Long
Term Care: Fact & Fiction
© 2005 by Thomas M. Lilly,
JD CLU. All rights reserved.
The
cost of long term care is the monster in the closet.
You cannot seriously evaluate the pros and cons of how
to pay for long term care until
you understand the potential costs associated with long
term care and understand the fact and the fiction of
alternatives for financing those costs.
Above
all, you require reliable information before you can
make any decision. Then you need to evaluate long term
care alternatives from a personal perspective. How do
they fit within your long term objectives, concerns,
responsibilities and resources? Decisions about long
term care are very personal and, we believe, of great
consequence. If you need help in understanding and interpreting
the information you may already have and that which
we will share with you through this website, we will
be pleased to assist you. But you must be the final
judge of what makes the most sense for your circumstances.
THE
COST OF LONG TERM CARE
Let’s
open the door. The cost of long term care will vary
in part by where you live when you receive care, by
the level of care you require and by who provides that
care. In Pennsylvania, for example, as of July 2006,
the average cost of skilled nursing facility
care is $6,757.67 per month. That figure comes from
the Department of Public Welfare and is revised yearly.
Skilled
care is the highest degree of medical care, the patient
is under the supervision of a physician, the care is
provided 24 hours a day and the facility has a transfer
arrangement with a hospital. In New York State, the
cost for similar care is much higher and in other states
it is lower. But, at $6,757.67 per month, the expense
comes to about $81,100 a year. We use it here to indicate
the average cost of the most expensive level of long
term care in one area of the country.
Please
understand that your medical insurance, including Medicare
and Medigap, doesn’t begin to cover the cost for
long term skilled nursing facility care and covers very
little, if any, home health care. Medicaid
does provide long term care benefits, but at a price.
The price is that you must qualify for welfare to qualify
for Medicaid. How you get there varies a little depending
on the state in which you live, but the bottom line
is that Medicaid requires you to spend down to the poverty
level before you can receive long term care benefits
from the government. And that process may also significantly
impact the financial well being of your spouse.
The
4% Rule
As
a rule of thumb, some financial advisors say that, if
you limit withdrawals from your retirement savings to
no more than 4% a year, the odds are good that you will
not outlive your savings. Consider that rule in terms
of a $81,100 average current annual cost for skilled
long term facility care. To be able to withdraw $81,100
a year at a 4% withdrawal rate without diminishing
your savings, you would need $2,027,500. Few of us have
such resources!
Then
again, the Centers for Medicare and Medicaid Services
report that the average skilled care Medicare
claim is about 24 days.
So
what’s the worry? CMMS also reports that the average
long term care claim lasts about 21/2 years or 30 months.
If the care delivered during those months is largely
at a level less than skilled, it’s reasonable
to assume that the cost would be lower. Let’s
assume that your care costs $4,000 a month. And let’s
further assume that you only needed that care for 30
months. What would you need in savings at the outset
to pay for your care and have nothing left
after 30 months assuming you earned 4% annualized on
the declining balance? About $114,000.
Before
we go any further, please remember the words used in
defining these costs... average and assume.
They create the danger. The average cost of
care may not represent the actual cost of care
in a facility acceptable to you.
Most
of us could handle several months of care in a crunch.
Could you handle the average of 30 months? What if you
guess wrong and the need continues? What if the need
doesn’t arise for 15 or 20 years but the cost
of care has grown from $4,000 a month to $8,500 a month?
Unfortunately,
our crystal ball broke a long time ago. Averages and
estimates are all we have to go on to anticipate long
term needs. In fact, the long term care risk may not
become a reality in our lives but we think you’ll
agree that the financial consequences of failing
to plan for long term care are substantial if the risk
becomes reality in your life.
Now
let’s look at what we call the fact and
fiction of what many regard as alternative
resources for long term care.
MEDICARE
Medicare
simply does not pay for long term care. Medicare
will pay for skilled nursing facility care for 20 days
if you are transferred into such a facility
within 30 days of spending three days in the hospital
for related care. From the 21st through the 100th day,
Medicare subjects you to a daily copay of $119.00
in 2006 if you still require skilled nursing
facility care. From day 101 on, you are on your own.
Medicare
may provide a limited home care benefit, which must
be rehabilitative. Once your condition plateaus, even
if you have not recovered, the benefit ceases. Some
advocates argue that the benefit should continue if
it enables you to maintain your health at a
level to which you have recovered, but to compel continued
Medicare home care benefits in such a situation you
may well need to go through an appeals process with
no guarantee of success.
You
should read Medicare & You published each
year by the Centers for Medicare & Medicaid Services.
You’ll find it at www.medicare.gov.
It is a very useful website because it also includes
links to other helpful government publications concerning
health care benefits.
MEDIGAP
Medigap
policies, Plan C or higher, will pay the Medicare skilled
nursing facility copay of $119.00 a day. However, it
is most important that you realize that Medigap only
pays for deductible and copay gaps in Medicare. If Medicare
won’t pay, but for deductibles or coinsurance,
your Medigap policy won’t pay.
If
you are enrolled in a Medicare HMO, you don’t
need a medigap policy. But your Medicare HMO won’t
provide you with long term care benefits any more than
would traditional Medicare coverage. MEDICAID
Medicaid
long term care benefits are a Godsend for individuals
who are otherwise uninsured and without assets to pay
for their care. Medicaid is, in fact, the only government
program that provides long term facility care. Should
Medicaid appear to be an appropriate consideration in
your particular circumstances, you should meet with
an elder law attorney to discuss the complicated Medicaid
rules as they may apply to you. A good resource for
identifying attorneys in your area who hold themselves
out as offering elder law services is the website of
The National Academy of Elder Law Attorneys, Inc. www.naela.org.
This
brief discussion of Medicaid focuses on the means
tests which must be met before you may be financially
eligible to receive Medicaid long term care benefits.
By demonstrating the actual cost of qualifying for Medicaid,
we mean to emphasize the importance of incorporating
provision for long term care in your financial planning
and the financial good sense of not relying
on governmental benefits.
Although
Medicaid is a federal program, it is administered by
the various states. The rules for qualifying for benefits
thus vary a little from state to state. To be financially
eligible for Medicaid benefits in Pennsylvania, for
example, an individual who is single or widowed
cannot have more than $2,400 in assets. There
are several exempt or non-countable assets, including
the Medical Assistance applicant’s primary residence
so long as he or she is alive, but the bottom line is
that you must be indigent to qualify for Medicaid long
term care.
If
you are married, the same rules apply except
that you and your spouse can also currently shelter
one half of your jointly owned assets with
a minimum protected amount of $19,908 and a maximum
of $99,540. If your jointly owned assets total, for
example, $250,000, you can shelter $99,540, not
$125,000.
Your
home is exempt so long as the healthy or “community”
spouse maintains it as his or her primary residence.
Upon the death of the second to die, however, the Department
of Public Welfare in Pennsylvania will recover from
the proceeds of the sale of the house any Medicaid Assistance
benefits paid for nursing facility services for an individual
owner who was 55 or older at the time the benefits were
paid.
Jointly
owned assets in excess of the protected amount must
be spent before you can qualify for Medicaid benefits.
Furthermore, you must spend your pension benefits, if
any, and your Social Security benefits for your care
regardless of whether you are single, widowed or married.
If
you give away countable assets within five years (sixty months) prior to applying for Medical Assistance, the
Department of Public Welfare will declare you ineligible
for Medical Assistance benefits for a period of time
now, under the Deficit Reduction Act of 2006, running forward from the date you apply for Medicaid, not from the date you made the gifts.
The
lookback period is sixty months for gifts
to individuals and sixty months for assets transferred
to a trust. The fair market value of the gifted assets
is divided by the Medicaid divisor, currently
$6,757.67 in Pennsylvania. The resulting number is the
number of months for which you are ineligible
for benefits. Those months are your period of ineligibility
and should not be confused with the thirty six or sixty
month lookback period. You must pay for your
care out of pocket during the period of ineligibility. The Catch 22 is that in order to apply for Medicaid, you must be financially as well as medically qualified, which means that you will have spent down your unprotected assets. How will you pay for your care during a period of ineligibility?
LONG TERM
CARE INSURANCE
LTCI
Underwriting
Before
we look at the many different forms long term care insurance
can take, please note the word insurance. This
is not something you get by just signing up for it.
You must show evidence of health acceptable to the insurer.
That process is called underwriting. The outcome of
it will determine whether or not the insurer will agree
to issue a policy covering you.
In
some cases of employer-sponsored LTC programs,
the health questions may be reduced to just a few “knockout”
inquiries designed to eliminate applicants who would
immediately qualify for benefits. In some cases there
may be no health questions.
However,
an individual LTC insurance application typically
asks a lot of questions about your health history and
requires you to identify your physicians. You should
assume that the insurer will write to your physicians
concerning your health and that your physicians
will fully disclose their records to the insurer.
If
your age is 70 or beyond, the insurer will typically
require a face-to-face meeting between you and a nurse
or social worker, paid for by the insurer, to provide
a basic evaluation of your physical and mental capacities.
These are not medical exams such as you may have experienced
with life insurance, though the insurer will reserve
the right to require one at its expense. Medical exams
are rarely used in LTC underwriting.
It
is also important to realize that different companies
may underwrite the same health condition differently.
If you have any significant health history, be particularly
careful to speak with an LTC broker, an individual who
does business regularly with at least three
different LTC insurers. Ask the broker to discuss your
health history with the insurer offering the policy
benefits most appropriate for you before you
submit your application.
Such
“pre-qualifications” don’t guarantee
the underwriting outcome because they are conducted
anonymously (you are not identified by name) and the
underwriters always condition their comments on subsequent
reviews of your actual medical records. However, such
an inquiry will give the broker and you a better idea
whether or not underwriting by that company may be favorable
to you or whether you should consider another insurer
as well. Be careful here, because, if you are declined
by one LTC insurer, you’ll find that many other
quality insurers will not consider an application from
you.
The
booklet, A Shopper’s Guide to Long
Term Care Insurance, published by the
National Association of Insurance Commissioners, provides
a useful introduction to LTC insurance. Insurance agents
are required by regulation to provide you with a copy
at the first meeting in which they discuss LTC insurance
with you.
We
have developed the review which you are now reading
to provide greater depth and perspective on the complicated
subject of governmental and privately insured long term
care benefits but we also encourage you to read the
Shopper’s Guide.
Qualified
Long Term Care Insurance Policies
The
Health Insurance Portability and Accountability Act
of 1996 (“HIPAA”) created “qualified”
LTC policies. If policies incorporate certain provisions
specified in HIPAA and exclude certain other provisions,
they are said to be qualified under HIPAA.
HIPAA
also “grandfathered” LTC policies issued
prior to 1/1/97. They are considered qualified so long
as material changes aren’t made to them after
12/31/96. If you have an LTC policy issued prior to
1/1/97, be sure to let your advisor know.
One
value in having a qualified LTC policy is that
you may receive an income tax benefit for some or all
of your premium. More importantly, you are guaranteed
that any benefit you receive from the policy, up to
the per diem limitation noted earlier, will be exempt
from federal income taxes. Benefits in excess of the
per diem limitation will also be free of such tax so
long as you actually incurred qualified expenses at
least equal to the benefit received.
Benefits
received from non-qualified LTC policies are not
exempted from federal income taxes by HIPAA. However,
non-qualified policies are permitted to have
a benefit trigger not allowed in qualified
policies. That trigger is medical necessity. A “trigger”
is a condition that may cause you to be eligible for
policy benefits.
Non-qualified
policies may also allow you to be eligible for benefits
by needing assistance with just one activity of daily
living (ADL). Qualified policies require you
to need at least stand-by assistance with two
of six ADLs (eating, bathing, dressing, toileting, continence
or transferring) in order to be eligible for benefits.
Qualified policies also require that a healthcare practitioner
certify annually that your condition is likely to last
ninety days or longer. Thus non-qualified LTC policies
appear to be somewhat more liberal in how you may become
eligible for benefits.
We
note that both types of policies also provide that you
are eligible for benefits if you have severe cognitive
impairment, the most common example of which is Alzheimer’s
disease.
It
is our opinion that the HIPAA guarantee of
federal income tax exemption for benefits paid from
a qualified LTC policy outweighs the possibility that
you could develop a long term health care need
which would involve a deficit in only one activity of
daily living or that would be sufficiently medically
serious as to cause you to require long term care services
but not need stand-by assistance with two activities
of daily living.
Which
type of policy you select is, of course, your decision
- just be aware of the pros and cons of each type.
Long
Term Care Policy Provisions
Your
eligibility for benefits will depend on the terms of
your LTC policy. Before you apply for a policy,
review a specimen policy that stipulates the provisions
for each of the terms that you want included in your
coverage. Be sure that you understand the terms before
signing on the dotted line.
The
following provides an overview of the basic provisions
which appear in all policies. But be warned, companies
do differ in how even these provisions are applied.
We will note some of the variations.
1.
The Elimination Period. This is the time
between the onset of your claim and when you are actually
eligible to accrue policy benefits. It is a built in
delay between the time you need care and when your policy
will provide payment for all or some of the cost of
your care. Prior to your satisfying the elimination
period requirement, you will be responsible for the
cost of services. You select the elimination period
at the time you apply for coverage. Companies may offer
a variety of choices such as 30, 50, 60, 90, 100, 180
days or even longer. For
example, if you elect a 30 day elimination period when
you buy your policy, the policy will not pay for expenses
otherwise eligible for coverage between the onset of
the claim (the day you first needed care) and the end
of the 30th day.
Companies,
however, can differ in how they credit the days required
to fulfill the elimination period. Some policies credit
one day of care for one day toward satisfying your elimination
period. Other policies may credit one week (seven days)
toward the elimination period if you require otherwise
covered services during just one day of a given week.
Still other policies may vary the theme crediting seven
days if you require otherwise covered services on three
days during a given calendar week.
The
more liberal the crediting of days toward the elimination
period, the sooner you will receive coverage for health
care expenses you incur.
“One
time only” is also an important point to keep
in mind. Most policies today provide that you need only
satisfy the elimination period once in your lifetime.
You may have surgery that requires several weeks of
rehab. If, for example, you need assistance with bathing
and dressing during that rehab period, you may earn
days in permanent satisfaction of the elimination
period which could be most important later on if you
develop a truly long term health care need. Your policy
benefits will be available to you sooner.
The
elimination period will have an impact on your premium.
A policy with a 30 day elimination period will have
a higher premium than one with a 60 or 90 day period.
Remember that the insurance company will not pay benefits
for expenses you incur during the elimination period.
Be sure to compare the premium you save with a longer
elimination period against the greater out of pocket
expense you will incur should you have a long term
care claim.
Don’t
count on Medicare to help pay expenses during the elimination
period. Remember that Medicare only pays for skilled
nursing facility care and then only under certain
conditions and that Medicare benefits are subject to
a $114.00 a day co-pay after the first 20 days.
However,
days covered by Medicare may count toward satisfying
the elimination period - another reason to check
out specimen policies before you buy.
2.
The Benefit Amount. LTC insurance policies
usually express the basic benefit in terms of a maximum
daily benefit amount. Thus you may buy a policy with
a $150 a day maximum benefit. Some companies express
the benefit amount in monthly terms (e.g., $4,500 a
month), but the daily benefit is the most common benefit
description.
You
select a maximum daily benefit when you apply for a
policy. We think that today a $150 daily or a $4,500
monthly benefit is a reasonable starting point. Remember
the $6,757.67 “Medicaid divisor” to which
we referred earlier? It works out to about $202 a day.
We suggest using a $150 daily or $4,500 monthly benefit,
recognizing that in most cases some personal funds may
be available to contribute to the cost of care and that
the more likely need for care will be at a custodial
rather than a skilled nursing level with a
corresponding reduction in the cost of the care.
You
may have seen $100 a day referred to in media articles
on long term care. In our experience, that number, at
least in Pennsylvania, is an underestimate even for
the cost of quality custodial care. Your needs
and resources will be the ultimate arbiter of the basic
benefit appropriate for you, but we recommend that your
competitive evaluation require at least $150 a day as
a constant for each insurer’s quote.
If
you prefer to use a lower daily benefit number with
the assumption that you will supplement the cost of
your care with personal funds, be sure to consider whether
or not the available amount of those personal funds
will increase as time passes. Otherwise, you may find
fifteen or twenty years from now that, even with a 5%
automatic annual compound benefit increase built into
your insured benefit, the total funds (insured
and out of pocket) available for your long term care
are seriously deficient.
At
the outset of this section, we referred to the basic
daily benefit amount. Some companies persist in offering
“nursing home only” or “home care
only” benefit policies. Unless you have a full
proof crystal ball, we recommend that you avoid such
limited benefit contracts. Be sure that the policy you
purchase provides “comprehensive” benefits,
that the policy will cover your care whether it is delivered
at home by a licensed home health care provider,
in adult day care, in an assisted living
facility, or in a skilled nursing facility.
Every
company also offers riders, extra benefits
for extra costs, which can enhance your coverage. When
comparing costs, be careful to first examine the basic,
no frills, comprehensive benefit cost of each insurer
you want to consider.
One
more basic point. Be sure to ask how the “daily”
benefit is actually paid out in the event of a claim.
Some companies limit what they will pay to the stated
daily amount. If your daily care costs more, the excess
cost over the daily benefit is your responsibility.
The
trend, however, appears to be for companies to provide
for the stated daily benefit to be accessible at claim
time as a weekly or even a monthly multiple. For example,
your daily benefit may be $150 but the company will
allow you to access during a seven day period (or a
calendar week) $1,050 (7 x $150) without limiting the
payout to a daily maximum. Thus if you need physical
therapy but only three times a week and the therapy
costs $250 each time, the LTC policy will cover you
for the full amount each time because the total
covered expense didn’t exceed $1,050 during the
seven day period.
Incidentally,
if your benefit is paid on a reimbursement
basis (the structure used by the majority of LTC policies,)
the left over $300 ($1,050-$750) is kept in reserve
for you and could extend your maximum benefit period.
3.
The Benefit Period. This is the number
of years for which the full daily benefit is payable
once you are eligible for benefits.
You
select the benefit period when you apply for your policy.
Companies typically offer 2, 3, 4, 5, 6 and even 10
year benefit periods called “limited” because
the number of years for which benefits are payable is
limited. You can also elect an unlimited or
lifetime benefit period.
If
you have a limited benefit period with a reimbursement
based policy and the cost of your covered expenses does
not use up the full amount of your daily, weekly or
monthly benefit amount, the balance is kept in reserve
for you and will extend the maximum duration of your
benefit period.
There
are a few policies on the market called indemnity
policies for which the last statement is not applicable.
Indemnity policies pay the full amount of your daily
benefit to you if you incur covered expenses even though
the expenses don’t add up to your maximum daily
benefit amount. Most policies, however, are structured
on a reimbursement basis and pay, up to your
policy’s maximum benefit, only to the extent you
actually incur covered expenses. Several major insurers
do offer the option to select either type of policy
structure at the time of application for coverage.
It
is worth noting that, in the early days of a claim,
an indemnity policy could pay you benefits
even though Medicare is covering the cost of your care.
However, because of a provision in HIPAA, a reimbursement
based policy cannot pay benefits if Medicare is paying
for your care. We don’t think that the HIPAA limitation
on a reimbursement based LTC policy is, in itself, a
reason to purchase an indemnity policy structure, but
it is a planning consideration of which you should be
aware.
Just
as your premium cost is affected by the length of elimination
period you elect, so also will the premium be impacted
by the benefit period you select. The longer the benefit
period, the greater will be the cost of the policy.
Because
the average long term care claim is about two and one-half
years, we encourage you to consider at least a three
year benefit period. For greater planning flexibility,
we think that a four year benefit period is a prudent
minimum. However, your financial circumstances
now and for the foreseeable future will guide you to
the appropriate, manageable premium level. It is certainly
better to have even a two year benefit period in force
than no coverage at all.
There
is another consideration which may influence your choice
of a benefit period. If you are inclined to carry insured
coverage for a period sufficient to pay for your care
during a potential five year Medicaid period of ineligibility, you should consider buying a five year benefit period policy.
4.
Shared Benefits. This is a relatively
new concept in LTC benefits and may take the form of
a rider on a policy or of a joint policy.
A
shared benefit rider may provide that you and
your spouse (or, with some companies, your life partner)
can “piggyback” on the other’s policy
benefit if one of you exhausts your own benefit. Using
this option would reduce the maximum benefit available
to the healthy individual should she or he need long
term care at a later date. However, policies which structure
the shared benefit in this manner may provide a floor
or minimum benefit which will be available to the healthy
spouse in the future, although it will not be as great
as the benefit they originally purchased. Be sure you
understand the impact of using the shared benefit before
electing such a policy structure.
An
alternative structure creates a third pool of money
which either individual or both can access after their
individual policy benefits are exhausted until that
pool is also used up. This format assures each individual
that they will always have their own policy benefits
for their own use in the event of a long term care claim.
The
advantage of a shared benefit rider is clear where a
limited benefit period is purchased. You could effectively
double the maximum number of years for which benefits
would be payable for one of two individuals depending
on how the future unfolds.
A
disadvantage is that one insured could exhaust the benefits
available to both insureds. To our knowledge, only one
major, well-rated LTC insurer offers some protection
in such a case. That company will offer a two year benefit
period policy to the other insured but at the then current
age rate for that individual. The cost could be prohibitive.
As
with any additional benefit, the shared benefit rider
adds a cost to each policy. You should examine that
cost and the potential benefit in terms of your long
term budget and the needs which most concern you.
One major insurer takes a different approach by offering
a joint policy which insures two individuals
under the same plan. Either or both insureds can access
the single benefit account. If you consider such a policy,
be sure to weigh the premium savings you may achieve
against the risk of one individual completely exhausting
the policy benefits.
5.
Inflation Riders. This benefit is intended
to provide some protection against the future cost of
long term care. It can take several different forms;
an automatic annual fixed percentage increase in your
benefit or a periodic option for you to purchase an
increase in your benefit.
The
increase can be simple or compound
or it may be based on a periodic option to purchase
an additional percentage of your base policy benefit.
The cost of the benefit increase may be included in
the cost of the rider itself or it may be an additional
premium based on your age at the time you exercise an
option.
Which
rider, if any, is appropriate for you is more than anything
else a function of your age at the time you first apply
for long term care insurance. In our opinion, if you
are younger than age 70 at the time you apply for a
policy, you should consider an automatic annual compound
benefit increase provision. If you are 70 or more senior,
you should consider a simple benefit increase
rider.
An
inflation rider is likely the single most expensive
additional benefit you can include in a long term care
policy. It can double the initial cost of the policy.
The longer the interval between the policy issue date
and a claim on the policy, the more critical in hindsight
the decision to purchase the rider becomes. An annual
benefit increase of 5% compounded will double
the policy benefit in about 15 years. A 5% simple
increase will double the benefit in 20 years. Think
about what the cost of long term care may be in 15 or
20 years.
Having
said the above, you may want to consider purchasing
coverage at the outset which significantly exceeds
the current cost of care in your area and decline
to purchase an inflation rider. All of your premium
dollars will then go for current benefit dollars. This
planning concept may be appropriate if you
have substantial and reasonably liquid assets which
could be used in later years to cover the gap which
will likely exist between the cost of care and your
fixed insured benefit.
Note
that, if you use this concept and purchase an indemnity
policy, part of the benefit may be subject to federal
income tax even though you bought a qualified policy.
Such a consequence would happen if the daily benefit
paid to you exceeds the maximum tax free daily benefit
amount ($250 daily for 2006) and the actual
cost of care paid by you is less than the cash
benefit paid to you.
6.
Premiums. Two points must be understood
at the outset of your LTCI planning: Currently no LTC
insurer guarantees that the premiums for a policy will
not increase. There can be a significant difference
between the premiums charged by one LTC insurer compared
to another for very similar benefits.
It
does pay to shop. We believe that you should first determine
the most appropriate basic benefit structure
for your needs before you shop. If you heed our advice
to work with a broker who is not the agent of just one
or two companies, that individual should be able to
provide you with competitive quotes for the benefits
important to you and based on your health history from
a number of well established and well rated long term
care insurers.
While
no LTC insurer currently guarantees that the premium
will never change, what is guaranteed in every HIPAA
qualified LTC contract is that the policy cannot be
cancelled by the insurer so long as you pay the premium.
Neither can an insurer single you out for a
premium increase. The company must apply to each state
insurance commissioner for permission to change the
rates charged for a class of insureds and show
cause why the rate change is needed.
Some LTC insurers offer the option, at
a higher cost, of paying the premium for a limited number
of years with the guarantee than no premiums will be
due thereafter. With such policies premium increases
imposed after the limited premium paying period
would not affect you.
You
should take care to examine the history of the insurer
in terms of previous rate increases. In Pennsylvania
and a number of other states, companies are now required
to disclose to you whether they have raised the rates
in the past on the policy for which you are applying
or on any similar policy.
7.
Extras. As noted earlier, most companies
offer a selection of enhancements that you can add to
your policy at the time of application. Our purpose
in this discussion has been to help you sort out the
basics so that you can reasonably decide whether insured
LTC coverage is appropriate for you and to provide you
with some guidelines on how you can objectively evaluate
the underwriting practices, fundamental benefits and
costs of various insurers.
Don’t
get caught up in extras until you reach a sound decision
on your needs and on the basic policy structure
which fits you best.
8.
Combo policies. The long term care insurance
marketplace offers not only “stand-alone”
LTC policies but also policies in which long term care
benefits are coupled with universal life, whole life
and even variable life policies.
These
policies may be appropriate for the individual who has
significant liquid assets, who needs additional life
insurance, and who needs insured long term care
protection. You should understand that they are not
primarily marketed as long
term care contracts. Rather, basic long term care benefits
can be added to them
by riders or they are described as incorporating the
option to access a limited long term care benefit should
the need arise. Typically, however, the use of the long
term care benefit directly impacts the life insurance
benefit and the investment value of the product.
You
should also know that, at least in the current state
of their development, the
LTC benefits offered by these products are not as comprehensive
as you will find
in stand-alone LTC policies.
The
question we think you need to ask yourself if you are
presented with such a
policy is why, if you need life insurance,
would you place value on a rider or an option (an LTC
benefit) which, by using it in a long term care claim,
would potentially reduce your death benefit to a nominal
amount?
At
least part of the answer to that question is in the
willingness of some
individuals to hedge the LTC risk if they can accomplish
other purposes at the
same time such as the conservative growth of a portion
of their assets or the
provision of some additional death benefit. If you fit
that profile, you may want
to consider such products but be sure to do so in comparison
to stand-alone LTC
contracts (as well, for that matter, conventional life
insurance products and various conservative investment
products) so that you understand the benefits offered
by each approach. Then ask yourself whether or not,
for you, the combo product offers acceptable solutions
to your long term care, life, and investment needs.
9.
Financials. Financials are fundamental.
You should require the broker to
provide the financial ratings of each insurer under
your consideration. We strongly
recommend that you only consider insurers with financial
ratings of “A” or higher
from at least two of the following five rating
firms: A. M. Best Company, Fitch
Ratings, Moody’s Investors Service, Standard &
Poor’s, or Weiss Ratings.
Cost/Benefit
Matrix
We
developed a cost/benefit matrix to give you a perspective
on how premiums can vary depending on your age at the
time you purchase coverage, on the duration of the benefit
period you select for your coverage, and on whether
or not you are in really good health (receive the best
rate offered by the insurer) or good health (receive
the standard rate for the coverage you request.)
The
matrix also addresses the “time value of money”
issue - what if I didn’t buy the insurance and,
instead, saved the premium dollars for, let’s
say, 20 years. How long would my savings cover my expenses
if I had a claim that started in 20 years? You may be
surprised at the answer.
Please see 7/06 Cost/Benefit Matrix Update for the most current matrix.
Because
a fundamental goal of the matrix is to provide you with
a basic planning tool and because those supplemental
benefits are not offered by every company and may not
be appropriate for meeting your needs, the
cost of them is not included in the matrix.
We
think that the matrix also provides a useful perspective
for individuals who may, because they do have substantial
assets, be thinking about self-insuring against long
term care. Since the premium outlay wouldn’t be
a significant budget issue for such an individual, we
submit that the value of the insured benefit is in the
fact that it frees those dollars for family or charitable
purposes and assures the insured of tax free benefits
from a qualified LTC policy.
Finally,
while the matrix focuses on what you may receive in
dollar benefits for what you pay, don’t forget
the human side of the equation. The greatest
protection afforded by LTC insurance is for the
community spouse, the healthy spouse. Elder law
attorneys, CPAs and financial advisors often tell us
about how the cost of caring for an uninsured spouse
left an otherwise healthy spouse near poverty after
the death of their loved one.
CONCLUSION
We
hope that this discussion provides you with a basic
understanding of the realities of long term care benefits,
both governmental and those available through private
insurance.
None
of us looks forward to an additional and ongoing expense
as we approach retirement. Few of us enjoy investigating
a complicated product that is, itself, still evolving
in the marketplace. Most of us recognize the value of
having “final documents” in place, our wills,
advance directives, powers of attorney and, perhaps,
irrevocable trusts, to provide guidance to our loved
ones and a measure of certainty to the protection and
distribution of our assets. But long term care insurance
is the new subject we do our best to ignore, to put
off for now or to regard as something we just
don’t or won’t need.
However,
the consequences of failing to incorporate long term
care in our planning, at least as we approach retirement
and while, hopefully, we still enjoy reasonably good
health, can be financially catastrophic. The good news
is that long term care insurance products have developed
to a point at which they are, we believe, worthy of
serious consideration. We encourage you to discuss your
needs, concerns and resources with an elder law attorney,
your financial advisor, and an experienced LTC broker
so that you can take appropriate measures to reasonably
protect yourself and your family as the future unfolds.
Please
do feel free to call us toll-free at 1-877-687-4700
or to contact us by e-mail at info@futurecareassociates.com.
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