As the U.S. population continues to age, the number of individuals requiring extended care for chronic, debilitating conditions increases. Chances are that you, a relative, or someone else you know will be among them. Nursing home costs can average between $60,000 and $90,000 per year depending on your geographic location. As a result of these high costs, an extended nursing home stay could quickly ravage your income and savings. Medicare typically begins to provide benefits at age 65, but only for some skilled care for a short time period—not for the ongoing assistance that many elderly people need.
Because of this widespread need and drastic increase in the cost of nursing home care, long-term care insurance (LTC) has become a popular method for mitigating the potential financial burden. If you are middle-aged or younger, buying long-term care insurance may not be high on your list of priorities. However, possibly the worst time to start shopping for coverage is when you actually need it. By then, either you or members of your family may not qualify.
Eligibility for long-term care insurance is usually triggered when there is an inability to perform at least two activities of daily living, including eating, dressing, bathing, toileting, continence, and transferring (e.g., from bed to a wheelchair). Cognitive impairment, such as that caused by Alzheimer’s disease, multi-infarct dementia, or Parkinson’s disease, will also trigger LTC benefits.
Long-term care can include three distinct types of care:
- Skilled care, which is 24-hour-a-day care by a skilled medical personnel under a doctor’s supervision.
- Intermediate care, which is occasional nursing and rehabilitative care under the supervision of medical personnel.
- Custodial care, which helps with personal needs such as cooking and bathing and can be provided in a home setting. In-home assistance with daily activities is considered long-term care and is becoming more prevalent.
Long-term care insurance pays a predetermined daily benefit for any covered types of care, with the amount usually varying for nursing home and at-home care. The cost of a policy depends on the daily benefit amount you choose and the deductible or “elimination period,” which is the number of days you will be responsible for your own LTC costs before payments begin. A common choice is an elimination period of six months or less.
To allow for increasing nursing home costs, you may wish to explore an inflation protection option. A 30- to 45-day grace period to pay premiums before benefits are terminated is also an important feature.
When evaluating a particular long-term care insurance policy, check that all levels of care, not just skilled nursing care, are covered. Inquire whether a facility must be Medicare-approved for you to qualify for benefits. Some insurance companies insist that you stay at designated facilities. Others will permit you to stay at the facility of your choice, as long as it meets established guidelines. Still other companies will pre-certify the facility you select before you buy the policy.
Most policies will not cover pre-existing illnesses if they are diagnosed within six months of the policy’s start date. If you are already disabled or use a wheelchair or walker, it’s almost impossible to get long-term care insurance. Make certain your policy is automatically renewable and investigate whether coverage is conditional on prior hospitalization or pre-existing conditions.
If you qualify for Medicaid—which has always been a complex issue and has become even more so under constantly changing rules—most nursing home expenses are covered in approved facilities only. However, if you have substantial income and assets worth protecting, long-term care coverage may be a suitable investment for you and your family.
Food for Thought
Without either adequate long-term care coverage or personal financial resources, a debilitating illness or accident that requires long-term care could potentially devastate your savings and other assets. Therefore, you should consider reviewing your situation with a professional to determine if you should incorporate a long-term care insurance policy into your overall financial and estate plan.