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Long Term Care InsuranceThe need for long term care insuranceConsumer Report Investigates As one ages, in the event that you cannot keep your independence, there are plenty of options available: nursing homes, home health services, adult day care centers, assisted living facilities. The money to pay for such services, however, is the problem. Currently, the average cost in a nursing home for a private room is $181 per day, or about $66,000 per year, in a nursing home. These numbers come from a 2003 survey by Prudential Life Insurance Co. When today’s 60-year olds might need such care in the year 2021, the average rate will rise to about $480 a day, or $175,200 annually if the room rates have the same inflation rate that is currently occurring in nursing home costs. The government is unlikely to pick up the tab. The question is who has this amount of money? The obvious answer is the long term care insurance, an insurance policy that it is designed to pay for these catastrophic predictable events. Predictable in that for large group of people a certain number of people will eventually enter a nursing home, etc. People entering nursing homes or needing other forms of long term care will be financially "taken care of" by the long term care policy. A Consumer Report investigation reviewed 48 policies and for most people, long term care insurance is just too expensive. You must keep paying to keep the long term care policy in force. When premiums rise you may have to cancel the long term care coverage. Only a portion of the total expense may be covered by the long term care policy. Long term care policies are packed with small print that can even prevent you from collecting benefits. Even more scary, long term care insurers, some of which are financially shaky may not even be around in 20 or 30 years from now when the benefits are likely to be paid Unfortunately, long term care insurance is just about the only deal around. So in this investigative report, we will delve into whether a long term care insurance policy is advantageous for you. Data from Weiss Ratings Inc., a Palm Beach Gardens, Florida., company evaluates the safety of financial institutions. We reviewed plans offered in California to see how many long term care policies were up to snuff. (Jonas Company, an actuarial firm based in Boston , MA, assisted us in the study.) The results: a scant 3 out of 47.
You pay premiums for coverage that you might use years in the future should you need care. At first long term care insurance sounds simple. Long term care coverage should not be considered before age 57 except by those with chronic diseases. Pushy insurance agents, however, go on and on about the policies’ benefits. Once in blue moon a person in their 40s buys the long term care policy. The reasoning is simple. Long term care insurance agents can reap hefty commissions for the sale. Because long term care insurance is so complicated there can confusion even with the wisest consumer, regardless of even a high pressured long term care insurance agent. On a helpful note, the policies have become more standardized in recent years but the policies are still fraught with question marks that can make you nervous. The most important points: The long term care insurance company may not be around forever. Some long term care insurers have unstable finances. We reviewed 47 policies offered by seven companies in Florida, three of the seven insurers had Weiss financial safety ratings lower than B+. If a company goes bankrupt, you may lose your log term care protection, and a chunk of the money you paid, or even premium increases block of business is bought by another insurer. Long term care insurance pays a daily benefit for nursing home care. (Currently, nursing home day rates range from $96 in Shreveport, La., to $420 in Alaska.) You must purchase the long term care policy with the cost of care in mind. Drugs, supplies, and special services, are not covered by the policy add 20 percent or more to your expenses. Inflation is next. Between 2006 and 2009, nursing home costs are projected to rise by 5.5 percent a year, and 5.8 percent for five years after that, according to the Centers for Medicare & Medicaid Services. That $180 daily benefit you buy this year will cost $237 in five years and nearly $300 in nine years. A $180 benefit bought now will only pay fifty percent of the expenses in the future. Many policies generally pay only a portion of the daily benefit for home health care --older policies usually paid just fifty percent--even though many Americans hope to receive care in their homes. If you don’t have a loved one to help take care of you then that is not enough. Home health aides charge $19 an hour, on average. Hiring an aide for eight hours a day costs $152. A long term care policy with a $180 benefit would only pay a fraction of that. Premiums escalate as you age son in essence our advice to not buy too young is just an opinion. For example, a plan that costs a 50-year-old $1,625 annually will run a 60-year-old $3,100 and a 70-year-old $7,575. Most long term care insurance agents recommend you buy at an earlier age to lower your premium. Say you buy at age 50 and pay a relatively modest $1,100 annually. The average age of people admitted to a nursing home is 82. You will be paying for decades before knowing whether you’ll need to use the long term care policy. Long term care Insurers say that if you buy at a young age then your premium will be lower. There will be a rise only if the company needs the rate increase for claims that are greater than anticipated. Surprise, surprise, the rate increase happens. "There have been cases of premiums not just going up a bit but jumping 700 percent," says Joan Anderson, president of LTC Advisors, an Orlando, Florida, company that trains long term care insurance agents. Rate hikes that were mind boggling were more common when long term care policies first began to be sold. Long term care insurers did not have experience underwriting the long term care policies and often priced them artificially low to make new sales. Sizeable rate increases are still happening. You may have to cancel the policy if the premiums rise sharply, especially after you stop working, lose a spouse or other factors that cause your income to diminish. When you are older, you may be not able to qualify medically for the long term care policy. One out of four 65-year-olds are rejected for long term care insurance due to the medical history and at age 75, one in three will not get accepted for long term care insurance. So much for our advice not to purchase long term care insurance too young. Your care will not be paid for unless you are unable to perform "activities of daily living": These terms include bathing, eating, dressing, getting from a bed to a chair, using a toilet, remaining continent and walking. Alzheimer’s and severe cognitive impairment may qualify you for coverage if you meet certain medical criteria. "Medical necessity" may qualify if you have a medical condition such as congestive heart failure. Some insurers require that you be screened by the insurance company physician before you can begin receiving benefits. The insurance company physician primary charge is to keep claims under low. Claims from 2002 data collected by the State Association of Insurance Commissioners show that long term care insurance policies paid out a stingy 35 percent of the premiums collected that year. The long term care policies have many restrictive clauses. Deductibles, in the form of a waiting period - 30, 90, or 100 days during which you must pay for long term care expenses out of your own pocket. As with other insurance, the larger the deductible (the longer the waiting period), the lower the premium. Lifetime coverage is available, but many people find the premiums prohibitively expensive. Most people purchase a specified benefit period, usually one to five years, and hope more coverage is not needed. There are horror stories. As an example, Linda Berchuk, of Hollywood, Florida, claims that she had to wage war against her father’s insurance company, Mass Mutual, for three months to collect on his long term care insurance policy even though the policy, originally purchased out in 1997, had a zero-0-day waiting period. Linda also had to pay the nursing home on the beginning of each month, then wait 30 days before Mass Mutual review the claim for payment. "Explaining the situation to the company was useless because I only spoke with customer service," Berchuk says. "I was shocked when they told me that the claims department had no phone." A Mass Mutual spokesman said that the company offers a toll free number for policyholders to call when they need service. "Representatives are trained to respond to all long term care policyholder issues," he added. On the other hand, Insurance is regulated by the state department of insurance in various states and insurance companies are very leery of complaints.
We established various criteria that could make a long term care policy a valuable tool to fight the exorbitant costs of long term care. It is advisable to follow these specific guidelines If you decide that you want a long term care insurance policy, . Age 65 is the best time to buy. Long term care insurance salespeople will try to get you to purchase the policy as young as age 45, the coverage may be useless 35 years later when you need the long term care policy . Different ways of care may develop in the future that will not be covered by a policy purchased today. For example, 15 years ago, long term care insurance did not pay for care in assisted living homes. At age 55 till 60, buy long term care insurance in case that you have a chronic condition like diabetes that could get much worse over time. Assess whether you need long term care coverage at age 60, and, if so desired, buy at age 65. After age 70, the long term care policy will likely be too expensive or you may not medically qualify. A sizable minority will not qualify for the policy due to medical history. A strong insurer is real important. you are buying a long term care policy for use in 15 to 30 years A long term care insurance company that receives high financial safety from rating companies is important. Companies that were rated B+ or higher for financial strength in the Weiss Ratings database were selected by us. Anything less that B+ is too risky. For $50, you can order "Shopper’s Guide to long term Care Insurance" from Weiss Ratings, which provides prices and safety ratings most insurers in your state. Online ratings are available from A.M. Best, Moody’s, Standard & Poor’s, or Weiss (at www.ambest.com; www.moodys.com; www.standardandpoors.com; and www.weissratings.com). Only Weiss charges $7.95 for each company rating online and $15 by phone while the other services are free. Long term care should only be bought from insurance companies that are rated in the top three financial strength categories by the majority of the ratings services. A policy should be flexible. No more than two activities of daily living should be required to qualify for benefits under the long term care policy. Bathing should be one of those qualifications. 95 percent of nursing home residents receive help with bathing according to the U.S. Department of Health and Human Services 2000 National Nursing Home Survey, A worthwhile policy should cover care not only in nursing homes but also in assisted living facilities. (Long term care policies can get specific as to which facility qualifies. There are policies that specify that the premises must be staffed twenty four hours a day, or a medical professional must must be on call, or even that the supervision of medications should be the facility's responsibly.) Adult day care should be included in the home-care benefit, as well as hospice services, and respite care (temporary overnight care). Future costs should be covered. Nursing homes should be called to find out how much they charge. Make sure that the benefit amount that you purchase will cover their charges. For decades you will not be using the long term care insurance policy, therefore, it is very important that the daily benefit rises along with the price of long term care. The most expensive available option pays you five percent a year compounded inflation, which is enough to pace the expected 5.7 percent annual increase in nursing home costs. Adding this benefit to your long term care policy, however, may increase your premium substantially. There are long term care
policies that pay the full daily nursing home benefit you select regardless
of the actual charges. This is called indemnity or per diem plans.
You keep any money surplus, but the long term care policy will pay
only up to a specified dollar amount. In essence, you could run out
of money at the end. With newer policies, commonly called reimbursement
plans, up to the selected daily benefit will be payed by the insurance
company. A 30 day elimination period is recommended. A 90-day period might cost 15 percent less a year than one with a 30-day period. Taking into account inflation, a nursing home facility that costs $180 a day now will cost $530 in 20 years, bringing the total for those 60 additional days to $31,800.
A non forfeiture clause to your policy will ensure that if you have to cancel your plan, you can recoup money you paid in premium. The amount you paid in to the policy will determine the daily benefit you collect when you need long term care. How much you paid in will determine the amount collected, while inflation will not be a covered benefit even if you initially paid more for inflation protection. The non forfeiture provision usually adds approximately 30 percent to your premiums. Your premiums may be partially
deductible on the federal income taxes. Tax qualified plans allow
you to deduct your annual premium up to a limit based on your age.The
long term care insurance premium amount is deductible only to the
extent that it exceeds the federal government’s 7.5 percent
threshold of adjusted gross income along with your other medical expenses,. Group long term care plans that may give employees a discount on premium and allow them to pay premiums with pretax dollars. This may be the reason that more than 5,000 employers, including the federal government, offer long term care as an employee benefit. On the other hand, You would be better off buying on your long term care insurance on you own If your workplace plan doesn't offer the important features that we recommend Partnership plans are available in four states - California, Connecticut, Indiana, and New York - a "partnership" plan will protects some or all of your assets from dwindling. California, Connecticut and Indiana offers you the option to purchase coverage equal to the amount of assets you want to protect. $100,000 will be protected when you buy a policy that pays out $100,000. You keep $100,000 of your assets above Medicaid’s asset limit even after after eligibility for Medicaid. New Yorkers can buy a policy with three years of nursing home coverage and six years of home health care. You become eligible for Medicaid after exhausting your long term care insurance benefits and without spending any more of your assets. This policies protect a person's assets, but you may not exceed Medicaid income limits which are quite restrictive. In the event that you move out of state you may keep the plan, but the asset protection is lost. On the positive side, most such plans cover assisted living care.
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