What Is Long Term Care Insurance: Your Ultimate Guide

Old age is what needs most of the care from other people. Long-term care or sometimes called “custodial care” or “personal care”, is provided to the people who live independently. The services can be provided at home, in a community program like an adult day care center, in an assisted living facility licensed as a Residential Care Facility (RCF) or a Residential Care  Facility for the Elderly (RCFE), or in a nursing home.

Long-term care is always not for a long term as some people only need it for a few months, for example, a person may need care while recovering from a broken hip at home, while others may need it for the rest of their life due to cognitive impairment, disease, or just old age. Not everyone needs long-term care insurance, as a matter of fact, there is no way to predict how long you need care and for what reasons.

Your personal risk of needing long-term care depends on a variety of factors. Some of those include how long you may live, your health history, and whether you have a spouse or family members who care to look after you but if you feel you have a greater risk, you may consider applying for overage while you are still able to qualify. But first, you need to understand what is long-term care insurance and how it works.

Understanding long-term care insurance

Traditionally, long-term insurance may provide sound care in a nursing home. But contrary to that, long-term insurance includes an array of services for the policyholders for limitations in their ability to live independently. It encompasses compensating medical needs, as well as social, financial, and housing needs. It can range from providing assistance with household chores to assistance with activities of daily living to highly skilled medical care.

In other words, long-term care insurance is all-encompassing that may be provided in a variety of settings such as the home, community sites (adult daycare centers), or nursing homes. The type and setting of the insurance, however, depends on the particular needs of the policyholder. Those with physical illness or disabilities need hands-on help with basic activities of daily living called “ADLs” including eating, bathing, toileting, dressing, continence, and transferring.

On the other hand, policyholders who are cognitively impaired usually require supervision and regular verbal reminders to perform daily activities or stay out of harm’s way. For those who need skilled care, it is provided on a doctor’s order by medical personnel such as a professional therapist, or registered nurse. Although it can be provided in nursing homes, a person can get the service at home by visiting therapists and nurses.

Personal care, also known as “custodial care” is provided to help people perform ADLs but it is not as intensive as skilled care and does not require the services of a medical professional. Personal care, however, may be provided in multiple settings such as the policyholder’s home or adult daycare center.

Why plan long-term care?

A study from the Urban Institute and the U.S Department of Health and Human Services states that about 70% of Americans who reach age 65 will need some long-term care during their remaining years. Although some of the elderly population gets unpaid care from family members or others, nearly half of them will need some kind of paid assistance. The study shows, about 24% will need more than 2 years of paid care while 15% will spend more than 2 years in nursing homes.

The cost of the care is not static but depends much upon how long you require it, where you live, and how intense your needs are. Some people may have traditional health care, but they usually do not cover long-term care beyond some skilled care right after hospitalization for an injury or illness. Some Medicare Advantage, from private insurers, offer supplemental coverage for services such as meal delivery and rides to medical appointments, but it is limited anyway.

Veterans may have access to long-term care through the U.S Department of Veterans Affairs. But the largest single funding source is Medicaid; a joint federal and state program that covers low-income Americans. The income limits however vary from state to state, but you can’t get Medicaid unless you exhaust most of your savings and other assets beyond your primary home and vehicle to get it.

In this scenario, many people think about a middle way to how they can plan for long-term care expenses in a way that protects their retirement savings and lets them get the kind of care they need. And that’s where long-term care insurance makes much sense, though it is a viable solution but not the only one.

Ryan Graham, a senior financial adviser at Altfest Personal Wealth Management in New York City says “Everyone needs a long-term care plan, that doesn’t mean everyone needs long-term care insurance”.

Traditional long-term care insurance

In simple words, traditional long-term care policies work in a similar fashion as auto or home insurance. You have to pay premiums, usually for as long as the policy remains in effect, and make claims whenever you need the covered services. You have the option to choose a little coverage or a lot to help pay for services in or out of your home.

Typical policies will spell out vividly how much you can receive daily or monthly, up to a lifetime maximum or a certain number of years. There may be different amounts being charged for services at your home, nursing home, or elsewhere. You pay extra for benefits that rise over the years to protect you from potential inflation.

You also get to choose from policies with different waiting periods between the time you start needing care and when benefits kick in. In normal circumstances, a typical waiting period is 90 days, but you can pay more to get benefits after 30 days or pay less to accept a 180-day delay. In a similar way, you have to pay more for a policy that pays out $200 a day, lasts five years, and grows benefits at a compounded 3% per year than you would for one that pays $100 a day for two years with no inflation protection.

What is included in long-term care insurance?

There are a variety of long-term care services in the Commonwealth that are regulated and monitored by a state agency in each state. Listed below is a brief description of each of the services and what organizations can be contacted to access their services. Each service, however, has different medical, financial, and functional eligibility requirements.

Services in the home

Chore services

Non-medical services that are provided in an individual’s home to help continue independent living include: washing floors and walls, vacuuming, defrosting freezers, cleaning attics and basements to remove fire and health hazards, changing storm windows, performing heavy yard work, making minor home repairs, and shoveling snow, etc. You can contact your local Aging Services Access Points (ASAP) through the Executive Office of Elder Affairs.

Personal care

Non-medical services to help with activities of daily living, including assistance with bathing, dressing, foot care, bedpan routines, and care of dentures, shaving and grooming, assistance with eating, and assistance with moving around the home and getting in and out of bed or a wheelchair. You can contact your local ASAP through the Executive Office of Elder Affairs.

Home care

Non-medical services designed to maintain an individual’s ability to live independently including shopping, preparing meals, planning menus, laundry, home delivery meals, and lighthouse cleaning and maintenance including dusting, vacuuming, dry mopping, cleaning kitchen, bathroom, dishwashing, and changing beds. You can contact your local ASAP through the Executive Office of Elder Affairs.

Home health care

Skilled medical and other services such as nursing, physical therapy, occupational therapy, speech therapy, and home health aide services, are supplied by certified home health agencies and other professionals to help individuals to remain home. To get the services, you can contact your local ASAP through the Executive Office of Elder Affairs or contact the Home Health Care Association of your state.

Specialized home or facility services

Respite care

Medical and non-medical services to temporarily relieve caregivers of the daily stress and demands of care for a family member are provided in the policy. Respite could be for a few hours or a few days, depending on the needs of the person and the resources available. In addition to home care, home health care, and personal care, respite care services may include short-term placement in adult foster care, nursing facilities, and assisted living facilities.

Hospice care

Medical services with an emphasis on providing comfort and pain relief for those who are terminally ill are provided under hospice care. To access the services, you can contact Medicare or the Hospice Federation of your state.

Services in a community setting

Social day care

Non-medical services are designed to encourage physical and mental exercise and stimulate social interaction. Services included are suited to the needs of participating with training, social services, and counseling in a community setting, including assistance with walking, eating, grooming, and planned educational, recreational, and social activities. You can access the services by contacting your local ASAP through the Executive Office of Elder Affairs.

Adult day health

Medical and other services allow frail elders to remain in the community while coping with medical conditions, chronic debilitating illnesses, or diseases that need careful intervention and monitoring. Services that are included are social and rehabilitative services, therapeutic, nutritional, as well as support and education for participants, families, and caregivers. Along with ASAP, you can contact the Division of Medical Assistance.

Adult foster care

Mostly non-medical services provide room, board, and personal care in a family-like setting to individuals who cannot live alone safely. Services include assistance with activities of daily living, companionship, host family training, and monthly nurse and social worker visits to monitor placements. The services can be accessed through contacting ASAP.

Dementia day care

These services include non-medical services in a structured, secure adult day program for individuals with dementia (Alzheimer’s Disease or a related disorder) to maximize their functional capacity, disruptive behavior, reduce agitation, and the need for psychoactive medication, and enhance cognitive functioning.

This helps a person with dementia to stay in the community, provides the caregiver with respite from caregiving responsibilities, and includes support and education for participants, families, and caregivers. The services can be accessed via ASAP through the Executive Office of Elder Affairs.

Services in a facility assisted living

These services include independent housing that provides room, board, and personal care, as well as a range of services such as social, education programming, and case management.  Individuals have the option to transform from completely independent housing units to extensive personal care within the same facility.

Some assisted living facilities have designated units for people with Alzheimer’s disease. You can access the services by contacting the Executive Office of Elder Affairs, your state’s Assisted Living Facilities Association, or the Extended Care Federation.

Nursing homes

This facility is licensed by the Department of Public Health which is primarily engaged in providing nursing care and related services on an inpatient basis for short and long-term care stays at skilled, intermediate, or custodial levels of care. You can contact the Department of Public Health, the Executive Office of Elder Affairs, or the Extended Care Foundation of your state.

Continuing Care Retirement Communities (CCRCs)

The service includes housing, personal care, and health care in one location. Although the arrangements vary on a wide spectrum, individuals usually pay privately through an initial investment and then monthly service fees for a variety of services ranging from assisted living to nursing home care. The services can be accessed through the Executive Office of Elder Affairs or the Extended Care Federation of your state.

Waiting periods

A waiting period for long-term care insurance works like a deductible which is also known as elimination or deductible period. It is the amount of time before a policy could start extending its benefits after someone is eligible to receive them. The price of the policies varies depending on the duration of the waiting period. Some people choose not to have a waiting period, so their policies start paying the benefits once it is finalized.

On the contrary, other people choose to pay for the first 30, 60, or 90 days of their care, so the benefits of their policies begin paying benefits after the waiting period has expired. Some companies sell their policies with a specific dollar amount as the policy deductible rather than a waiting period. With these policies, benefits begin once the policyholder has met the benefit trigger for care and paid for that amount of your care.

Some companies only count the days you receive paid care against the waiting period, called the service day waiting period. Others take into account every day from the first day a person becomes eligible for and receive care, called the calendar day waiting period.

In some cases, companies require you to meet this waiting period only once in your life while others require you to meet it within a specific number of days or months, or each time you qualify for benefits and need LTC assistance. The care received from family members is not counted by some companies as part of the waiting period.

Be sure you completely understand how the company calculates the waiting period for the policy you plan to receive. Otherwise, it can be very expensive both now and in the future. If you choose a 30-day waiting period, and the company only counts each day you receive care toward the waiting period, the number of days before the policy begins paying the potential benefits may be longer than you expect.

For example, if you choose 3 days a week waiting period for home care, it could take 10 weeks, or 70 days before you meet the 30-day waiting period. If you want care in a nursing home, you would need to pay for the first month of care. But note that the cost for nursing home care increases each year due to inflation.

Insurance agents

Most insurance agents who provide their services are professional, well-trained individuals who do not unnecessarily pressure individuals to make a purchase decision before you are ready. When deciding to buy LTC insurance, try to consult a trusted agent because he would help you if you want to change any benefits later in your policy, rate increase or you need to file a claim.

The agent should be easily reachable and able to answer questions about the policy even after years you buy it. While working with him, if you are not comfortable with his services, you can consider finding someone else as many of the agents are independent, paid by commission, and are not salaried employees of a specific insurance company. Make sure that the agent should have:

• Up-to-date LTC insurance training
• Work for an established local business
• Take the time to answer all your questions

Once you finalize the policy, ask your agent to carefully review all the provisions of the policy and be sure you understand each of them. You can examine the new policy up to 30 days from the day you receive it and get back any premium you paid, in case you no longer want the benefits of the policy. You should take advantage of this time to get any help to understand how the policy works and what are the requirements.

Agents are required to provide you certain information about the long-term care policies, such as:

• A completed Personal worksheet
• A buyer’s guide “Taking Care of Tomorrow”
• Specific contact information about how to reach your local HICAP office
• An outline of coverage that summarized the benefits and conditions of the policy
• A replacement notice if you are replacing an existing LTC insurance policy

The Personal worksheet is a document that includes the company’s past rate increases and inquires about the LTC planning. The questions for inquiry concern income and asset information, so that the company can make sure that you are eligible to purchase LTC insurance.

Any part that you are not comfortable telling your agent, you can refuse to fill that part of the worksheet. The company will later contact you to make sure you left that part of the form as your own choice. As you finalize the worksheet, the agent should give you a copy, send one to the company, and keep one copy to his/her office files as proof that you received the policy.

How much does long-term care insurance cost?

The rates of the long-term care policy insurance depend on a variety of things such as:

• Your age and health: the older you are and the more health problems you have, the more you have to pay to buy the policy.
• Gender: As the study suggests, women lie longer than men, they generally pay more and have a great chance to make long-term care insurance claims.
• Marital status: Married people pay lower premiums than single people.
• Amount of coverage: The individual has to pay more for richer coverage such as cost-of-living adjustments to protect against inflation, higher limits on the daily and lifetime benefits, shorter elimination periods, and fewer restrictions on the types of care covered.
• Insurance company: Different companies offer different prices for the same amount of coverage. That’s why it is important to compare quotes before planning to buy a policy.

Given all of these elements, if a single 55-year old man in a good health plan to buy new coverage can expect to pay an average amount of $1,700 for a year for the LTC policy with an initial pool of benefits of $164,000, stated by the index from the American Association for Long-Term Care Insurance. Those benefits accumulate annually at 3% to total $386,500 at the age of 85.

For the same policy coverage, a woman can expect to pay an average amount of $2,675 a year. While average combined premiums for a 55-year old couple are $3,050 a year. Note that prices are not guaranteed to remain the same over your lifetime and they can change over some period of time. Many individuals saw the increased prices in the past several years after insurance companies asked state regulators for permission to hike premiums.

They managed to justify the price hike because the cost of claims overall was higher than they had projected. Regulators approved the rate increases because they wanted to ensure that companies don’t fail to pay and have enough money to continue paying the claims.

How much could long-term care cost you?

Nursing home care is the most intensive and expensive form of care. In 2014, an average private patient would approximately pay $361.77 a day to stay in a Massachusetts nursing home. A recent study suggested that the average length of stay in a nursing home was 272 days, while some stayed more than one year. With $361.77 per day, the average annual cost for staying in a nursing home exceeds $132,000 or in some cases $150,000.

Assisted living is another form of facility-based long-term care. On average, if you live in a single-occupancy assisted living studio apartment, the cost of assisted living, including the cost of food, rent, heat and electricity, and many services such as personal care, meals, and laundry, housekeeping, would range approximately $2000 per month to more than $7,000 per month or from $24,000 to $85,000 a year.

The cost of long-term care services provided outside of a nursing home varies because of the service, as well as the intensity and duration of the service. For instance, in 2014 if you received 2 hours of skilled care from a nurse in your home three times per week for a year, $31,200 annually or an average of $200 per day of care.

If you receive 2 hours of personal care from a certified home health aide in your place three times per week throughout the year, the annual cost could reach $9,360, or an average of $60 per day of care. If you receive 2 hours of personal care from a personal care aide/homemaker in your home three times per week throughout the year, it could cost you $7,800 or an average of $50 per day of care.

Note that all the mentioned figures are subject to inflation. Know that if long-term care costs were to increase by 5% annually, the overall cost would double in approximately 15 years. Check the current rates of the policy as you plan to buy one and make sure the rates are manageable after comparing it with others.

Who pays the cost of long-term care?

There are multiple sources through which the long-term care is being paid, such as:

Medicare

Medicare pays for skilled care in nursing homes for those patients who fulfill all the Medicare requirements. They pay for a short period of time but no longer than 100 days. People want to get personal care services at the same time but Medicare does not pay unless there is also a need for daily skilled services that only a therapist or nurse can provide.

They may also pay for some personal care services at home only in case you also need skilled care on a daily basis which can only be provided by a licensed person. For gaining more knowledge, you can see the Medicare benefits book available from your Social Security office or by calling the Social Security Administration at 800-772-1213.

Medi-Cal

Also called Medicaid, it pays for necessary health care that is not covered by Medicare but only in case you meet the necessary federal and state poverty guidelines. If you look for Medi-Cal support, you can find details from your local county Department of Social Services, legal services program, or an elder law attorney.

It is mostly believed that traditional health insurance and Medicare cover most of the amount, but contrary to popular belief, traditional health insurance, and Medicare usually provide little or no coverage for long-term care. Currently, most people who need long-term care services must pay for it on their own unless:

• They are or become eligible for Medicaid or other government assistance
• They have long-term care insurance policies with benefits for the services they need

Personal resources

They are the most common source of paying for long-term care expenses by the people. People collect these funds from personal income and resources. When family members and friends provide the care at home, necessary skilled care such as transportation, equipment, and other costs not paid by Medicare, are also paid by the patient’s savings and personal income. People using their assets to pay for long-term care may become eligible for Medi-Cal as a result.

Long-term care insurance

The insurance is designed to cover the costs of long-term care and reimburse payment when the policyholder needs it. However, it is very important to understand the coverage provided and how benefits will be extended before you purchase the policy. You can get long-term insurance from your local insurance companies as they may be cost-effective for you if you have sufficient available income to pay the premiums.

How much do insurance policies reimburse for long-term care?

The daily maximum

It is important to know the coverage provided and the amount to be reimbursed for the long-term care before you purchase the policy. If you decide to purchase the insurance policy, you will select a maximum daily benefit. It is important to note that the minimum home care daily benefit you can select is $50 a day. There is no minimum daily benefit for facility care.

Selecting the daily maximum

For the expenses which are not being paid or reimbursed by the insurance policy, the person himself pays the expenses. So, you need to decide how much of the daily cost of care you may need to pay yourself. Estimate the daily cost of long-term care in your community and minus the amount you can afford to pay for each day of your care. Remember to get Inflation Protection for your insurer to keep up with the annual increase in the cost of care due to inflation.

The maximum lifetime benefit

The maximum lifetime benefits would determine the approximate number of years you want the policy to provide benefits to you. The longer the period of coverage you choose, the higher the premium would be. The maximum lifetime benefit is computed by multiplying the daily maximum benefit you select by the approximate number of days you want benefits to be reimbursed.

Selecting the maximum lifetime benefit

There is no way to predict exactly how many days or years of long-term care a person will need or the reason they will require care. People who can afford to choose the lifetime coverage but those with limited financial resources quickly qualify for Medi-Cal. Choosing the right amount of benefit depends on the premium you can easily afford, and the assets you would otherwise have to spend.

Choosing an insurance company

There are a good number of insurance companies out there, that might confuse you to decide upon one. You may find that the price for the same amount of coverage is different with different policies offered by many companies. So, you need to look for certain things before concluding which company you should look forward to.

The company’s financial standing and track record are important in choosing a long-term care insurance policy. Before purchasing their policy, consumers should consider the rate increase data included in this rate guide along with several other important factors, such as:

Financial standing

A company’s size and ratings are important factors to take into consideration when making your long-term care insurance choice. A company that is in a stable financial position would back your needs. On the contrary, if a company is going through a tough financial situation, you may find it difficult to put your trust in it.

Underwriting philosophy

A company that carefully evaluates your health, puts effort into ensuring good services. Long-term insurance companies that use firm and consistent underwriting standards, have more stable premiums over the long run. This way, they remain careful about the risks they accept and are likely to have more predictable claims results.

It is important the company carefully reviews the health history of the individual, the results of his telephone interview, or a face-to-face assessment, and then makes an offer of insurance based on these results. “Easy-issue” means that a company issues insurance to people who already have serious health conditions and will definitely need long-term care. Such a practice may result in higher premiums for everyone who bought insurance from that company.

You get what you pay for

Different companies offer different rates for the same type of policies. If a policy looks ‘cheap’, it probably would be. Long-term insurance has many optional benefits and nuances that you should discover before buying the policy. Work with a long-term care insurance agent who asks good questions and works with your personal situation to design a benefits package that suits your needs.

Group self-insured plans

Long-term care insurance offered on a group basis does not necessarily hold the same strict consumer protection provisions that apply to individual long-term care insurance. Working with a long-term care insurance agent would help you determine your priorities so that you can make the best choice for your long-term care needs.

Longevity in the LTC insurance business

Compared to other insurances, long-term care insurance is a relatively new product. While there are a handful of companies that have been selling LTC insurance for a decade or more, there are many companies that have recently entered the marketplace. So, some companies have a longer experience in this field than the others, so it’s better to go for the more experienced one as they would help you choose a better option.

Conclusion

Long-term care insurance is relatively a new product that provides assistance or supervision when a person is not able to do some of the basic activities of daily life (ADLs) that generally include eating, bathing, dressing, continence, or moving from a bed or a chair. One might need care in case he suffers from an injury like a broken hip, an illness, a stroke, or from advanced age or frailty.

Other people also need long-term care who may suffer from mental deterioration called “cognitive impairment” that can be caused by Alzheimer’s disease, other mental illnesses, or brain disorders. There are many companies that provide LTC insurance, with different types of coverage. You should work with a long-term care insurance agent who’ll have experience in the field and will help you determine what type of insurance you should take.