I was riding around the lake this afternoon and a giant Red Tail Hawk flew within a few feet of me. I’m normally not a huge fan of birds, but there is a small family of the Red Tails that have lived around these parts for years. Their wing span is enormous and their flight is elegant, graceful and majestic. They soar like an Eagle and it’s a beautiful thing to watch them do so. Every time I see one up close, it’s almost a spiritual type of experience in which I can bask in the warm afterglow for a little while afterwards. Well, that sensation is a thing of the distant past, and now I have to write about long-term care insurance. Admittedly, this is a dry subject and sure to put the most inspired caffeine to the test. The reality is that this is an often overlooked, yet critical component of a robust financial and long-term care plan. What may seem like such a trivial and irrelevant decision today will often have life changing consequences, when we least expect them. This is part 1 of 3 and will attempt to identify what it is and lay a basic foundation. We’ll unpack it in parts 2 and 3, in subsequent weeks.
Long-term care expenditures represent a significant financial risk for the elderly. According to the US Department of Labor, long-term care is the greatest uninsured risk Americans face. The 2010 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs helps make this point crystal clear:
Home Care
National average hourly rates: Home health aides = $21.00 Companions = $19.00
Combined national average hourly rate = $20.00 (unchanged from previous year)
Average yearly rate (assumes five hours a day, five days per week) = $26.000.00
Assisted Living
National average base rate = $3293.00 (up from $3131.00 in 2009)
National average yearly rate = $39,516.00
Nursing Home Costs for Semiprivate Room
National average daily rate = $205 (up from $198 in 2009)
National average yearly rate = $74,825.00
Long-term care (LTC) can encompass a wide range of services, from skilled nursing care to unskilled assistance or supervision. Most LTC is unskilled, companion type care, also known as custodial care. Custodial care means assistance with activities of daily living (ADLs) which include bathing, eating, dressing, eating, transferring, toileting, etc. Custodial care also refers to supervision for people with cognitive impairment such a dementia.
The majority of the American public is uninformed about the risks of needing long-term care, the associated costs and who pays for it. Most people believe Medicare pays for long-term care – it does not. It may pay for a portion of skilled and rehab care needs, but only if an array of strict requirements are met. Most health insurance policies for working adults cover only skilled care, not long-term custodial care. Long term disability insurance may cover lost wages during an illness or injury, but it does not provide coverage for the additional costs of long-term care, and it ends at retirement.
Medicaid – the health care component of our welfare system, does not cover long-term custodial care costs. It is primarily used for nursing home care and is typically available only to those who have exhausted all their other assets.
The only other options are private pay (out-of-pocket) or purchasing long-term care insurance. The major reasons people choose to buy long-term care insurance (LTCI) are:
- To maintain independence – both physical and financial.
- To retain control – manage the quality of care and choose how and where care is received.
- To not become a burden to family.
- To preserve assets and income.
Only 10 percent of the elderly have a private long-term care insurance plan, and because coverage under these plans is often limited, only 4 percent of long-term care expenditures are paid by private insurance, while fully one-third or more of expenditures are paid out-of-pocket. The difference between the care available to those with coverage and those without, all else being equal, can be enormous, and often appears extremely unfair. I believe many of my parents’ generation did not buy coverage, but feel their children will, as we witness the financial chaos and destruction, including potential bankruptcy, brought on by a combination of unexpected illness and lack of a well conceived plan to foot the bill. Everyone has a horror story how of how such an unexpected calamity wreaked absolute havoc on the ill-prepared. I’ve seen it up close, and it’s both devastating and permanent for everyone involved.
Unfortunately, the insurance companies are not exactly giving away this coverage. It’s expensive, which is why so many folks choose to self insure, or to not purchase LTCI in the first place. Some of the major factors that determine the cost of a long-term care insurance policy are:
- Applicants age at time of purchase.
- Applicants current health and history.
- Preexisting medical conditions.
- Smoking history.
- Weight, height, etc.
The cost of waiting is also very significant, to say the least. The major reason people don’t buy LTCI is they don’t understand the need to plan for their long-term care. Waiting to purchase LTCI could result in not being insurable as a result of health issues at the time of application. Since these policies are medically underwritten, and conditions such as Parkinson’s disease, Alzheimer’s disease, or diabetes can prevent insurability, waiting can at times be a very costly mistake.
Next week in Part 2 of 3, we’ll take a peek at the various types of policies, what is typically covered and what is not. The following week, part 3, we’ll look at new and innovative developments, price ranges and discuss the LTC market as a whole
Tags: assisted living costs, home care costs, long term care, ltc, medicaid, medicare, planning for long term care, skilled nirsing costs
