With the economy in the tank, most us are too focused on our short-term goals to think about long-term care. But the sooner you do, the more you'll save.
I’ve had two uncomfortable conversations with my father in my lifetime. The first was about sex when I was a teenager. The second was about long-term care insurance when I was 40.
Let’s face it, both topics involve activities you never want to contemplate your parents doing: having sex and slowly dying.
And who ever wants to talk about insurance anyway? Much less insurance that involves paying for someone to take care of you when you can no longer take care of yourself.
But my dad is nothing if not practical: I don’t recall any other corporate-executive fathers in my neighborhood clipping coupons back in the 1970s. So a few years ago, he insisted I consider long-term care insurance for myself, because I was still young enough to get a low premium. (More on that in a moment.)
But I wasn’t an obedient son. I didn’t look into long-term care because my short-term problems seemed much more pressing. Only last week did I finally start perusing the web. And the first item I found was really discouraging.
“Long-Term-Care Premiums Soar,” read a recent headline in The Wall Street Journal. “People with long-term-care insurance polices are getting hit with a new round of steep premium increases,” the story began.
It seems several providers of long-term care insurance plans want to hike rates up to 40 percent or get out the business all together. Was I too late to get this insurance at a reasonable price? More importantly, what would my dad think?
But before going any further, I went back to the beginning: What is “long-term care” anyway?
Many things to even more people
Long-term care means different things depending on how much care you require. The federal government has divided them into categories. Here are the main ones, from cheapest to most expensive…
- Community-Based Services: Ranges from a simple “telephone reassurance” service that calls you once a day to make sure you’re OK (my mother already uses this) to Meals on Wheels (which delivers prepared food to those in need). Also includes adult daycare services and recreational programs at your local senior center.
- Home Health Care: As the name implies, the care comes to you. This can include help with chores like laundry and cooking all the way up to licensed nurses providing treatment or injury rehabilitation.
- Assisted Living Facilities: Also known as “group homes” and “continuing care communities,” these are a step below nursing homes. Residents may live in separate apartments or even houses, and have different levels of independence.
- Nursing Homes: When you can’t take care of your physical needs at all, nursing homes provide round-the-clock care. Obviously, this is the most expensive kind of long-term care.
For more details on these categories, the federal government’s Medicare website provides an excellent Summary of Long-Term Care Choices, which is helpful even if you’re not on Medicare. And if you want some specific examples of long-term care services in your area, the federal Department of Health and Human Services offers an Elder Care Locator that’s searchable by city and ZIP Code.
Getting covered for long-term care
In general, long-term care insurance is something you purchase to cover the cost of a skilled nursing facility. But there are lots variables when it comes to finding policies. For example, skilled nursing care has different price tags depending on where you live.
One clever insurance company, Genworth Financial, even designed an interactive map that shows you these price differences. For instance, a private room in a nursing home costs $52,100 a year in Oklahoma but $101,300 in Maine.
Different insurance companies offer different choices. For instance, State Farm has policies that pay out as little as $100 a day or as much as $500 a day.
So how do you scrutinize all these options without giving up an entire weekend and a lot of brainpower to do it? One helpful resource is the American Association for Long-Term Care Insurance, a 12-year-old organization “exclusively focused on educating both consumers as well as insurance and financial professionals who market long-term care solutions.”
Unlike lots of other sites that claim to be helpful and then try to sell you complicated policies, the AALTCI writes on its homepage that it “does not market or sell insurance but our members do.”
And whatever you think of federal government spending these days, rest assured we’re getting our money’s worth with the U.S. Department of Health and Human Services’ National Clearinghouse for Long-Term Care Information. And the National Association of Insurance Commissioners offers it own frank advice, even telling you when not to get long-term care insurance. (“If you are currently receiving Social Security or expect to have minimal or no retirement savings, you will likely qualify for state aid and should not purchase long-term care insurance.”)
But even those sites took me an entire afternoon to sift through and understand. Still, I figured any advice I read on all three sites must not only be true but important. So here are the 10 most important things you (and I) need to know about long-term care insurance…
- Don’t rely on the kindness of anybody. If you think your health and life insurance policies – or even your family – is going to pay for your long-term care, think again. Your other insurance policies won’t cover everything you need, and families often can’t afford it. As for Medicare, it only fully pays for 20 days in a skilled nursing facility, and that has to follow a hospital stay of no less than three days. In short, Medicare pays for a nursing home that’s helping you recover – not custodial care. Medicaid will pay for a nursing home, but you will have to have substantially depleted your assets. In addition, as you might imagine, Medicaid won’t be providing Cadillac care: think limited nursing home choices and shared rooms.
- One size fits nobody. Long-term care policies come in as many flavors as ice cream. Besides the differences in daily benefits I mentioned above, options include paying that daily benefit for all the kinds of long-term care, or only for some. Such restrictions can lower your premiums. “Common choices include a home care benefit of 50 percent or 75 percent of the daily nursing home benefit amount,” says HHS. Then there’s a maximum lifetime benefit (total dollars you can get), elimination period (number of days you’ll be getting long-term care before your policy coughs up any dollars), and various “riders” that allow even more customization, like inflation protection – something that can add 50% to your premium.
- Know what isn’t covered. Exceptions abound. For instance, policies normally won’t pay for your family to care for you, or for care out of the country, or if you need long-term care because of a self-inflicted injury. Exceptions vary according to price and state regulations. So make sure you ask about them.
- Women need this more than men. This one is simple: Women live longer. According to the Centers for Disease Control, guys top out at an average of 74.3 years while women go until 79.8 years. Those extra years add up to extra cost – and extra stress. An AARP survey this month revealed that 60 percent of American women have no idea how they’ll pay for their own long-term care. “Studies consistently show women are the biggest users of long-term care, and we’re more likely than men to need these services,” says Alyson Burns, Director of AARP’s Long-term Care Awareness Campaign. “Yet we are so busy with our own hectic lives and caring for others that we’ll only address our own needs after everyone else’s.”
- Dad was right. It turns out that the best time to start buying long-term care insurance is in your 50s. “It’s clearly to your benefit to start the process at younger ages, certainly while in your 50s,” says AALTCI. That’s because you get a discount for being in good health. And you can even get one for being married (because studies show married couples are healthier than single people). According to this article in Smart Money, a 55-year-old can get the insurance for $1,500 a year for a policy that would pay $120 daily for five years of care. For a 60-year-old the premium on the same policy jumps to $1,950; for a 70-year-old, $3,800.
- Don’t believe the hype. If any insurer tells you their policies are “Medicare-endorsed,” it’s a lie. Medicare doesn’t endorse any long-term care insurance.
- Lots of places to buy. If you work for a big company, ask your HR department if long-term care insurance is available. The federal government and some state governments already offer it to their employees, and you can sometimes buy into a group policy through an association membership. Barring that, you can go solo and purchase an individual policy through an insurance agent. When dealing with an insurance company, however, keep in mind that this is coverage you may not use for 30 years – deal with a big, highly-rated, company that you can be sure will still be around.
- Shop around. Like anything else, it pays to compare. Ask lots of questions: what’s covered and what isn’t? What kind of facilities are covered? Can you give me a history of your rate increases? You can start your shopping online with helpful meta-searches like this one from longtermcareinsurance.org.
- State your situation. Your state insurance department regulates rate increases and can verify whether the company you’re planning to pay is properly licensed. Some go much further, like New York, which offers an entire website of help.
- Protect yourself. When you email or call around in your search for the perfect policy, never give out your Social Security or Medicare number – or even details about your health insurance policy. And once you start looking, be prepared for not only a lot of spam in your inbox, but envelopes in your mailbox. Some of them will look very official, as if they come from the federal government.
A short-term crisis?
Remember that Wall Street Journal story I mentioned at the beginning of this long tale on long-term care insurance? The sour economy has affected even the providers of this insurance, who make their profit from investing your premiums for the (hopefully) many years until you need that long-term care.
Those providers are agitating for big rate hikes. In many states, they need to ask permission to do that. “In recent months, companies including American International Group Inc., MetLife Inc. and Lincoln National Corp. have applied for or received approval in one or more states for rate rises ranging from 10 percent to 40 percent,” The Journal reported.
Even the providers are issuing press releases spinning this as favorably as they can. This one is from Genworth…
“Most of its long-term care insurance policyholders won’t be affected but for those who are, it will offer options to help them keep coverage, such as reducing or changing the amount of the daily benefit, changing the duration of the policy, and protection from inflation.”
Expect rate hikes starting in January. Genworth predicts more “over the next 2-3 years.” So it may pay to act soon. I know I will. That should make my dad very happy.
But if long-term care insurance is out of reach for you, don’t lose too much sleep over it. A study by the U.S. Department of Health and Human Services says that people who make it to age 65 will have a 40 percent chance of entering a nursing home, and only about 10 percent of the people who go into a nursing home will be there five years or more. So while long-term care insurance may be desirable – especially for those who want to leave an estate – most people who pay for it will never use it.
If you think you now know everything about long-term care insurance that you need to, take a test to prove it. The National Association of Insurance Commissioners offers this free online Long-Term Care Pop Quiz.