Understand Long Term Care/Insurance
What a bold and brazen promise…Understand Long Term Care insurance. When most people think of Long Term Care insurance, their brain typically seizes up. We want to be the translator. We want to take the technical and specific language of Long Term Care coverage and make it very accessible to all…or at least most. So let’s dive into the world of Long Term Care and why it might be the most misunderstood and unappreciated type of insurance on the market.
Before we get into the nuts and bolts of the insurance, let’s first understand the need. What exactly does Long Term Care insurance protect us from? What are the risks? Most situations can best be described with a story and LTC is no different. Let’s take a look at James and his situation. This same situation is playing out every day to thousands of families who find out the hard way what an LTC event is.
James has just suffered a stroke. At his age of 63, he has health insurance through his company and has managed to retain assets and his house in spite of the 2009 “recession”. His wife quickly checks with their health insurance carrier to find out how the plan will (and will not) cover the mounting bills. To her horror, she finds out that health insurance plans, even the better ones on the market, are really designed for “acute” situations. That is, the health carrier will pay for the surgery to reduce the swelling following the stroke, the immediate recuperation lasting 7 days, and maybe physical therapy that last 25 visits. There are also medications including blood thinners that the health plan will cover. The problem is that the stroke has caused pretty significant damage and James is unable to really function simple tasks such as bathing, walking, and others due to paralysis on his left side. Tammy, his wife, must continue working especially in light of this recent event but how will she take care of James? The financial implications of this recent family emergency become apparent. For help in her home, it will cost $ 5000/monthly to have help for 8 hours a days while she’s at work. She will have to eat into their savings significantly in order to provide the support that the doctor estimates will be needed for 18 months. Hopefully, he will regain some function during that time so that the extra support is not needed.
James has just suffered a Long Term Care event. How common is it? Well one out of two people (that’s 50% for those who weren’t watching) will also experience a similar event. Fifty percent! Many people go without Long Term Care insurance not realizing that it’s akin to throwing $ 100K on red in a casino. 80% of LTC events last between 2 and 3 years. The average cost for Long Term Care help for nursing homes is $ 5K monthly in 2010 and keep in mind that there’s huge variety in nursing home quality with some being rather plush while others are…well…let’s just try to stay out of those.
What about Medicare? James will turn 65 in two years and Medicare might still be around by then, right?? Yes but Medicare is not designed for Long Term Care either. It falls in the “acute” world of let’s get you patched up and out the door. Most serious issues do not resolve in the 100 days of more limited LTC coverage that Medicare provides for and even this is in a nursing home setting. So what should we do?
Enter Long Term Care insurance. Basically, we are buying protection in the form of LTC insurance to cover the cost of support following a serious, debilitating injury, illness, or as a result of age. The market is relatively new (about 30 years) but the need couldn’t be greater. You have a range of options currently available as the LTC market becomes more sophisticated. Here are some key concepts to consider and we have written extensively on each with other articles on this website.
1. Setting of care. There’s currently a choice of nursing home care, home health care, and the newest arrival on the LTC market…cash. Apples to apples, you can expect to receive less in benefit as you go from nursing home to cash but the resulting flexibility and comfort from the cash and home health options may far outweigh the benefit/cost difference. Many people purchase Long Term Care solely so that they can avoid nursing homes.
2. Policy Settings. Like with any insurance, there’s the question of how one plan really compares to another. These are the key decisions to make when choosing and comparing Long term care insurance plans.
a. Waiting period. Think of it like a deductible. How many days do I have to wait from when an LTC event occurs till the benefits kick in. Medicare’s limited allotment of days may figure in here and we’ll discuss this further.
b. How much daily benefit do I want? Great question and we have lots of info to help with this. Basically, you don’t want to over-insure…it’s too expensive. Try to absorb about 80% of the expected cost so you can afford to keep the policy in force till the time you may need it.
c. How long an event will the policy cover? Aim for 2-3 years since 80% of LTC events last that long. You can cover an event indefinitely but you have to also afford the coverage. We’d rather you have a policy that fits in your budget than one that cancels 5 years out.
So let’s look at an example of what we would consider prudent for our own parents. A policy with home health care or cash (since we want them to be able to receive care at home), with a 90 day waiting period (assume medicare covers 100 days and we can handle 3 months at $ 5K), for $ 130 daily (80% of expected $ 150 daily cost), for 3 years. It’s that simple (sort of).
Obviously, there are all kinds of considerations…what about assets, Medicare, the new Class Federal LTC plan, qualifying events, etc, but the above information boils down 80% of of what LTC is about and why it’s important.
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