LTC (Long Term Care) Insurance: Risks and Benefits

What Is Long-Term Care?

Long-term care includes nursing homes, assisted living facilities, and memory care centers. Long-term care facilities provide support for older residents needing assistance with one or more “activities of daily living,” or ADLs. As people age, daily routines become more difficult. Recently widowed individuals living alone for the first time in decades may need help working through grief and related mental health issues.

Long-term care facilities provide assistance, in varying degrees, in the six essential ADLs:

• Bathing and grooming
• Personal hygiene
• Eating and drinking unassisted
• Dressing, including donning medical devices or prosthetics
• Transferring and mobility
• Continence

As the level of care increases, so does the cost. Assisted living facilities can cost more than $15,000 per month, even without high-level medical support. Without a long-term income or deep reserves, residents may have difficulty sustaining the cost of top-quality care.

Long-Term Care Insurance

Medicare covers inpatient hospital stays, hospice and home health care, and healthcare services such as lab tests. Medicare has additional coverage (parts B, C, and D) that includes prescription drug coverage, medical equipment, and ambulance transportation fees.

Medicare Supplement Insurance, or “Medigap,” covers out-of-pocket expenses not paid by the policyholder’s primary insurance. Medigap pays deductibles, copayments, and other costs. Most older individuals will have all their short-term medical expenses covered between Medicare and private insurance.

Long-term care insurance reimburses the purchaser for the costs of care. Issuers offer a range of policies depending on the purchaser’s age, needs, and geographic location. Some policies are time-limited and only cover your care for a few years. Others will pay out for the rest of your life. The long-term care insurance market has declined recently, and most policies have some limits.

Do I Need Long-Term Care Insurance?

Not everyone qualifies for long-term care insurance, and others may not need it. Common reasons for denial of insurance include:

• Mental or nervous disorders, except for organic brain disorders
• Long-term care for drug addiction or alcohol dependency
• Attempted suicide or self-inflicted injuries
• Receiving government payment for care and treatment

In general, agents determine who qualifies for insurance on a case-by-case basis. A medical condition that already impacts one or more ADLs may lead to denial of coverage. Other policies may have additional exclusions or waiting periods before becoming effective.

LTC insurance is not part of your primary care insurance. Your choice of care facility may impact your ability to access your current health care provider. This means that before selecting insurance and a residential facility, ensure your health care professionals are covered and can treat you at the location.

Factors to Consider When Buying LTC Insurance

A long-term care insurance plan (LTC insurance) is often expensive. Even after enrollment, premiums can still go up. The Health Insurance Portability and Accountability Act (HIPAA) allows policyholders to deduct premium costs based on their age. Because of this, aging plays a role in the cost of the premiums and possible annual increases. Other state and federal laws may also impact the cost.

According to the U.S. Department of Health and Human Services (HHS), the average cost of long-term care insurance is $2200 per year. This may not seem excessive until you remember you may have a fixed income, and the insurance premiums are subject to increase. You may also have other medical costs and living costs to deal with.

Some things to think about when purchasing LTC insurance include:

• Age: HHS estimates that about 70% of Americans 65 and older will eventually need some type of assistance. Although it’s hard to know what your needs will be as you age, your premiums will be lower if you are under 65.
• Health: A preexisting health condition is not a complete bar, although it may raise your premiums. More concerning is a condition that limits one or more ADLs. Consider your family history as well. Are you at risk for genetic illnesses later in life?
• Income​: Medicare does not cover nursing home care, so you may need to consider other options both now and in the future. Medicaid, a separate joint federal-state program for low-income individuals, provides some coverage and covers long-term care for those who qualify.
• Family members and friends​: In-home health care is an alternative since Medicare pays reimbursement for home care. LTC insurance may be unnecessary if your relatives can assist with some of your health care services.

Other Options for Long Term Care

Insurance companies encourage potential enrollees to get LTC insurance, pitching it as a necessity. If you are in their target age bracket and in good health, expect to hear insurance agents extoll the benefits of long term health insurance coverage when you purchase or renew your existing health benefits package.

If you want long term care but aren’t sure about long term coverage, there are other alternatives you can consider. Review your options with an attorney, financial planner, and any involved family members while keeping the following in mind:

• Savings and investments: If you have a substantial stock portfolio or other financial assets, you can pay for your expenses out of pocket. This option gives you maximum flexibility and freedom to pick and choose your living facilities. The downside is the costs may burn through your savings.
• Medicaid programs​: The opposite of using savings, state Medicaid programs pay up to 50% of nursing home costs, leaving you with much lower expenses. The drawback is that this limits your choice of Medicaid-approved healthcare facilities.
• Use your life insurance policy for cash: Some policies allow policyholders to use part of their policy for medical expenses and long-term care (“accelerated death benefits”). Some benefit plans allow you to sell the entire policy for its cash value, a so-called life settlement. The downside to this option is you lose part or all of the policy’s value.
• Buy an annuity​: If you have the funds, buying an annuity can give you a steady income to pay for long term care for the remainder of your life. There is no real benefit to an annuity over an insurance policy, but you can buy an annuity regardless of your age or health.
• Consider group health insurance: If you’re still employed, ask if your existing carrier or HMO has long-term care coverage. If so, opt-in during the next enrollment period. The advantage of a group health plan is you cannot be denied, regardless of any preexisting condition. If you leave the job, you should be able to continue your coverage through COBRA.

Have Questions About LTC Insurance? A Healthcare Attorney Can Help

The decision to purchase long term care insurance depends on many different factors. You may also have questions about state laws and health regulations. Reach out to a healthcare attorney to learn more about ways to plan for your future.