How Much Long-Term Care Insurance Coverage Is Enough?

These relentless facts are driving the demand for long-term care (LTC) cost protection nationwide:

• One in three people over 65 will need nursing care.
• Neither private health insurance, Medicare, nor your Medicare supplement will pay for long-term 'custodial care' '“ help with mobility '“ when it is the only type of care you need.
• Only 9 percent of older baby boomers, ages 43 to 52, have thought about preparing for the need for nursing care.
• The cost of long-term nursing home care today averages $40,000 per year, per person. With inflation, that could rise to $97,000 annually by 2030.

The federal government now sponsors group long-term care for its employees and retirees, and Congress has created tax incentives for LTC plans that meet federal guidelines. Still, many considerations are involved in determining LTC coverage that will be adequate for you; there is no 'average' policy or premium. Following are suggestions on crafting a LTC policy that fits your needs.

What does LTC insurance pay for?

Good individual LTC plans pay for skilled, intermediate, or custodial care, including 'homemaker services'--cooking, cleaning, shopping, laundry, etc.--wherever the care setting is appropriate. Payment for homemaker services, as a part of home health care, must be included without restriction. Read the fine print.

LTC plans reimburse custodial care expenses incurred in your own home, someone else's home, assisted living facilities, adult day care, or nursing homes. In addition, top plans will pay non-licensed individuals--even adult children in some cases--to help with home care for a parent or loved one. Policies that pay only for care in a facility, or only for home care, are also available.

Care Coordination

If a policy utilizes 'care coordination,' it often means that the insurer, through a designated or approved individual, will play a 'gatekeeper' role in the choice of services and care providers. Some group policies require that the insurer or group representative approve all services. (Carefully compare low-priced group plans!) The best LTC products rely on a licensed health care practitioners' plan of care for proof of need for, and reimbursement of, care expenses. Look for a policy that offers liberal choice of care providers and minimal carrier involvement.

Maximum lifetime benefit amount

LTC plans can pay the daily benefit amount for lengths of time'“2 years to unlimited--or draw from a designated 'pool of money''”say, $200,000. You can make choices based on your own individual goals and what you are willing to pay for 'peace of mind.'

How much coverage is needed?

If you want to ensure that your legacy will be preserved for your heirs, you might consider a higher benefit amount and 'unlimited' protection. If you are single, or are a couple with a larger 'safe income' (i.e., Social Security, pensions, annuity or conservative investment income, required minimum distributions, etc.) and choose to 'spend your kids' inheritance,' consider a lower benefit amount and limited maximum coverage. And, make sure you factor in the living expenses of the healthy spouse remaining at home.

How is your health?

Most LTC insurers require a health review. Each company has different medical underwriting criteria. They can choose to offer coverage, or not, depending on an applicant's health history. Applicants with health challenges should consider applying to two companies, particularly when an upcoming birthday could increase the cost of coverage. When health is an issue, submitting an application is the only way to verify insurability.

Daily/weekly reimbursement benefit amount

What is the maximum amount the policy will reimburse for the cost of one day or week of care? You select this amount when applying for coverage. Coverage maximums generally range from $50 to $250 per day (or the daily amount times seven for a weekly cumulative total). When reviewing daily coverage amounts, remember to consider your safe income, which can be used to offset potential care costs and thus reduce your premium.

Elimination or Deductible period

This is the number of days you must pay for care yourself before your LTC coverage kicks in. Depending on the policy and personal choice, the deductible can range from 0 days up to a full year. Consider:

1. Medicare pays up to 100 days in a 'Skilled Nursing Facility' only if your condition meets Medicare criteria.
2. In 15 years, the cost of nursing home care could double.
3. Are the days that count towards satisfying the deductible required to be 'consecutive days of service' or simply calendar days? How long do you have to satisfy the deductible days?
4. If couples choose a deductible, remember that it must be satisfied twice'“once for each spouse. Since most couples have only one 'nest egg,' consider the financial impact if each spouse had to pay for professional care for the full deductible period.

Inflation protection

In general, the premium remains the same, and the daily benefit amount is guaranteed to increase over time. Policies might offer simple, compound, or Consumer Price Index (CPI) increases to protect against inflation. Very generally, applicants should consider compound inflation up to their mid-sixties, and simple inflation from the mid-sixties to mid-seventies. Applicants in their mid-seventies and older should consider altering the daily benefit amount rather than buying a built-in inflation factor.

Conclusion

The risk of long-term care and its potential financial impact on you and your family must be considered for complete financial and estate planning. LTC plans that pay for care at home are an excellent way to help you stay in your residence of choice. Considering your 'safe income' to offset some financial risk can have a dramatic impact on the premium; as stated at the outset, there is no 'average premium.' By integrating individually designed LTC insurance into estate and financial plans, and without breaking the bank, you take a large step toward achieving your own financial and personal goals.

David C. Wilbar CSA, CLTC is a former Certified Senior Advisor (CSA) and a charter member for the Corporation for Long Term Care (CLTC).