Long Term Care Insurance
As defined by AARP, long term care refers to the many services beyond medical care and nursing care used by people who have disabilities or chronic (long-lasting) illnesses. Long term care also includes those services needed by people who are simply unable to perform certain activities of daily living due to age. Long term care insurance helps you pay for these services, which can be very expensive. A long term care policy also ensures that you can make your own choices about what long-term care services you receive and where you receive them.
Long term care insurance typically covers the cost of:
Our society is aging at a rapid pace with a generation of baby boomers born between the years of 1946 to 1962. This age group represents 1/3 of all Americans and totals approximately 77 million people. In a little over 200 years, life expectancy has doubled in our nation. Today, almost 80% of Americans will live past age 65 and their life expectancy will be another 15 to 20 years. Currently, there are 35 million people in the United States over age 65. In the next 25 years, the number will be closer to 70 million.
Along with the explosion in growth of our population of people over age 65 there will be an explosion in demand for long term care services. According to recent research by the Bipartisan Policy Center, the demand for long term care services will grow from 12 million people in year 2010 to 27 million people in year 2050. Further, as a share of the United States economy or gross domestic product, spending on long term care will increase from 1.3% to 3% over the next 25 years or so.
It is a fact that home and community-based care and nursing home care currently represent the largest out of pocket expense facing older Americans. For baby boomers, who are expected to live even longer and face higher costs, long term care has the potential to devastate their asset base. The average annual cost nationally for nursing home care is about $76,285 or $209 per day. A ten-hour shift for a home health care aid costs about $190. Using the growth rate of 5.8% projected by the Centers for Medicare and Medicaid Services for the period 2001 to 2011, these costs will at least triple in the next 20 years. This means that the 50-year-old of today can expect to spend at least $320,000 per year if he or she requires nursing home care at age 80. The actual risk of needing long-term care (either home care or nursing home care) is greater than 50%.
Together, conventional health insurance and Medicare pay barely over a fourth of the nation’s bill for home health care and nursing home care of almost $150 billion annually.
Conventional insurance, including individual and group health insurance for people under age 65 or retiree health plans restrict coverage to skilled care. Skilled care has nothing to do with how restricted your ability is to care for yourself. A person can be totally paralyzed or in a coma and still not be receiving skilled care, in which case private insurance will not pay.
Skilled care is care to get a person better such as providing physical therapy. It is not long-term care such as helping a person eat, bath, move about etc. That is why conventional health insurance does not pay for long-term care. Medicare can only approve up to 100 days in a nursing home per benefit period for skilled care. Medicare pays nothing for eight-hour shifts at home and only pays home health care visits when some skilled care is being done. An Alzheimer’s patient is a classic example of someone who needs little or no skilled care and would likely not benefit from Medicare. There is no prospect of Medicare expanding into the area of this need anytime soon, if ever. Medicaid, the federal and state welfare program for the poor, will cover long-term care but you must be broke to qualify. To qualify, your income must be no more than $1,809 per month. Furthermore, you must have no more than $2,000 in assets, excluding countable resources such as your house and car.
As a society, the long term care crisis is beginning to get attention from our government leaders. On September 30, 2013, a detailed written report by the U.S. Senate Commission on Long-Term Care was provided to the Congress of the United States. This 138 page report outlined the crisis and made numerous recommendations, including among other things that there be public education of the problem and better support for private long term care insurance.
As a responsible citizen, you can do your part by understanding the risk as it relates to you and your family and by considering whether insurance might be right for you. Currently, when people think of insurance as a part of their asset protection strategy, they think about coverages for home, auto and major medical. They do not think about long-term care even though the risk is higher, the costs are greater and the solution is no more expensive. Waiting until you are in your late 60’s to purchase long-term care insurance is not good advice because
Consider This Example
Consider a 45-year old man who purchases a long term care policy rather than waiting to age 65. He could purchase a $4,500 monthly benefit plan with a 3% compound inflation rider that increases the monthly benefit over time. The annual premium for this plan at age 45 would be $1,248. If, instead, he waited until age 55 to purchase his plan, he would have to buy a $6,000 monthly benefit because the cost of care will increase over those ten years with inflation. His annual premium for age 55 would be $2,044. If he waited until age 65, he would have to purchase an $8,000 monthly benefit again because the cost of care will increase over those ten years with inflation. His annual premium for age 65 would be $3,941. In these three scenarios, the cost of coverage to age 80 would be $43,680, $51,100 and $59,115 respectively. The 45 year old will pay the least over time and the 65 year old will pay the most over time. Another consideration is that the younger you are, the more likely you will qualify for a plan considering medical underwriting, including the best rate available based on very good health. Conversely, the older you are, the less likely you will qualify for a plan considering medical underwriting or you might get an increased rate based on average or poor health. The bottom line is that getting a plan in place sooner is better.
A shoppers guide to Long Term Care Insurance ( see attached )
Cost of Care Survey ( see attached )
Use the button below to see how much a long term care policy would save you.
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