November is National Long-Term Care Awareness Month. With the holiday season right around the corner and many discussions to be had around the dinner table with your loved ones, now is the perfect time to learn about long-term care and begin the conversation with your family.
Defining Long-Term Care
As people approach retirement, their insurance needs often change. Whereas they may have focused on life and disability insurance during their working years, the need for those types of insurance can diminish as their assets grow. Asset protection may become more important, and this is when people should consider long-term care insurance. Although long-term care (LTC) refers to a wide variety of services, encompassing both medical care and non-medical care, the focus of a long-term care discussion should be on custodial care, as most long-term care falls under this category.
Custodial care provides assistance with various Activities of Daily Living (ADL), like bathing, dressing, eating, toileting, continence, and transferring, or when an individual has memory problems. In other words, assistance with completing everyday tasks most people can perform on their own. If an individual is unable to perform a certain number of the above-mentioned daily activities (typically two), or has memory problems, they are considered candidates for long-term care.
Depending on a patient’s condition and financial situation, there are three ways in which these services are paid: out-of-pocket, Medicaid, or LTC insurance. Medicare does not pay for custodial care in most circumstances, nor do most private health insurance plans. Medicaid may pay for custodial care costs, but eligibility for the program is subject to strict income and resource limits.
Long-Term Care Insurance
LTC insurance is private insurance (i.e., insurance you purchase) specifically designed to cover some or all of the custodial care expenses incurred at home, in assisted living facilities, or in nursing homes. LTC insurance comes in several policy types. “Indemnity” and “Expense Incurred” are the two most common. With both, you select a daily benefit level that you would like to cover (e.g., $150 per day), however, “Indemnity” policies are usually more expensive because the policy pays you the daily benefit amount when you begin receiving long-term care services, regardless of your final bill, whereas an “Expense Incurred” policy provides reimbursement after the fact for eligible expenses incurred.
The premium charged for an LTC policy will also depend on several factors including health, age, the level of benefits received, and the length of time benefits will be received. Regarding health, the insurers are typically more concerned with morbidity risk (i.e., the risk of getting sick), whereas with life insurance they are concerned with mortality risk (i.e., the risk of dying). Once the premium is established, it will generally not change unless there is a premium increase for an entire class of policyholders.
There are also elimination periods associated with LTC insurance. This is the number of days that one must be receiving care before the policy will begin to pay benefits. These periods typically range anywhere between zero to 180 days and the longer the elimination period, the lower the premium will be.
LTC insurance will generally require that a period of time pass before covering preexisting conditions. This means that coverage will be denied within the period set forth in the policy and care for a preexisting condition will have to be paid for out-of-pocket if one needs long-term care before the period has lapsed. However, there are companies that will waive this condition if the insured fully discloses their medical history. Generally, there are also some mental and nervous system disorders not covered, along with alcoholism, drug abuse, and intentional self-inflicted injuries. Typically, people who are in reasonably good health, can take care of themselves, and are between the ages of 18 and 84, are eligible for LTC insurance. The age limitations only apply to the time of purchase and benefits should be paid at any age as long as premiums have been paid.
Who Needs Long-Term Care
According to a study by the U.S. Department of Health and Human Services, it is estimated that at least 52% of Americans over the age of 65 will require some type of assistance due to prolonged illness or disability. The statistics are strongly in favor of having some form of LTC coverage.
- Estimated 47% of men and 58% of women 65 and older will need LTC during their lifetimes1
- Women need care longer (2.5 years) than men (1.5 years)1
- One-third of today’s 65 year-olds may never need LTC support, but 13% will need it for longer than five years1
Categories of Care
There are three options for where one can receive LTC depending on their abilities to carry out the activities of daily living.
Home Health Care
Home Health Care is one of the fastest growing segments in health care. The demand for these services has risen steeply as the length of hospital stays has been reduced, despite the need for ongoing recuperation. Home health care services can help keep a person with impaired functioning at home. Paid home health care may also be more flexible than nursing home care in meeting the particular needs of the LTC population. Certified home health care workers are typically required to provide this care, although certain policies are not as strict.
Assisted Living Facilities
Assisted Living Facilities and Independent Living facilities provide care for people who may not need the high supervision or medical care provided by a nursing home, but may not be suited to, or would prefer not living alone. These facilities offer an array of services to assist residents with their daily living needs, provide a social outlet and community involvement, and encourage them in remaining as independent as possible. Since there are many different services available to meet the residents' needs, they can also remain in their assisted living home during times of recuperation from illness or minor lapses in health.
Nursing Homes
Nursing Homes account for the greatest share of public and private spending on long-term care. A nursing home is a residence that provides room, meals, recreational activities, help with daily living, and protective supervision to residents. Generally, nursing home residents have physical or mental impairments which keep them from living independently. Nursing homes are certified to provide different levels of care, from custodial (help with activities of daily living) to intermediate care (services such as physical therapy) to skilled care (medical services that can only be administered by a trained professional).
Please consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation. The information in this article is not intended as legal or tax advice.
1https://aspe.hhs.gov/basic-report/long-term-services-and-supports-older-americans-risks-andfinancing-research-brief (U.S. Department of Health and Human Services, Longtermcare.gov, February 2016.)
