Considering Long-Term Care Insurance?

Like the smoker who knows cigarettes can cause cancer, but assumes it will never happen to them, or the teenager who thinks it’s okay to send just one text while driving, many people think long-term care insurance is something they’ll never need. Or maybe they just hope they won’t need it.

Unfortunately, people put off making a decision about long-term care (LTC) insurance because they are in denial over the possibility of needing it. But once you need it, it’s pretty hard to qualify.  Insurance is tricky that way. True, you may be paying for something you’ll never end up using but remember it’s going to be less expensive the younger you are. And if you wait too long, you may no longer be eligible.

One thing to remember about LTC insurance is that you can always add to your policy later.  If you’ve decided that long-term insurance is something you might be interested in buying, start out with a policy you can afford. Variables include the amount that is paid out for care, how many years the policy runs, and the waiting period required after the claim is approved.

Many long-term insurance policies also offer riders that allow you to make changes later. Common ones include a cost-of-living increase in benefits and protection against inflation.

No doubt about it, long-term insurance can be a great safety net to have. But the truth is it’s not right for everyone. Experts advise that if you have more than $50,000 in savings in addition to a home and car, it is probably worth your while to purchase LTC insurance.  However, if your assets total less than $50,000 and your annual income is primarily from Social Security, it probably doesn’t make sense to spend the money on the annual premiums. The fact is that even with the insurance benefits, you’ll probably end up going through your entire savings. That’s the bad news. The good news is that you’ll be eligible for Medicaid, which will take over payments for your nursing home or in some cases, assisted living care. 

If you can afford the insurance, one nice benefit (besides getting at least a portion of your care paid for) is that LTC insurance will cover a variety of long-term care services:  nursing home or assisted living care, adult day care, respite, hospice, memory care facilities and even in-home care.

Medicaid, on the other hand, will generally only cover care in a skilled nursing home, which means the person will need to move away from “home” or their assisted living facility once their funds have run out.  And while the level of care is as good or better in a nursing home, the atmosphere is usually more sterile and double rooms are not uncommon.

There isn’t a right or wrong answer to the question of long-term care insurance. If you’re a baby boomer or beyond, it’s a good idea to sit down with someone knowledgeable about the subject and find out whether an LTC insurance policy is right for you. Just do it soon!

Inflation protection in long-term care insurance policies

The rising costs of health care coverage exceed average earnings increases and inflation costs for U.S. households by approximately 4 times. To illustrate, health care inflation since 2002 has averaged approximately 11.42% per year in comparison to the estimated average U.S. inflation rate of 2.78% since 2000.

Due to the rising cost of health care, long-term care insurance coverage is subject to inflation risk, and $100,000.00 of coverage at the start of a long-term care insurance policy may greatly decline in purchasing power within 10 years as the cost of health care rises. For these reasons, being protected for inflation in a long-term care insurance policy is a legitimate concern.

Inflation protection methods in long-term care insurance

Insurance care providers, employers and insurance policy holders hedge for inflation in a number of ways. Insurance providers are well aware of the rising cost of health related services and take steps to accommodate these price increases into their budget models.

Unfortunately this can lead to the passing on of costs in the form of premium inflation. However, in some cases the insurance premium may increase at a lower rate than the inflation adjustments in which case the policy may be worth considering. Some of the ways inflation is dealt with by the aforementioned parties are the following.

• Premium increases
• Annual inflation adjustments in coverage
• Policy provisions allowing for coverage increases
• Increases in deductibles
• Cost shifting by employers
• Reductions in coverage timeline
• Insurance related Tax adjustments
• Multiple insurance discounts

It is widely known that purchasing a long-term care insurance coverage policy at an early age greatly reduces the premium costs of the insurance and in some cases provides greater policy flexibility in terms of coverage amounts, deductibles, length of coverage etc. If these benefits outweigh the costs of purchasing a policy at a later age and the policy includes automatic adjustments for inflation, it may be worth considering especially if one has a negative prognosis or expectation as pertaining to health future health care coverage needs.

Aspects of long-term care insurance

Choosing a long-term care insurance policy that protects against inflation but not necessarily at the expense of an increased cost of living can be difficult. However, reducing the gap between health care inflation and core inflation may be achieved by considering different health care coverage options and being aware of the various possibilities of coverage and coverage needs.

Long-term care coverage includes some of the most expensive of health care services including but not limited to nursing home assistance, hospice care, and long-term inpatient hospital services. A few practical factors someone considering this type of insurance may consider are the following:

• Age and health prognosis
• Likelihood of long-term care needs
• Awareness of long-term care options
• Availability of family care and/or private in home assistance
• Amount and length of coverage protection
• Alternative insurance options
• Lifestyle related activities and expectations

These factors can influence the cost of and potential need for long-term care insurance coverage and could assist one in making a wise and/or reasonable decision regarding the assumption of a long-term care policy.

The more unfavorable the factors are in terms of health care needs, the greater the likelihood long term care coverage may be needed. Additionally, differences in the policies, premiums and coverage of different long-term care insurance providers may vary enough to make shopping around for long-term care insurance worthwhile.

Selecting inflation adjusted long-term care insurance

Once the decision to purchase a long-term care insurance policy is made, several options exist depending on one's employment status, age, coverage requirements etc.

Online quote services can be of assistance in getting a general awareness of prices in terms of age and coverage and/or one's employer may have a long-term coverage plan. It is important to note however, that COBRA i.e. the Consolidated Budget Reconciliation Act may only allow continuation of a policy for upto 18 months after cessation of employment after which a new policy with a potentially higher premium may be required.

Additionally, one's health prognosis may worsen or improve over time and federal policies pertaining to long term coverage could also adjust. Such being the possibilities, what is a good policy one day, may not be another day, making the potential for these changes another factor to consider in the policy acquisition decision. Providers of such are listed below:

• American Association of retired persons (AARP)
• Federal long term care insurance program (FLTCIP)
• Auto insurance providers ex: State farm, American family insurance
• Life insurance companies: ex. New York Life, Prudential
• Health insurance providers: Kaiser Permanente, Humana

Summary

Inflation's affect on long term health care costs can and has been higher than average annual inflation and earnings increases. This has led to concerns about inflation protection in long-term care health insurance.

Several mechanisms are in place and may be implemented in the future to deal with this financial obstacle. Becoming aware of the possibilities, choices and circumstances surrounding long term care health insurance can be useful in making better insurance decisions, hedging for inflation and being prepared for health care needs in the future.

This article has discussed and outlined some of those possibilities. The choice to continue with or purchase a long-term care health insurance policy may be a supplemental or primary need and can also be factored into one's overall financial plan. Consequently, the long-term care health insurance policy decision is a dynamic one touching on many financial and health related factors.

Sources:

1. http://www.inflationdata.com/inflation/Inflation_Rate/CurrentInflation.asp
2. http://tinyurl.com/4w53qvj
3. http://tinyurl.com/2ukw6q
4. http://tinyurl.com/ht5oh
5. http://www.opm.gov/insure/ltc/
6. http://www.pueblo.gsa.gov/cic_text/health/ltc/guide.htm
7. http://www.irs.gov/taxtopics/tc502.html
8. http://www.opm.gov/insure/ltc/topten/release.htm

Knowing when to buy long-term care insurance in the U.S.

If one has a family history of Parkinson's disease, Alzheimer's or other degenerative diseases the statistical probability of requiring some kind of long-term care after a certain age increases. Other ailments than can spur the need for long term care coverage include stroke and brain injury.

In other words, long-term care insurance covers expenses related to in house assistance and medical attention for individuals unable to live independently. This article will illustrate appropriate times to consider buying long term care coverage in light of additional factors such as alternative insurance, living arrangements and insurance qualifications.

Age range

Since the majority of people are able to function fairly independently for many years long term care insurance is generally something that is best considered between the ages of 40-70. Before 40, even individuals who genetically pre-disposed to degenerative diseases can function without daily medical assistance making the need for such long-term care fairly low.

There may be instances where this is not the case, and in such cases a person might want to assess the need for long-term health coverage with a doctor's or medical practitioner's advice. The more likely one is to develop debilitating conditions, the earlier the age for thinking about buying long-term health coverage becomes.

Terminal conditions and the uninsured

If one has been diagnosed with a terminal condition such as stage 4 lung cancer, one may not qualify for long term care. Even if one does qualify, there may be a waiting period of 2 months before the paperwork is processed and one can actually start receiving care. For this reason, it can be important to try and predict one's health conditions and needs before they happen. This can change the age range a person might start paying for long-term health care coverage.

Alternative care

In some cases private nurses or at home aids can be hired independently of hospital and hospice services. In such a case the aid can perform the role of assisted living on the terms and conditions provided by the employer i.e. the person in need of care. Such arrangements may be more feasible, comfortable and practical in certain conditions. However, it is important to note, that one's conditions may still require regular Doctor's visits, prescription and/or pain care management which the private assistance may or many not be qualified to provide.

Financial aspect of long-term care insurance

When deciding when to buy long-term health care coverage one might also consider the total cost. The sooner premiums start being paid, the less one receives in total coverage benefits after receipt of care. For example, if an individual starts a long-term coverage plan at age 40 and doesn't require any care until 80, that person has paid 40 years worth of premiums. At $55/Month, after 40 years, one has paid $26,40 for the coverage. However, the $26,400 could easily pay off with just 1 year of long-term care.

Employer provided insurance

To reduce the cost of long-term care premiums and still be covered, one may be able to attain employer cancer care insurance or long-term care insurance. After leaving the job, one may have the option to continue the coverage without penalty in the cost of the premium. The benefits of employer paid coverage are lower expenses overall, more continual coverage and a greater peace of mind that comes from knowing if one does develop cancer or becomes disabled, there will be an insurance policy that is designed for needs arising out of that condition.

Tips to consider before buying long-term health care coverage

Knowing when to pay for long-term health coverage is a large factor of age and individual health. Since an individual's health, medical history and predispositions can vary greatly from one person to another it may be wise to take certain steps before acquiring long-term health insurance.

• Visit a Doctor: Asking a doctor one's likelihood for long term coverage may not yield solid answers but could help one get a better idea of what medical complications may arise in the future.

• Self-Assess: Often people have a good idea of what their own health problems are, or may be in the future. This self knowledge can be useful in determining what age one should start paying for such coverage.

• Family: If one has a large, caring and supportive family, some services associated with long-term care coverage may be provided for. Items such as residence upkeep, cooking assistance, and mobility provisions, can be provided by family with or without private nurses or care providers. Such arrangements can reduce the need an cost of long-term coverage and provide a more familiar setting for the care recipient.

• Insurance Provider: There are several long-term care insurance providers such as AARP and the Federal Long Term Insurance Program among others. Choosing a reliable, professional, easy to understand and affordable insurance program could save a lot of worry and headache.

The decision to purchase long-term health care may not be best taken on the fly or quickly. There are several factors relating to age, health, anticipated conditions and availability of different insurance packages and funds that ideally all play a role in making such a decision. The information in this article can help one decide when to buy long-term care coverage based on pertinent factors such as cost, insurance package choices and provisions and medical conditions that can prompt the need for long-term health coverage.