Long-Term Care Insurance: Are You Covered?
Before I left the Assisted Living world, our company was seeing more and more residents who had long-term care insurance policies. Like all products managed by actuaries, you know that the odds are typically stacked against you when it comes to the consumer coming out on top. I found it odd though, that with long-term care insurance, the “consumer coming out on top” meant that they were either not safe enough to live at home or they had some sort of terrible disease such as Alzheimer’s disease or another form of dementia.
But the question remains, in the age where we are all living longer, with more diseases, and healthcare expenses continue to rise at rapid and unsustainable rates, can we afford not to have long-term care insurance? In order to understand, you must educate yourself. That’s why I spent some time researching long-term care this weekend and felt I should share what I learned.
First, long-term care isn’t offered in many countries outside of the United States; research showed that Canada and the United Kingdom were represented as well. Long-term care insurance covers care that typically is not covered by Medicare, Medicaid, or private health insurance benefit periods. Being relatively young doesn’t necessarily mean that you shouldn’t consider long-term care insurance – about 40% of the individuals receiving long-term care today are between the ages of 18 and 64. The remaining 60% receiving care are over the age of 65.
Traditional healthcare is insured based on specific illnesses or conditions, like having the flu or breaking your arm after falling down the stairs. Long-term care insurance doesn’t follow that “traditional” sense; you are insured based on your ability or inability to perform Activities of Daily Living (ADL’s) such as bathing, grooming, dressing, transferring, incontinence, walking, and dining independently. Your ability to find long-term care insurance coverage may change based on changes in your personal health condition. Just like not being able to insure a car immediately after you get in an accident, don’t expect to get long-term care insurance if you’ve just been diagnosed with an illness that will affect your health as you continue aging.
A study by America’s Health Insurance Plans in 2007 (download the document here) found that long-term care insurance rates are really determined by 5 factors:
- The person’s age
- The daily benefit
- How long the benefit pays
- The elimination period
- Inflation protection
So what does long-term care insurance cover? Think about all the types of care that follow a traditional hospital stay. Long-term care insurance can cover assisted living costs, non-medical home care, adult day care, memory care, or hospice care, among other services. There are really two main types of long-term care insurance: tax qualified and non-tax qualified plans. Tax qualified plans, which are the most common type of insurance coverage, require that the holder of the policy require care for greater than 90 days and need substantial assistance with more than two activities of daily living. These plans also include coverage for individuals needing care with significant cognitive impairment. In both cases, a doctor must confirm the policy holder’s plan of care before funds are released.
As the name indicates, the benefits from this type of policy are not taxable. In a non-tax qualified plan, the “trigger” for payment is based on medical necessity as deemed by a physician. These are the more traditional long term care insurance policies, and aren’t often offered these days. There is a risk that the policy holder will be held liable for the taxes on benefits received from a non-tax qualified plan. You can read a lot more about long-term care policies on the Texas Department of Insurance website by clicking here.
Most policies have a gap between when care is needed and when the policy begins being paid out. This gap is the elimination period. During this time, the policy holder covers the cost of their care and can vary from 20 days to 120 days, depending on the policy.
So, just like all other care policies, long-term care insurance may, or may not, be right for you. The best thing that you can do as a consumer is do the best to take care of yourself now and in to the future. Keep working on living a healthy lifestyle and start getting informed on whether or not long-term care insurance is a good option for you. If you have a loved one at an assisted living, know someone who receives home care, or have an aunt with dementia visiting at an adult day care every day during the week, I encourage you to reach out to the managers of these locations. They may be able to point you in the direction of great local resources when it comes to long-term care. Regardless, the best way to make sure you are covered is to learn as much as you can on the subject. By reading this post, you’re already heading one step in the right direction!
For more information on this topic, be sure to also check out these Five Things to Know About Long-Term Care Insurance in our Caregiver Resources section.