Long Term Care Insurance: the basics

Many older Americans will need help as they age. Among those reaching age 65 in 2017, almost 70 percent will need some form of long term care in the future, according to the U.S. Department of Health and Human Services. While most Americans expect long term care to cost $25,350, the actual price tag is more like $47,000, according to a survey by the Moll Law Group. And on average, those who need care will require three years of it…but how will they pay for their care?

If you have children, they may be able to pitch in and help. The alternative, Medicaid, will pick up the tab only after all savings have been exhausted; applicants must be destitute. While there are ways to shield assets from Medicaid, government “look back” periods have made that harder to do. It’s important to check with an experienced attorney for more information on possible strategies that will protect assets and let you qualify for Medicaid.

Many people mistakenly think Medicare can help. However, the government’s health insurance program for seniors will only cover care in a skilled nursing facility for a limited period after a hospitalization. It doesn’t pay for ongoing, custodial (non-skilled) care. The other alternative is a long term care insurance policy. These plans typically offer comprehensive coverage that will pay for in-home care, assisted living and nursing home care. However, the plans can be complex to understand (here’s a good overview), and premium increases have been a problem for some policyholders.

Basics of Long Term Care Insurance Policies

Long term care insurance policies can be complicated. They often include several variables which can make an apples-to-apples comparison between plans difficult. Here are some of the major details to look for:

• Daily maximum: The maximum amount the plan will pay for each day of care.
• Benefit period: How many years of coverage are included in the plan.
• Eligibility: When someone is eligible for plan benefits – often when a cognitive impairment is diagnosed or a person is unable to complete a certain number of “activities of daily living.”
• Waiting/elimination period: The period of time in which you’ll have to pay for care out of pocket before a policy begins paying out benefits.
• Inflation protection: Provision that increases the daily maximum over time.
• Waiver of premium: Provision that eliminates the need to pay further premiums once benefits have begun.

How it works

To break it down into a real-world example, let’s assume you have a policy with a $150 daily maximum, a two-year benefit period and a two-month waiting period.

Now, let’s say that you’re ready to move into an assisted living facility because it’s becoming a bit too much to move around your house on your own. Your insurance company will send a nurse to do an evaluation. They will look at your medical records and ask a series of questions. In most cases, they are checking to see if you need help with activities of daily living – bathing, dressing, feeding, toileting, transferring (moving from a chair to a bed, for instance) and walking.

If you qualify for coverage, in our example, you have to pay for two months of care out of pocket to meet the waiting period requirement. This could be a significant amount, upwards of $10,000 depending on the facility and care you need. You’ll have to submit bills to your insurer to show you’ve met the waiting period, and your company may request additional information from the facility to ensure they are an eligible provider.

Once your benefits have started, many companies will have you pay the provider directly and then submit the receipt for reimbursement. The benefit period can be a bit misleading because your benefits could last longer, depending on the cost of your care and the policy details.

For our example, a $150 daily maximum for a two year benefit period will provide $109,500 in benefits. If your care costs less than $150 a day, most policies will continue to pay out past the two year mark until the $109,500 has been exhausted.

How Much Does Long Term Care Insurance Cost?

Since long term care insurance policies can be structured in so many different ways, there is no easy average price to share. Instead, the cost will vary depending on your age and the benefits you want.

For the lowest rates, long term care insurance should ideally be purchased in your 50s or early 60s. Some companies may sell policies to people in their 70s as well, but premiums will be significantly higher. Here’s a look at sample annual premiums from Genworth based on a $150 daily maximum and two year benefit period for a single female in New York:

• Age 45: $1,439.34
• Age 55: 1,552.50
• Age 65: $2,435.18
• Age 75: $5,582.10

However, actual premiums will depend on the policy details. For instance, those with provisions such as inflation protection and waiver of premiums may cost more.

When shopping for insurance, also keep in mind the actual cost of care in your area. The U.S. Department of Health and Human Services estimated that the national average for assisted living care was $119 a day while a private nursing home room was $253 a day in 2017.

To ensure you’re getting the best price possible and purchasing from a reputable company, work with an insurance agent who has extensive experience with long term care insurance plans. You can find one by searching the database at the National Association of Health Underwriters website or looking for a professional with a designation such as that of Long-Term Care Professional from the insurance industry group AHIP.

What Happens if You Can No Longer Afford Your Long Term Care Insurance?

Premium increases for long term care policies have long been a concern. Many of those who bought the first plans on the market experienced significant rate increases right around the time they started needing the benefits. That’s because many of the first generation of long term care insurance policies, sold in the 1990s, were priced on faulty assumptions, including a belief by insurers that many policyholders would never file claims.

Since then, insurers have gathered extensive claim information and now price policies in a way that should keep premiums relatively stable. Many states have enacted safeguards to protect consumers from price spikes as well.

Still, long term care insurance rates can and do increase. If premiums become unaffordable, your agent may be able to adjust your benefits to reduce the premium or help you find a cheaper policy elsewhere.

Naturally, everyone hopes and expects to live out their days on their own. However, if you think you’ll need assistance at some point in the future the time to think about long-term insurance is now. It’s the smart thing to do.