The Ins and Outs of Long-Term Care Insurance
There’s a good chance that at some point in your life, you or someone you care about will need long-term care. It could be for a parent, yourself, your spouse. What is long-term care insurance? Who does long-term care insurance benefit? What is the cost associated with it? And how does long-term care work? Let’s take a look at the ins and outs of long-term care insurance so that you can make an informed decision about whether or not this type of coverage is right for you.
What is Long-Term Care Insurance?
Long-term care insurance (LTC) provides financial assistance to individuals who need help with activities of daily living, such as bathing, dressing, using the bathroom, eating, and doing household chores due to illness or injury. It helps pay for long-term services such as nursing home stays and home health aides. This should not be confused with skilled-nursing or home health that may be covered under your current health insurance coverage.
The difference is that Medicare, Medicare health plans and other traditional health insurance plans are built to cover treatment and management of your health conditions. They are not designed to cover your needs for long-term custodial services which include medical and non-medical. Most policies also cover other types of services such as adult daycare centers and assisted living facilities.
Who Does Long-Term Care Insurance Benefit?
Long-term care insurance benefits those who want to remain independent and do not want to rely on family members or Medicaid for their support if they become disabled or ill. It can also provide peace of mind knowing that if you or a loved one needs long-term care in the future, there is protection in place so that one person doesn’t have to shoulder the entire burden financially. Additionally, the policy holder may qualify for tax breaks depending on where they live.
What is the Cost?
The cost of long-term care insurance depends on several factors including a person’s age at time of purchase, benefit level chosen, deductible amount selected, and additional riders added onto the policy (if desired). Younger people will pay lower premiums than older ones simply because they are less likely to use their policy in the near future. While premiums tend to increase over time, some policy types allow you to lock in rates. Most policies are guaranteed renewable regardless of age or health status at time of renewal. Additionally, you may be able to purchase an optional inflation rider which will increase the benefit amount over time to hedge against future inflation.
How Does Long-Term Care Insurance Work?
To qualify for long-term care insurance, you must apply and answer medical questions. The younger and healthier you are, the better your rates. While it is not impossible to purchase LTC coverage if you have some health conditions, you may be charged a higher premium because of your health and you may be declined.
Long-term care insurance policies begin paying out when a benefit is “triggered” and elimination periods are met. For example, most policies require that you need help with at-least two of the six activities of daily living or have a qualifying cognitive impairment. Additionally, a plan sponsored nurse/social worker/other provider will need to assess you to determine eligibility is met. Once coverage is approved, a care manager will provide a plan of care.
The elimination period is a period of time after the benefit is triggered. In other words, once the benefit is triggered, you may have to pay for services out of pocket for 30, 60, or even 90 days before receiving your benefit. This elimination period will vary between plans and is determined by available options you chose at the time of inception.
So Where Do You Go From Here?
Long-term care insurance provides financial assistance and peace of mind when needed most—during times when an individual needs help with activities of daily living either due to illness or injury. While it may seem expensive initially, depending on age at purchase and other factors like coverage level chosen and deductible amounts selected (if applicable), LTC serves as a great way for anyone, especially working age people, to protect themselves from future expenses associated with long-term medical costs should they ever become disabled or unable to care for themselves as they age.
Long-Term Care Tax
That is why the State of Washington has passed a long-term care tax (scheduled to go into effect in 2023) to be paid by individuals who do not have a personal long-term care policy. Twelve additional states are currently talking about passing their own long-term care tax initiatives.
This may seem extreme but federal and state governments have realized that the number of people needing long-term care services will rise exponentially over the coming years and there will not be enough funds to pay for it. This makes sense when you realize over 10,000 people turn 65 in the U.S. each day. This means our already strained system will be put under even more pressure. Currently, Medicaid is the biggest payer of LTC services in the U.S. but for someone to qualify for this financial assistance, they must have low income and limited assets.
Questions You Should Ask Yourself
As a society, we talk about planning for retirement but ignore one of the most important aspects. So, ask yourself important questions such as:
- How would I (or my family) pay for my care if I needed long-term services?
- Do I have enough assets to cover the cost of long-term care?
- What would happen if I didn’t have enough money to pay for long-term care?
- If Medicaid pays for my long-term care, how will that affect my family financially – will they have to sell everything?
What Are the Odds I Will Need Long-Term Care Services?
According to the U.S. Department of Health and Human Services, Administration for Community Living, 7 out of 10 people will need long-term care at some point in their life.
None of us want to go into assisted living or a nursing home but times have changed. People are living longer, dementia is on the rise, and families are having to work more, so they may not be able to stay home and care for a loved one. Even if they could, could they do it alone? The average cost of care in 2021, was $4500 per month for care at an assisted living facility, $7,908 per month for a semi-private room in a nursing home and $9,034 per month for a private room in a nursing home.
The financial benefits of LTC insurance greatly out way any premiums you may pay but you have to do the math yourself. In some cases, there are additional ways to pay for long-term care such as annuities and hybrid life insurance policies. These may be options for you to ask about.