What is Long-Term Care?

Individuals that suffer from a prolonged illness, disability or any type of cognitive impairment (such as Alzheimer’s disease) will typically need care for a longer period of time.  These services can range from occasional assistance at home with common chores to more substantial medical help in a facility such as a Nursing Home or Assisted Living Facility.  Long-term services may include skilled care, intermediate care, custodial or personal care, adult day care, home health care, respite care and hospice care.

How long does Long-Term Care usually last?

There is no shortage of statistics on this but these can hardly be taken at face value.  The typical answer is an average of less than 3 years of care.  But that is very misleading and likely not going to be accurate for the average person.  Length of care can range from literally a few days to over 10 years or more.  Making this even more difficult to predict is the under-reported number of patients that are receiving care at home by a spouse or adult child.  It is impossible to estimate with any accuracy the number of families that are currently struggling with the difficult task of providing care for a loved one while trying to maintain a normal lifestyle or even a career.  We do know the statistics on Alzheimer’s disease averages 8 years of care from the date of diagnosis.

I’ve always been healthy, am I really likely to need Long-Term Care?

Hopefully you and your family will never need this type of care.  However the risks are high and these risks will only increase the longer we live.  When you compare this risk to the other risks you already insure against the difference is dramatic.

National Clearing House of Long-Term Care Information (September 2008)

How expensive is Long-Term Care?

The cost of Long-Term Care in Kentucky varies even within the state.  In 2009, the costs of nursing home in KY averaged about $200/day.  Home health care costs approximately $30/hour.  Assisted Living facilities are averaging $2800/month.  These all can vary by location and level of care.

Why is Long-Term Care such a “hot topic” now? 

The Baby Boom generation is expected to live longer than any other generation.  Better medicine, better health care and healthier lifestyles lead to greater longevity.  With so many Americans needing this type of care, experts are predicting a tremendous financial strain on the government, as well as individuals and families.  It is wise to discuss Long-Term Care with your family and decide early on how you will deal with the risk to your family. 

How is Long-Term Care paid for?

Medicaid – pays for about half of all long-term care in America.  Medicaid pays when you no longer have the financial resources to pay for your care.  It only pays in Medicaid-approved nursing homes.  And Medicaid planning? It’s NOT an option.  The government has been very effective at stopping individuals with assets from using tax payer’s dollars to pay for their long-term care costs. The current “look-back period” is 60 months to determine if you attempted to hide or transfer assets to qualify for Medicaid.  This 60 month period starts from the date an individual applies for Medicaid.

Medicare- many people still believe that Medicare will cover their long-term care costs.  Neither Medicare nor Health Insurance will cover long-term care costs.
Private Funds – Using your income, annuities, assets or even Life Insurance benefits may be a viable option for you to pay for your future care.  But you must ask yourself “Is there anyone you care about that will suffer financially if these are set aside or used to pay for Long-Term Care?”

Long-Term Care Insurance – Like other financial risks, transferring the risk of Long-Term Care to an insurance company makes sense for a lot of families.   I’m not partial to this solution because I sell LTC insurance, I sell LTC insurance because I’m partial to this option…and I’m certainly in good company.  As you research the topic you will find many well-known authors, financial planners and other industry-leading experts are quick to endorse this as the best option for many Americans.

Reverse Mortgage – Using the equity in your home can be used to fund the future cost of your care.  This has been an option for some but you must make sure you understand the drawbacks if you choose this method of funding.

Military Veterans – Veterans have benefits that are available if they qualify.  There are criteria that must be met and space can be understandably limited in VA facilities.

Who does NOT need Long-Term Care insurance?

There are few absolutes, but these are generally cases when I don’t advise Long-Term Care insurance: 

There are exceptions to these “guidelines” on occasion so again, it’s important you only deal with an experienced (and un-biased) specialist to make sure you are getting accurate and personalized advice.

I’ve done pretty well financially; I can afford to pay out of pocket.  Why would I consider LTC insurance?

I have sat with many couples and individuals that are in this envious position.  So why did they still decide to pay for LTC insurance?  For the same reason they also purchased auto insurance, fire insurance and health insurance.  It was NOT because they couldn’t afford to replace their car, rebuild their house or even personally fund their health care.  It was because they felt strongly this would not be the best use of their hard-earned money.  They chose to defer all these risks to an insurance company for a fraction of the cost of the actual risk. Consider this:  the odds of losing your house in a fire are 1:200, the odds of losing your car in a wreck are 1:14 and the risk of hospital expenses are 1:15.  I would bet that everyone you know has insured every one of these risks.  What is the risk of some level of LTC? For most of us, it is as high as 1:2 and the cost can far exceed the other risks we looked at, combined.  Now, which risk have you left uninsured?

Can I qualify for Long Term Care Insurance?

There are two ways to “qualify” for Long-Term Care insurance.  For this type of insurance to be a viable option for you, you must qualify BOTH in health and financially.  Due to existing conditions many individuals are unable to apply for LTC insurance.  But just because one company will not accept your application doesn’t mean there aren’t companies out there that will consider you for coverage.  This is another reason to deal with a specialist that has multiple insurance companies they can choose from.

Just because you are currently in great health, does NOT automatically mean you should buy LTC insurance.  There are plenty of people today in good health that have no business purchasing this insurance.  You can likely find an agent to sell you the coverage, but it still may not make sense for you financially.  Experts have many different opinions of what the guide should be used for financial suitability.  I have not heard a good rule that fits every situation. 

Instead I believe there are many factors you must look at to make the right decision. Here are a few questions to ask yourself:  How much can you afford to pay out of your income for your care today, as well as in the future when care is more likely?  How long would your personal assets last?  How long would your income/assets last if your care continued for 6 months or longer?  Are you currently struggling to pay your bills?  Regardless of care, will your income/asset value increase or decrease with time?  Is there anyone that will suffer financial hardship if you were required to pay for or receive Long- Term Care?

Can’t I save some money by waiting to buy LTC insurance?

Generally, no.  The first risk you face is becoming uninsurable.  This is far worse than simply paying more for a policy a few years later.  To have this insurance when you need it means you have to buy it when you don’t. The second issue is not as bad, but it will certainly cause you to pay more over the life of your policy.  Here are some figures that surprise most of my clients I meet with:  A couple that purchases LTCi at age 50 will each pay out $1500/yr or approximately $50,000/each in premiums through age 85.  A couple that purchases similar policies at age 75 will pay out $7300/yr or approximately $72,000/each in premiums though age 85. And that’s assuming they are even still insurable.  These numbers make sense when you consider the insurance company doesn’t charge you as much if you let them invest your money over a longer period.  I’ll admit that spending any amount of money on insurance isn’t exactly exciting.  However, when I have my clients do the math, they often come to the same conclusion. They typically decide that spending a small, specified amount over time is better than spending a large amount over an unspecified period of time.  But it has to be your decision.

What are the reasons people give for deciding to purchase LTCi?

My clients give me several reasons for purchasing this type of insurance.  These are probably the 10 most common reasons I hear from my clients: (in random order)

Where can I buy Long-Term Care Insurance?

LTC insurance is available from a variety of companies and agents.  It is also available through some employers and even associations.  Some of these are great options, some are not.  For example, by purchasing LTCi through an association, you are likely limiting yourself to the specific insurance company the association has an agreement with.  Regardless of who what agent or affiliation you purchase coverage through please ask yourself this, “Are they incentivized to lean towards any one company or are they solely basing their recommendation on what is best for me and my family?”  Also, if you are young and healthy, you may get better rates or coverage buying as an individual due to “adverse selection”.  Many times your options are significantly limited by group-type plans.  On the other hand, if you are advanced in years or have certain medical conditions this may be the best (or only) option available to you.  With all that said, I will tell you, I do sell group plans and they can be the perfect solution for some people.

I typically recommend buying locally from an expert.  There is no a replacement for sitting down with a professional as you design your coverage together.  The internet is great for researching LTCi, but if there is an LTC insurance specialist in your area that is usually your safest and wisest option.  If you need a recommendation, I may be able to direct you towards a reputable professional in your area.  Feel free to contact me if I can be of assistance.

Can Kentucky’s Partnership Program help me?

Kentucky has designed the Partnership program to motivate individuals to take personal responsibility for their own care by purchasing long-term care insurance.  Consumers that buy and use specifically qualified long-term care insurance can receive exemptions from Medicaid’s “spend down” requirements.  The state of Kentucky has agreed to dollar for dollar asset protection up to a $200,000 limit (this amount varies by state). For example if your Partnership qualified policy paid out $100,000 in benefits then $100,000 of your assets would be untouchable by Medicaid.  This answers the often-heard objection “the government is going to eventually pay for my long term care costs”.  This new program sends a very clear message that the state of Kentucky, like other states, can’t afford to cover the cost of long-term care for Americans.  It is more clear than ever that the government expects us to make our own plans for our future care.  I don’t remember the last time I even heard this objection to purchasing long-term care insurance thanks to this new program.  A note of warning, this program is not going to be the perfect solution for everyone.  For example, this program does not protect INCOME, only a limited amount of assets.  Another example of why you need to sit down with a specialist that can determine what will fit your needs.

I have a great insurance agent, why would I need a specialist for Long-Term care insurance?

Undoubtably your family physician has served you well over the years.  But a good doctor knows when to refer you to a specialist.  Not because he isn’t knowledgeable, but because he knows some conditions are best left to a neurosurgeon or an oncologist.  It’s a lot like that with Insurance.  Long-Term Care insurance can be a complicated and often misunderstood type of coverage.  Plus, many LTCi specialists are able to work with a variety of insurance companies to get you the best coverage and rates based on your unique situation and goals.  These are some of the reasons that so many financial planners, accountants and even insurance agents choose to refer their valued clients to an LTC insurance specialist.  For many individuals, the decision to buy (or not buy) Long Term Care insurance impacted them and their family for many years after the decision was made.  Because of this, leading financial industry experts typically agree, this is not a decision you can afford to ignore or take lightly.

I don’t want inflation protection because it makes my premium too expensive, is it really necessary?

Depending on your age and financial status…YES!  Will your policy accomplish what you intended if it only pays a small percentage of the daily cost?  It is rare that I sell a policy that does not adjust for inflation.  You can save a little now or you can save A LOT later.  The numbers are hard to argue with when it comes to purchasing inflation protection.

IF you choose to purchase Long-Term Care insurance, these are some useful  tips that can improve your odds of designing the right policy:

INFLATION PROTECTION – This may be the most important part of your policy.  Without this feature your policy will not be able to keep up with the cost of LTC.  This means that even though you were wise enough to purchase protection, it may not be able to protect you as intended.  FYI – many reps will either reduce this coverage or not add it at all for fear of “killing the sale”.  As a bare minimum you will need to choose the 3% compound option (still less than the rate of inflation) for your policy to be eligible for Kentucky’s Partnership Program.  There are exceptions based on age.  This is not the part of the policy that you want to start cutting corners!  As an LTCi professional I am so disappointed when I meet people that have a LTC policy but still risk being financially wiped out because the policy designed is inadequate.

DAILY BENEFIT – You may not need a policy to pay the entire cost of your care.  If you have income that will continue, you can actually reduce your daily benefit and save money on your policy.  This must be done carefully and accurately to still have adequate protection.

MARRIED – If you are married, you may be able to design your plans differently to save money on premiums.  Since females have a higher risk of needing LTC, you may choose to purchase less coverage on the husband since statistically he will be cared for by the wife.  This is risky since he could end up needing the most care and could financially impact the wife’s standard of living.  Another option is to select a plan that offers a “shared pool” of funds that both husband and wife can access when care is needed.  This has proven to be a cost effective option for many couples.

ELIMINATION PERIOD – This needs to be examined closely.  Each company has its own definition of how the “waiting period” is satisfied.  If you choose a 90 day EP then need care only 3 days a week, it will take 30 weeks to satisfy your deductible.  Is this acceptable to you?  If not, you need to choose another EP or look at a policy that uses “calendar days”.  This means your first day of care starts the clock ticking and 90 days later (regardless of additional care received) your deductible would be satisfied for a 90 day elimination period.

NONFORTEITURE OPTION – This option allows you to stop paying your premiums but retain a portion of the benefits.  I have never been a fan of this option.  If you do not think you can afford to pay the premiums on your policy for the rest of your life, DO NOT PURCHASE that policy!  You either don’t need this type of coverage, or you need to select different benefits so that your policy is affordable today and for the rest of your life.

PREMIUM COMPARISONS – As an agent, I try to convince my clients that this is NOT the time to bargain hunt.  What will typically happen is you will convince the agent that if they design your plan correctly, you will not buy the policy.  At this point, the agent is then forced to design an inferior plan or select an inferior company.  In the past, if you shopped purely based on price, you ran the risk of buying from a company that was more likely to raise future rates (a “bargain” today but unaffordable tomorrow). Today this isn’t as much of a problem since companies have more experience with predicting claims and calculating more realistic premiums.  Most companies’ premiums are very comparable but the subtle differences in policies and benefits still need to be compared and understood.  Your policy should be custom designed to fit YOUR needs based on health, finances, goals and your unique family situation.  Another valid warning should be made here. 

Agents have a saying that is true:  “A confused client never buys”.  While it is important to educate yourself and understand your various options this can commonly lead to inaction.  You have decided you really do need LTC insurance but your fear of choosing the wrong company, agent or benefits leads to the unthinkable….nothing.  You simply put it off because you aren’t positive where to start or end so you do nothing.  Most families I have helped agree they need the insurance but they knowingly procrastinate.  Many eventually do apply but they pay higher premiums or even get turned down due to increased age or decreased health.  Understand your situation, weigh your options, then ACT!  Don’t overwhelm yourself with the decision to the point you simply do nothing.  That leads to substantial regret in the long run.

BUYERS REMORSE – It is normal to have some doubts after any significant financial decision.  The danger here though is for those emotional doubts to overpower what your logic tells you to do.  Do your research, understand your options and act!  This is not something you should continue to worry about once you have chosen your plan of action.  Do not base this decision on emotions but facts.  You now know what the risks are and you know what you can (and can’t) afford.  Do not let anyone scare you into a decision either way.  Some agents will occasionally resort to scare tactics to “close the deal”.  This is not necessary.  Weigh all options and make an educated decision.  Then don’t look back.  Feel good that you have taken the time to evaluate the risk and handle it responsibly before it has impacted you or your loved ones.

BEWARE OF QUOTES – Getting quotes on this type of insurance is A LOT like buying shoes online.  What are the odds that they will actually fit?  NOT likely!  Everyone wants quotes, but how helpful is that quote if it’s not custom-designed to fit your personal situation and needs?  I’ve got a car I will sell you for $4000…is it worth it?  You need to know a lot more to answer that right?  You need to look way beyond that premium amount because in the future you will not be thinking about the premiums you paid (though you will likely be glad you paid it).  Instead, you will be thinking about all the various features that you chose or didn’t choose in your policy.  That is what matters both then AND today!  Find out what fits your needs by working with a qualified professional. 
Only then can you know that the price is right.

ASK QUESTIONS - This is never more true than with this decision.  Don’t assume anything!  Take notes, research, seek to understand.  If your agent doesn’t have the time or desire to answer ALL your questions to your satisfaction, find another agent!  You need to understand what you are buying and why you are buying it.  Having said this, you also must have the self-awareness to know when you are simply attempting to delay making a decision by asking questions.  That moment of writing a check for an insurance premium is NEVER fun but please ask yourself this:  How many days would that check cover IN a facility or even for home care?  That can go a long way to ease your uncertainty of making out that first premium check!

AND MAYBE MOST IMPORTANT …. The truth should never contradict itself.  Agents can make honest mistakes, and insurance policies contain a lot of details.  If your agent doesn’t specialize in this type of insurance, this can certainly compound the problem.  If your agent verbalizes anything that doesn’t agree with the policy, believe the policy.  When it comes time to receive the benefits you are due, the insurance company will refer to the agreement (policy) you signed and will act based on what is written, not spoken.  Again, if you aren’t sure about something, ask.  If you are still unsure, ask to see where your question is answered IN the policy itself.