What Is It and How Is It Useful?

Long-term care insurance can protect you against the cost of long-term nursing home care, home health care and other health or disability-related services you may need.  

If you're independently wealthy, the potential cost might not concern you. For many, however, the costs will become a significant burden because they do not have private insurance and most employer health plans do not include long-term care benefits.

Will Medicare help?

Certain costs are covered by Medicare:- up to 150 days of inpatient hospital care and 100 days of nursing home care per benefit period, but only in a Medicare-certified skilled nursing facility, and then only if admission to the nursing home follows a hospital stay. These restrictions may result in little or no coverage for you. Other costs of long-term care may be covered by a Medicare Supplemental Plan (or a "Medigap" plan).

Hospital Care. You have up to ninety day coverage for each benefit period. You pay a deductible of $716 for the first 60 days of coverage and then a coinsurance charge of $179 per day for up to 30 additional days. Finally, you have a lifetime 60 day reserve in which you are required to pay a coinsurance amount of $358 per day.

Nursing Home Care. Currently, the first 20 days of your stay in a skilled nursing facility are paid for by Medicare. After 20 days, coverage continues for up to 80 more days; however, you are required to pay a coinsurance charge of $89.50 per day.

Benefit Period. A benefit period starts when you enter the hospital and ends 60 days after the day you leave. There is no limit on the number of benefit periods during your lifetime.

Will Medigap help?

Medicare supplement (or Medigap) insurance is private insurance that you purchase that is designed to pay expenses not covered by Medicare. Examples of expenses covered include the hospital and medical deductibles and the coinsurance payments. Medigap policies generally do not extend coverage. Therefore, Medigap insurance should not be viewed as long-term care insurance.

What about Medicaid?

Medicaid is the health insurance system for the indigent. It covers long-term care and, in fact, pays almost half of all nursing home costs. Many people will not qualify for Medicaid benefits because of certain income and asset limitations. You must "spend down" your income or assets to a level determined by each state before you can begin to receive benefits. You may have to give up control over most or all of your assets before you receive benefits.

In addition to Medicare, Medicaid and Medigap insurance, you can purchase long-term care insurance, a relatively new product.

How Do You Assess Your Needs?

Could you afford nursing home care if it cost as much as $6,000 a month?

To assess your need for long-term care insurance, consider these questions:

• Are your assets or income enough to both cover the cost of nursing home care and provide support for your family?
• What is the average cost of nursing home care in your state?
• Do you come from a family with a history of medical problems or issues? A "dread disease" policy can cover you against the cost of a particular disease, such as cancer. This type of policy may be suitable if a particular kind of illness runs in your family.
• If you cannot pay for care yourself, can you count on support from family members or friends?
• Do you come from a family with extended life expectancies? The longer you live, the more likely it is that you may require some type of on-going nursing care. In this situation, long-term care insurance should be considered

What Products are Available?

Long-term care insurance is relatively new. The policy usually covers one or all of the following needs:

• Nursing Home. A public or private facility that provides a variety of types of care ranging from custodial to skilled care. You need to determine if the benefits under a particular policy cover the type of care provided by a particular nursing home.
• In-Home Care. The care is provided in your own home. The type of care can be limited by a particular policy. You should look for a policy that pays for a variety of in-home services (skilled nursing care, home health aides, homemaker assistance) since your needs may vary over time.
• Respite Care.  The care provided by a medical professional as a temporary substitute for a family member who is providing in-home care on a daily basis.
• Hospice Care.  The care provided to help and support an individual who is terminally ill.

The care given for each of the above needs is generally categorized as:

• Skilled Care. Care that is provided by skilled medical personnel such as doctors, registered nurses and professional therapists.
• Intermediate Care.  Care that is less specialized than skilled care and is delivered by trained personnel under the orders of a doctor and supervision of registered nurses. This type of care is often needed for a long period of time.
• Custodial Care.  Care that focuses on the activities of normal daily living such as bathing, eating, dressing, and other routine activities. It is usually provided by non-medical personnel. It may also be referred to as personal care.

Premium and Policy Considerations

The costs of premiums associated with long-term care insurance differ dramatically, depending on the type of benefit the policy offers, as well as the terms and exceptions that are specified in the policy. Generally, policies differ on the amount of benefit they will pay each year and the total benefit to be paid over the life of the policy.

Some of the terms you will encounter when purchasing a long-term care policy include:

• Guaranteed Renewability.  A policy that is guaranteed renewable for life prevents the insurer from canceling the policy except for nonpayment of premiums.
• Elimination, Waiting or Deductible Period.  The elimination, waiting or deductible period specifies the number of days you must wait before the policy will begin paying benefits to you. This period will vary depending upon the particular policy and may be as long as 200 days.

Tip: If you have adequate cash reserves, consider a policy with a longer waiting period as a way of reducing your premium cost .

• Inflation Rider.  This feature provides for the anticipated rise in the cost of long-term care. A rider to offset inflationary increases, however, can increase premium cost by as much as one-third.
• Waiver of Premium.  A waiver of premium will allow you to stop making your premium payments once you begin to receive benefits.
• Non-Forfeiture Clause.  This clause will allow you to receive either a refund of a portion of the premiums that you have paid or a reduced paid-up benefit if you terminate your coverage before you collect any benefits.
• Non-Cancelable Clause.  A policy that will remain in force with the same cost of premiums throughout the life of the policy. The policy can only be canceled is for nonpayment of premiums.

 Policies will often except or exclude certain conditions. You should carefully read the policy to determine if coverage is excluded or affected by any of the following:

• Custodial Care.  The policy should provide coverage for skilled, intermediate and custodial care. Custodial care is basic and does not need for licensed medical professionals. It is an essential element of any coverage.
• Pre-Hospitalization Requirement.  Some policies require the individual to be hospitalized before receiving long-term care for benefits to be paid. Many individuals do not go to long-term care facilities directly from a hospital, so this requirement can result in a denial of benefits at a crucial time.
• Pre-Existing Condition.  A medical condition for which you have sought medical advice or treatment or had symptoms within a specified period before applying for coverage. An insurance company may refuse to pay benefits for care for pre-existing conditions.
• Alzheimer's Coverage.  A good policy will provide coverage in the event of Alzheimer's disease. This disease is generally described in policy language as "organically based mental conditions." If such coverage is not specifically mentioned, Alzheimer's coverage is probably not included in the policy.

Other Considerations

Since long-term care insurance is relatively new, it can be difficult to compare policies. Policies offer different benefits, include different terms, and exclude different conditions.

Check out the financial condition of the insurance company. As with any kind of insurance, investigate the ratings of the insurer.

Comparison shop for premiums and features. Do your shopping as early as possible. If you wait until age 75 to purchase this insurance, your premiums can be double the premiums you would pay at age 65.   If you are considering changing or switching long-term care policies, do not cancel the old policy until you have determined that any pre-existing condition clauses in the new policy do not apply.

Help and More Information 

Enjoy the following special features and information sources that Deloitte & Touche OnLine has put together to guide you through your insurance planning!

Books

Guide to Choosing a Nursing Home, published by the Health Care Financing Administration of the U.S. Department of Health and Human Services (1994).

Guide to Health Insurance for People with Medicare, developed jointly by the National Association of Insurance Commissioners and the Health Care Financing Administration of the U.S. Department of Health and Human Services (1995).

How to Buy the Right Insurance at the Right Price, by Bailard, Biehl & Kaiser (Dow Jones-Irwin, Homewood, IL 1989).

Periodicals

How You And Your Parents Can Afford Old Age; Planning for Medicaid Eligibility, Family Circle (June 6, 1995).

Long-Term-Care Insurance: Can You Afford Not to Have It? D&B Reports (May/June 1991).

When to Talk About Money. Parental Guidance - Special Section: Financial Planning for the Elderly, Working Woman (June 1995).

Who Pays for Nursing Homes? Consumer Reports (September 1995).

Jumps to the Internet

Insurance Information Institute: This organization seeks to improve the public's understanding of property/casualty insurance by providing information and analysis to the media, individuals and organizations. The III publishes a number of helpful consumer guides (available at no cost) such as 12 Ways to Lower Your Homeowners Insurance Costs.

Insurance News Network: This organization provides unbiased consumer information about auto, home and life insurance, including premium costs by state and insurance company ratings from Standard & Poor's.

National Association of Insurance Commissioners: This is an organization of insurance regulators from the 50 states whose primary purpose is to protect the interests of insurance consumers. The NAIC publishes a number of consumer guides including 1995 Guide to Health Insurance for People with Medicare, Consumer's Guide to Home Insurance and Consumer's Guide to Auto Insurance.

SafeTnet: A comprehensive set of links to insurance-related Internet sites.

Click here to see State Insurance Departments

Insurance Organizations

Insurance Information Institute
110 Williams Street, 4th Floor
New York, NY 10038
(212) 669-9200 or (800) 942-4242

National Insurance Consumer Helpline
(800) 942-4242

National Consumers League
815 15th Street, NW, Suite 928
Washington, DC 20005
(202) 639-8140

National Insurance Consumer Organization
121 North Payne Street
Alexandria, VA 22314
(703) 549-8050