This is Part 3 of a 6-Part Series for families regarding ways to pay for elder care services in Indiana. This information accompanies the 23-page e-book/guide called “A Family Guide to Paying for Elder Care Services in Indiana“, available for free download HERE.

How much does long-term care insurance cost?

Of course the cost of long-term care insurance depends on many different choices and options. The more bells and whistles you choose, the more costly the plan. The most important thing to remember is that long-term care insurance premiums will NEVER cost as much as a few months in a nursing home without the insurance. The problem for most people is that long-term care insurance premiums may seem unaffordable, even though it’s the most cost effective way to plan ahead.

Traditional Long-Term Care Insurance

Traditional Long-Term Care Insurance used to be viewed as “nursing home insurance” because most policies from 15 years ago only offered that one option. Today that is hardly the case.  Long-term care insurance now covers adult day care, in-home care, assisted living, and nursing home care. These policies are considered comprehensive in nature. Now we refer to long-term care insurance as “lifestyle insurance”.

Who CAN’T Get Long-Term Care Insurance?

Underwriting Explained

When you apply for a Long-Term Care Insurance plan, you must go through underwriting. Underwriting means that the company will check your medical records to determine what medical problems you may currently have, or have had in the past.

They want to know your overall health history. If you have been diagnosed with short-term memory loss, Alzheimer’s disease, Parkinson’s disease, Multiple Sclerosis, Lou Gehrig’s disease, or if you have had a stroke with permanent physical impairment, you may not qualify.

People who have survived cancer and are treatment free for a certain length of time can often qualify.

Each insurance company has their own underwriting guidelines. It is best to talk to your agent or call the company directly with any specific questions about health issues. Height and weight are also a consideration when applying. Sometimes the insurance company will send a registered nurse to the home to ask a few questions, and take some more medical history, or they may just call on the phone for a brief interview.

Qualifying to USE the Benefits of a Long-Term Care Insurance Plan

Activities of Daily Living

When it’s time to use your tax qualified Long-Term Care Insurance plan (taxes to be discussed in a later chapter), the insured person must need help or substantial assistance with 2 out of 6 activities of daily living for a period of 90 days or greater. This need for care must be certified by a licensed healthcare practitioner such as a nurse or physician.

These activities of daily living include:

• Bathing
• Dressing
• Eating
• Toileting
• Continence
• Transferring (moving from the bed to a chair)
• Or the insured must have a cognitive impairment like Alzheimer’s disease or dementia.

A cognitive impairment means that although a person may be physically able to perform all of the activities listed above, they cannot remember or rationalize how to do those activities.  One example would be bathing.  Sometimes people with dementia are physically able to take a bath, but can’t remember to do so, or can’t remember why this is important.  Or perhaps when getting dressed, they put on 5 shirts instead of one.

Comprehensive vs. Facility Only Plans

Comprehensive Plans

A comprehensive plan covers all aspects of long-term care: in-home care, adult day care, assisted living, and nursing home care. These plans are designed to help people stay at home longer and also assist them with transitions to other levels of care as needed. Most consumers want to stay at home for as long as possible. A comprehensive plan will satisfy that desire.

Facility Only Coverage

Facility only plans are still available on the market today. Facility only plans pay for just that, facility care only. Usually this includes assisted living and nursing home care. A facility only plan makes the most sense for folks who do not have a large network of family and friends around them, and for people who know that this may be their only option in the future.  Facility only plans are less costly than comprehensive plans but again, offer payment only for nursing home and assisted living care. The insured person cannot live at home and use the benefits of a facility only plan.

Benefit Period

The benefit period is the length of time the policy will actually pay for care. There are many different benefit periods available including 2 years, 3 years, 4 years, 5 years, 7 years, 10 years, and unlimited lifetime coverage. When purchasing long-term care insurance keep in mind that premiums are paid for potentially the next 20 years (or until the policy holder needs care), but the plan will only last about as long as the benefit period originally selected.

People often ask, “How do I know which benefit period to choose?” “How do I know how long I might need care?”

Obviously there is no way to really determine how long a person might need care. However the best advice is for each individual to take a look at their own personal health history and their family history.  If there is a history of chronic disease such as Alzheimer’s, Parkinson’s, MS, or Lou Gehrig’s disease, it might be worthwhile to consider a longer benefit period.

TIP: The average length of stay in a nursing home is about 2.8 years; the average care giving time at home is about 4.1 years.

Daily Benefit Amount

The daily benefit amount is the maximum amount a plan will pay on a daily or weekly basis. Some policies now pay based on a weekly or monthly maximum. In this case, it is important to know the average cost of care in the local area. In the Midwest for example, the average cost of care for a semi-private nursing home bed is about $200 per day. Therefore the plan should pay a maximum of $5000 per month. Currently in New York the cost of a semi-private nursing home bed is around $400per day or $12000 per month. Consider the cost of care in the area where you live and the cost of care in an area where you might retire, and plan accordingly.

• A semi-private room in a nursing home means that two people share a room.
• A private room in a nursing home means that the room is for one person only. A private room will cost significantly more than a semi-private room. Be sure to factor in the extra cost if a private room is expected.

For some people the insurance policy’s daily benefit amount doesn’t need to cover the entire cost of care. If there is some Social Security income or pension income that can pick up a portion of the long-term care costs, then perhaps some premium can be saved by having a lower daily benefit amount.

Keep in mind however, that $200/day covers the cost of room and board only in the Midwest, not the added cost of prescription drugs, supplies such as adult incontinence protection, and other necessities.  The additional expense of these items can add as much as 20% per day on to the cost of a nursing home bed.

Elimination Period

The elimination period is similar to a deductible or a waiting period. This is the length of time a person must wait before their plan will begin to pay. Elimination periods vary from company to company and plan to plan. The elimination period choices include 0 days, 30 days, 60 days, 90 days, 100 days, and 180 days.  Some plans will offer to waive the elimination period for home care under certain circumstances, and some offer riders that will eliminate or decrease waiting periods. Be aware that some elimination periods are based on dates of service. Therefore if only one day of home care is needed per week and the elimination period is 30 days, it could take as much as 30 weeks to satisfy that elimination period. On the other hand, many companies today will allow one day of home care to count as 7 days toward the elimination period. This is a nice strategy and is useful in encouraging people to stay home longer.

TIP:  The shorter the elimination period, the more expensive the premium.

Inflation Protection Options

The average cost of health care rises anywhere from 4%-7% per year. Therefore $200 per day today won’t be enough coverage 10 years from now when the cost is actually around $300 per day.  So it is important to build in some protection against the cost of inflation.

There are typically three types of inflation protection that are available. One is compound inflation protection which provides an automatic increase in benefits every year (usually at 5%) with no corresponding increase in premium.  This is the most expensive inflation protection but well worth the investment. For consumers who buy long-term care insurance at younger ages, for example anyone under age 70, compound inflation protection offers the most complete coverage.

Simple inflation protection is also usually at 5% per year but is not compounded. This inflation protection will grow at a slower rate than compound inflation protection and is often recommended for folks over age 70. There is no corresponding increase in premium.

Finally, there is a future purchase option offered on some plans. This option allows the consumer to decide at a later time whether they would like to buy more daily benefit amount to catch up with the current cost of care. If no extra benefit is purchased, the daily benefit amount remains the same and the premium does not increase. If extra benefit is purchased, the premium increases to the new benefit level. No further underwriting is required for future purchase option benefit increases.

Care Coordination Benefits

Some plans will offer care coordination as a built in benefit. Care coordination is a valuable service for both the person receiving care and for the other family members involved. Long-term care insurers recognize that sometimes it is difficult for a senior or a family member to know which services in their local area might be most appropriate and give the best quality care available. Care coordinators are licensed professionals such as Registered Nurses and Licensed Social Workers who have experience in home health and coordinating care for seniors in their local areas. Some companies will require the plan member to use a care coordinator designated by the insurer. Other companies will allow a family to choose that care coordinator. They will allot a certain amount of money to be used toward a comprehensive in-home evaluation and plan of care. Either way, this service is invaluable and takes the fear and confusion out of selecting a long-term care provider. Care coordinators are not “gatekeepers”. They are simply healthcare professionals who know the system and the local resources. They are there for guidance and assistance along the way.

Home Care and Community Care Benefits

Home and Community Care includes services provided by a licensed home health agency. This can include services from a Registered Nurse, Licensed Practical Nurse, Physical Therapist, Occupational Therapist, Nurse’s Aide, homemaker services (non-medical services), at-home hospice care, and adult day care. Some plans with enhanced home care provisions, or riders, will also allow (with authorization) a friend or family member to provide care. That family member will be reimbursed for their time and expense. Usually a family member cannot be someone who normally lives in the same home as the person going on claim. In other words, most long-term care insurance companies do not want to pay a spouse to be the sole caregiver.

Facility Care

Facility care most often refers to care received in a Nursing Home, Hospice Facility, or Assisted Living Facility.  The plan will usually cover room and board, nursing care, maintenance or personal care, and hospice care in that facility. Most plans will also offer a bed reservation benefit, meaning that if a person leaves the facility for the weekend, or is hospitalized, the insurer will pay for that amount of time to hold the bed even though the insured is not in the facility. Most bed reservation benefits last about 30 days per policy year.

Respite Care Benefits

Respite Care, simply defined, is a break for the caregiver. For example if daughter Susan is caring for her father she may need a break from time to time. If she decides to take a long weekend and go on vacation, a formal caregiver can be hired to take her place. Respite care can be received in a nursing home, adult day care, in-home, or in a hospice facility. The insurer will pay the maximum daily benefit for up to 21 days per year on average. The insured does not have to meet the elimination period in order to use Respite Care benefits.

Alternate Plan of Care

Alternate plan of care usually refers to services that are not already clearly defined in the plan. Most alternate plans of care must be approved by the insurer, but would include services designed to enhance quality of life, or designed to keep a person safe in their home for a longer period of time. Examples include a Personal Emergency Service, like LifeLine, or perhaps a wheelchair ramp that would enhance accessibility to the insured’s home.

Caregiver Training

Caregiver Training is useful when an informal caregiver needs to learn how to bathe, transfer, feed, or dress someone receiving long-term care. A licensed or formally trained professional will provide the training to the informal caregiver. This ensures that the care being received is quality care, and is provided in a safe and efficient manner. This training will be paid for by the plan.

Bells and Whistles (The Riders)

Riders can be purchased in addition to the standard long-term care insurance plan and offer flexibility in plan design.

Shared Benefits

Some plans will allow spouses and families to share benefits. One example would be sharing a benefit between husband and wife. In this case, the husband and wife choose an 8-year plan. If he needs to use 6 years of the plan, she will have 2 years left to use when she needs long-term care. A shared benefit plan might be recommended to a couple who have been married for many years and who are roughly the same age.

Survivorship

Survivorship typically means that if both spouses are insured by the same company with no claim having been made in 7-10 years, and one spouse passes away, the other spouse’s plan will be paid up in full. There will be no further premium due for the surviving spouse and coverage will continue.

Return of Premium

Return of premium takes away the fear: “If I don’t use it, I will lose it!” This simply means that if a claim has never been made and the insured person passes away, the premium paid will be returned to the surviving heirs. There are several variations on the theme and each company handles return of premium differently. Pay close attention to contract language in the policy.

Waiver of Premium

In many cases, waiver of premium is a built in feature of a long-term care insurance plan, but in some cases it can be purchased as an extra rider. Waiver of premium means that when the insured files a claim and begins using their benefits, they no longer pay premiums to the insurance company. Usually, waiver of premium goes into effect after the elimination period has been satisfied.

Indemnity

The typical long-term care insurance plan is a reimbursement plan, meaning that the insurance company reimburses the care providers after a claim has been sent in. However some plans now offer an indemnity situation. This type of plan will pay the insured the daily or monthly benefit, and it is up to the insured to pay the care providers. This type of plan is more flexible and usually more expensive. However the insured has more options when choosing a care provider. For instance, instead of using a local home health agency, the insured person may want to pay a son or daughter to care for them. Indemnity plans require that the insured, or their legal representative, makes good choices about care and is able to use the money wisely.

Important Consideration When Choosing a Long-Term Care Plan

Ratings

Financial ratings of a company are important when considering purchasing a long-term care insurance plan. The recommendation is to choose a company with an AM BEST rating of A+ or better.

Assets

Assets of the insurance company should be in the BILLIONS.

Discounts

Some long-term care insurers will allow for group discounts through employers, or “affinity” group discounts through a local organization. Senior clubs and organizations all across America offer discounts from 5%-10% on long-term care insurance. Not all companies permit these types of discounts however there are some discounts that almost all long-term care insurers include in their plans. Those include spousal (or partner) discounts and good health discounts. Spousal discounts are applied when a couple applies for the insurance together.

Discounts of this kind range anywhere from 30-50%. Good health discounts are given when the applicant is in excellent health. Each company has it’s own underwriting guidelines for health discounts. These will range from 10%-15%.

Tax Considerations

Currently there are some tax advantages regarding tax qualified long-term care insurance plans. At the Federal level, premiums for long-term care insurance fall into the “medical expense” category. So if the premium (or the premium plus other medical expenses) is over 7.5% of the adjusted gross income, part of that premium is tax deductible. Below is a table that determines how much of the premium is deductible. Tax payers must be able to itemize in order to take advantage of the federal deduction. It is important to talk to a tax advisor or accountant for that information, as it changes every year.

Next Up: Part 4 VA Aid and Attendance Pension Benefit