article was published in the April 7, 1992 issue of The Legal Intelligencer, a daily newspaper for the Philadelphia legal community. They hold the copyright. I "ghost-wrote" it while employed by Colburn Insurance Services. Note that information may be somewhat outdated.
Planning for the Future with Long-Term Care Insurance
When you are active, healthy, and involved with your career and family it's hard to imagine yourself in a long-term care facility some years down the road. But the fact is that many of us will require a stay of some length in a long-term care facility (nursing home) in the future. Statistics point out that at any given time 22 percent of those age 85 and older are in a nursing home, and women have a 50 percent greater chance than men of entering a nursing home after age 65.
What do these statistics show? Quite simply, long-term care is a serious possibility for many of us. Now is the time to consider the costs, not when you need to enter a nursing home.
Long-term care insurance, a fairly new development in the insurance industry, is an increasingly popular safeguard against the escalating costs of skilled nursing care. With the average daily cost of a semi-private room in a nursing home at $120, it is easy to see that an extended stay could quickly wipe out any personal assets you may have. Long-term care insurance allows you to protect your assets for yourself and your family, instead of using them to pay for a costly nursing home stay.
Common Misconception
A common misconception is that Medicare will pay all bills for a nursing home stay. While Medicare will pay for up to 100 days of skilled nursing care, it will not cover stays deemed "intermediate" or "custodial." On average, only two out of every 100 patients in a long-term care facility are classified as receiving skilled care.
That means a full 98 percent of the patients in nursing homes do not qualify for Medicare coverage for their stay. Those 98 people must pay out of their own pockets for their care, often depleting all or part of their savings and assets. Even most major medical plans will only pay for "skilled" nursing care.
Most long-term care policies are purchased by people in their 50s through their 70s. The majority of long-term care plans have a set premium for life based on the age at which you begin coverage (there can be rate increases down the road, but only if all policyholders' rates are raised).
A few policies have terms at which your rate will increase, such as every five years. If you don't have a policy by the time you are 65, you should seriously look into it, as your chances of requiring long-term care are greater.
What the Policies Cover
If you should ever have a chronic illness or a disability that renders you unable to care for yourself for an extended period of time you will most likely need long-term care in a nursing home or your own home. This care could include medical care as well as help with the daily activities of living (such as bathing or dressing).
Long-term care policies cover skilled, intermediate and custodial care in licensed nursing homes, as well as home health services provided by state-licensed or Medicare-certified home health agencies. Many newer policies also cover other care, such as "adult day care."
As mentioned, there are three different types of long-term care-skilled, intermediate and custodial. Skilled care refers to care given by a registered nurse or therapist-usually on a daily basis-under the supervision of a physician. Skilled care usually lasts for relatively short periods of time. It is the only type of care for which Medicare will pay. Intermediate care is occasional nursing and rehabilitative care under the supervision of skilled medical personnel. It is less specialized and less comprehensive than skilled nursing, and may last considerably longer. Custodial care is assistance with the activities of daily living, such as bathing, dressing or eating, and often involves non-medical personnel. Much of the care given in nursing homes is custodial care and may last for extended periods.
What to Look for in a Policy
A long-term care policy should do the following:
- The policy should allow you to enter at any level of care, without prior hospitalization.
- It should offer at least two years of nursing home or home health care coverage, including intermediate and custodial care. Nursing home or home health care benefits should not be limited to skilled care.
- The policy should have home health care available as a rider (option) rather than an integral part of the policy. This allows you to custom-tailor the policy to your needs.
- It should cover Alzheimer's disease should you develop the disease after purchasing the policy.
- It should offer an inflation protection option. The policy should offer the choice to periodically increase benefit levels without providing evidence of insurability, covering a specific percentage of actual or reasonable charges.
- The policy should have an "outline of coverage" that systematically describes the policy's benefits, limitations and exclusions, and that allows you to compare it with other plans on a uniform basis.
- It should have a guarantee that the policy cannot be canceled, non-renewed or otherwise terminated because you get older or suffer deterioration in physical or mental health.
- The policy should offer you the right to return the policy within 30 days after purchase for any reason, and to receive a full refund of your premium.
- It should not have any requirements stating that policyholders must first meet the following qualifications: the policyholder must be hospitalized in order to receive nursing home benefits or home health care benefits, must receive skilled nursing care before receiving intermediate or custodial nursing home care, or must receive nursing home care before receiving benefits for home health care.
- The policy should waive the premium during periods when benefits are being paid.
- It should offer the option to have benefits begin as early as 20 days after eligibility begins.
- The policy should set the minimum benefit period (per stay) at three years. Better plans will offer benefit periods of three, five or seven years, or even a lifetime (unlimited) benefit period.
Be Aware
As with all forms of insurance, there are some things to be aware of which may affect your policy. The most important thing to know is that most companies exclude coverage of pre-existing conditions for six months after the policy has been written. This means that if you need long-term care within six months of the policy's issue date for a condition for which treatment had been under way or recommended before you took out the policy, you may be denied benefits.
Be certain you understand exactly what is and is not covered by your policy. Alcoholism and drug abuse are usually not covered and neither are illnesses caused by an act of war or by an intentionally self-inflicted injury.
Long-term care policy premiums are often fairly expensive, reflecting the relatively high risk that the insurance carrier faces as well as the high expense of modern nursing homes. Some ways to save on premiums include choosing a higher number of days before you start receiving benefits (think of it as a deductible), and limiting the total amount of days that you can receive benefits.
If you are considering the purchase of a long-term care policy, it is highly recommended that you shop around for the best coverage for your dollar. Don't merely look at the premium amount (although that certainly is a factor), but consider the scope of the coverage. The guidelines above are a good starting point.
The insurance carrier should be stable and well established, with a rating of "A" or "A+." These ratings are based on the company's financial health and various other factors. With so many policies being sold now, experts agree that only stable, well-grounded insurance companies will be able to pay their claims years down the road. Don't be left out when you need your benefits-do some research on the company now.
Consider also the reputation and experience of the agent. With the recent popularity of these policies, many unscrupulous and inexperienced agents have come out of the woodwork. They often use high pressure and misleading tactics, causing many people to purchase policies that do not cover what the agents say they do.
The best defense against this is to carefully read the contract, taking special note of all exclusions and conditions. Your policy should offer a 30-day money back guarantee. If the policy isn't all that you thought, return it.
So, is it worth it? With the continually rising cost of long-term care, yes. Long-term care insurance can be a significant benefit if you would ever need to be in a nursing home for any amount of time. You must, however, really do your homework to make sure you get the right policy for your needs.
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