Long-term care insurance: The basics

By Mary C. Murphy
NH Mirror Contributor

Long-term care, while not inevitable, is a possibility for millions of Americans. In fact, the American Society on Aging estimates that Americans who are age 65 and older have a 70 percent chance of requiring long-term care.

Long-term care can be expensive. A recent survey revealed that the average annual New Hampshire cost for private nursing home care is more than $100,000. Depending on where you live and what type of facility you choose, the cost may even be higher. Home healthcare, too, can prove to be a significant drain on resources. The New Hampshire average cost of home healthcare is more than $50,000.

The question becomes how do you pay for long-term care when you need it. One answer may be long-term care insurance. Long-term care insurance can provide you with the ability to meet a considerable portion of these costs over an extended period of time.

How does long-term care insurance work?

Typically, a long-term care insurance policy provides benefits if you:

• Require assistance for an extreme cognitive impairment such as Alzheimer’s disease

• Cannot perform a specified number – usually at least two – of what long-term care policies refer to as activities of daily living, such as bathing and dressing.

Most policies pay a maximum daily (or monthly) benefit for a specified number of years, known as the benefit period. This is simply the maximum amount the insurance company will pay for nursing home or other long-term care costs.

Long-term care policies also include a lifetime benefit or the maximum total amount the insurance company will pay. The lifetime benefit is typically calculated by multiplying the daily (or monthly) benefit by the benefit period.

If your long-term care costs are less than the maximum daily (or monthly) benefit, you may receive benefits for a longer period of time than the benefit period. But you will never receive more than the lifetime benefit. Most policies impose an established waiting period, called the elimination period, before any benefits are paid.

What does long-term care insurance cover?

Although some basic policies cover only nursing home costs, long-term care policies generally cover costs for skilled nursing care, intermediate care and custodial care.

You can typically receive this care at an assisted-living facility, adult-care center or at home. Coverage can vary greatly from insurer to insurer and policy to policy. Each policy has its own eligibility requirements, restrictions, and determination of benefits and cost.

How much does it cost?

The actual cost of the premiums you pay depends on several factors, including:

• Your age when applying for the policy

• Your state of health when applying for the policy

• The length of the benefit period and the elimination period

• The types of services offered

• The maximum daily or monthly benefit

• Other policy features such as inflation protection

The features and options of the policy can usually be customized to fit your needs and budget.

What about inflation protection?

Long-term care costs continue to rise. To protect yourself at least partially, you may generally choose from a variety of inflation protection options that offer increased coverage over time. Options vary by policy.

What about Medicare, Medicaid and other medical insurance?

Some consumers decide against purchasing long-term care insurance because they mistakenly believe their medical insurance or Medicare or Medicaid will cover them. Unfortunately, this is generally not true. Traditional medical insurance typically does not cover long-term care expenses.

Medicare may cover medically necessary care at home or at a skilled nursing facility on a part-time or intermittent basis, but, generally, Medicare covers these expenses only after a required minimum hospital stay of three days, and coverage for an extended period is limited.

Medicaid provides certain types of coverage only after people have depleted most of their assets.
Your financial advisor can help you decide whether long-term care insurance is appropriate for your individual situation.

Mary C. Murphy is a financial advisor for UBS Financial Services in Manchester. She can be reached at 626-2913 or mary.c.murphy@ubs.com.

Sources: The American Society on Aging, “Americans Fail to Act on Long-Term Care Protection,” May 2003; Genworth Financial,’ 2007 Cost of Care Survey,’ March, 2007; Genworth Financial, ‘2007 Cost of Care Survey’ March, 2007. Home healthcare costs based on rates for Home Health Aides at $23.93/hour and a 40-hour work week.