Long-Term Care Planning Ahead
By Judith S.L. Young
The “Me Generation” has been taught to plan ahead. We know to exercise for good health, purchase health insurance, and squirrel away savings in 401k, IRA, and other investment vehicles for the golden years. We all hope to pass away in our sleep at age 100, but not everyone can be that fortunate. A Medical Care study revealed that an American age 65 faces a 44 percent chance of entering a nursing home sometime in his or her lifetime. The older we are, the more likely that we will become ill and eventually need help. Baby boomers who take care of their elderly parents know first-hand how expensive nursing homes and home-care assistance are. And forget about Medicare picking up the tab; it only covers the first 20 days after an illness.
Long-term care insurance helps pay for a range of services including nursing homes, assisted-living residences, home health care, adult day or hospice care. LTC also safeguards assets, guaranteeing quality care and smoothing family anxieties. “Money becomes a very touchy and sensitive subject,” says Jesse Slome, executive director of the American Association for Long Term Care Insurance. “If you have insurance, it allows [your] family to care about you, not to care for you.”
More than 8 million policies have been sold, but finding the best policy can be tricky. In the past five years the industry has changed dramatically, and so have policies. With soaring health-care costs and increased longevity, more insurance experts and financial planners are recommending that LTC be added to retirement planning if you can afford it. The poor have Medicaid as a safety net for extended care. The wealthy can choose to do without. It’s the middle class that will likely be squeezed.
“Boomers with their annual bonuses may think they have many years before they have to face this, but nursing-home care can cost over $200,000 a year,” says Amy Bernstein of the New York City Department for the Aging. “They will be in for a shock.”
Here are the things to consider when shopping for a LTC policy:
Age
The best time to shop for insurance is when you’re healthy. Experts recommend you start in your early 50s to keep premium costs low. Should your health later change, your premiums will remain steady. A family history of disabling conditions like Alzheimer’s, diabetes, high blood pressure, obesity, osteoporosis, strokes, or dementia would put you at higher risk and higher premiums. If you wait too long, you may not qualify.
In New York, a healthy and married 55-year-old currently paid an average $1,061 annually for a three-year policy with a $150 daily benefit, 90-day elimination period, and compound inflation protection. At 65 the rate is $2,060, and at 75 it’s $5,010, assuming standard health and that you’re married. If you’re single, tack on another 25 percent.
Type of Coverage
Most people still associate LTC with a nursing-home stay. Today the trend is moving toward home health care and assisted-living facilities, things that were unheard of a decade ago. Being cared for by trained and bonded professionals in one’s own home offers lots of advantages. Look for a comprehensive policy that offers at least two venues-of-care options.
Length of policy
Most people should consider policies covering three to five years, and able to be underwritten to cover a lifetime. The average stay at a nursing home is 2.5 years, according to U.S. Census figures.
Daily benefit coverage
This is a matter of personal choice that varies widely depending on where you live, your finances, and how much you’re willing to pay out.
Last year the average daily cost of a private room in a nursing home in the United States was $206, or $75,190 annually, according to the MetLife Mature Market Institute. Alaska was the most expensive at $578 a day, and the least cosly was Louisiana at $111. New York averaged $346 daily. Home-care aides averaged $19 per hour nationally.
Deductibles and Elimination Periods
Like any other insurance, there are deductibles. If you’re willing to assume some risk with your provider and you have enough savings set aside, consider raising your deductible to cut costs.
Elimination periods are the number of days you’re responsible for paying before the insurance kicks in. Opting for a shorter period, 30 versus 180 days, makes the policy more expensive but reduces your out-of-pocket expenses.
Inflation protection
Costs are going to go up, so make sure that the policy you buy today will provide adequate protection and maintain its value in 15, 20, or 25 years, when you do need it. An expensive but worthwhile addition: Most policies allow for an annual 5 percent compound inflation.
Share-Care Policies
Married couples who purchase their plans together enjoy a group discount saving because it’s presumed that they will care for each other. Another advantage is share-care policies, where the benefits are pooled together. If one spouse doesn’t use up all his benefits, the remainder is rolled over to the surviving spouse. Women tend to outlive men, so this feature provides added protection for the wife when she is older and alone. For example, a married couple each purchased three-year policies, but the husband has a stroke and winds up at a nursing home for two years. Upon his death, his widow is now covered for four years instead of the original three.
Tax Advantages
New Yorkers can claim a deduction or credit off their income taxes on premiums. If you are a small-business owner, premiums can be 100 percent tax deductible. With limited-pay policies, your company contributes payments for a specified time period so that when you reach retirement the policy is paid in full.
Automatic policy extensions
Some of the better policies automatically extend your benefits past your coverage period. Suppose you purchased a three-year plan with a $200 daily benefit, and your home-care expenses are only $100 a day. That extra $100 a day stays in your plan, extending the duration of your coverage so you can afford care longer.
New Yorkers should also check out the New York State Partnership for Long Term Care program that combines private insurance, Medicaid extended coverage, and asset protection. Partnership policies are sold by participating carriers; depending on if you choose total or dollar-for-dollar asset protection, you may still have to meet Medicaid income guidelines.
Check your workplace to see if your employer offers any group LTC packages. Jesse Slome advises finding a good agent or financial planner who knows the industry and understands the different policies. Calculate your future income and cost-of-living expenses, and ask if you can afford to be cared for in the matter you wish. Also involve your family in these discussions. The sooner you start planning for the future, the sooner you will achieve peace of mind for yourself and your loved ones.
For more information:
* National Association of Insurance Commissioners publishes “A Shopper’s Guide to Long Term Care Insurance,” (816) 783-8300, or www.naic.org.
* Ask the American Association for Long Term Care Insurance for a list of licensed agents, (818) 597-3227, or www.aaltci.org.
* The New York City Long Term Care Insurance Resource Center provides counseling, (212) 676-0629.
* The New York State Partnership Long Term Care Insurance Program is at (888) 697-7582, or www.nyspltc.org
Judith S.L. Young is a New Yorker who writes frequently about finance and business-management issues.
