Long term Care Insurance - To Buy or Not to Buy?

As baby boomers turn 60, the question of whether to buy long term care insurance becomes more real. Cynthia Saunders, (2007 - now former) assistant professor in the university's department of health services administration, College of Health and Human Performance, is an expert in health insurance. Here she offers some things to consider in making the decision about long term care insurance. Saunders decided to purchase long term care insurance when she was 40.

What is long term care?

Long term care provides benefits when you are unable to do a certain number of activities of daily living, such as dressing, walking and eating, or when you are cognitively impaired. Long term care provides a mix of supportive and medical services, and can be delivered in a variety of places, including a skilled nurse facility, assisted living facility, adult day care center, and/or home. Generally, services should be delivered in the "least restrictive" environment -- one that corresponds to your needs.

What is long term care insurance?

Essentially, long term care covers expenses not paid for by traditional insurance, Health Maintenance Organizations, or Medicare. It enables people to protect their assets and not transfer or deplete them in order to qualify for Medicaid. Long term care insurance is available in the private market, and usually provides a fixed benefit for a specific time period. Policies vary by daily benefit maximum, inflation protection, choice of service site (home or skilled nursing facility), requirements for prior hospitalization, and cancellation features. Some policies will refund the premiums paid if the policy is canceled and some will not. Underwriting criteria are used for long term care insurance with older and/or sicker individuals paying higher premiums.

Long term care insurance is also available through Medicaid, a state-federal program for low-income individuals who must meet both financial and functional eligibility criteria to qualify. In fact, Medicaid pays for 42% of long term care expenses, while private insurance pays for only 9%. In February 2006, Congress passed the Deficit Reduction Act of 2005, which made it more difficult to qualify for Medicaid nursing home benefits. Specifically, the "look-back period" for asset transfers increased from three to five years and excludes coverage for individuals with home equity exceeding $500,000 (or $750,000 in some states).

What should you consider in deciding whether to purchase long term care insurance?

Long term care insurance is particularly important for people who are middle class -- not rich enough to self insure and not poor enough to qualify for Medicaid. Long term care insurance is worth a look, particularly if there are assets to protect.

First, be aware of the costs of long term care. For example, one year of nursing home care in 2006, cost over $65,000 for a semi-private room. Home care is also expensive, with costs averaging $20,000 per year, depending upon the type of care.

When should you think about getting long term care insurance?

Waiting until you are 50 or older to purchase long term care insurance may be recommended by various advocacy groups, although an injury or illness can happen at any time. Coverage is dependent upon current health status, and monthly rates are based upon your age when you apply. Certainly, long term care insurance is less expensive at younger ages. It may be unaffordable if you wait until late middle age.

Consult with tax and insurance advisers if you decide to purchase long term care insurance . Maryland law provides for a one time $500 tax credit at the time you purchase a qualified plan. Currently, there are over 25 companies offering long term care insurance in Maryland .

What determines what long term insurance will cost?

The main determining factors are:

• Age - The risk generally increases as you get older.
• Marital Status - Single people are more likely to need care from a paid provider.
• Gender - Women are at a higher risk than men, primarily because they tend to live longer.
• Lifestyle - Poor diet and/or exercise habits can increase your risk.
• Health and family history also impact your risk

What aspects of the policy will affect the monthly premium?

The daily benefit (which may range from $50 to $500 per day), variable benefits depending upon the site of care, maximum benefits, site of long term care services, and inflation protection. Specifically: The higher the daily benefit, the more expensive the long term care insurance; Receiving services in your home will cost 60 to 75 percent of the cost of skilled nursing facility care; Benefits that are for the remainder of your lifetime are generally more expensive than a fixed dollar amount or specific number of years; Flexibility in the place where benefits are received, called comprehensive policies, is usually more expensive than just one site, such as a skilled nursing facility; Insurance with inflation protection is important given that health costs have been increasing faster than the general rate of inflation for the past several years.

When did long term care insurance begin? Is there any government regulation today?

Long term care insurance was introduced in the 1970's, although it only covered nursing home services. More recently, the market expanded to cover services in the home, assisted living care, and adult day care centers. All insurance products are regulated by the states. In Maryland, go to the home page of the Maryland Insurance Administration for more information on long term care insurance.

What are some unbiased, reliable sources of information on long term care insurance?

The federal government has two websites that may be of assistance - the Department of Health and Human Services and the Administration on Aging . Look at these websites to become familiar with the lingo of the industry and to see what questions are important to ask.

What are the risks and benefits of long term care insurance?

The risk of purchasing long term care insurance is that a premium will be paid for a number of years or decades and no benefits will be received because you don't require long term care services. In this situation, you are paying for peace of mind. The benefit is coverage of long term care services if they are needed. At age 40, I assessed my situation as an active, healthy female with family longevity and decided to purchase group long term care insurance when it was offered by my employer. If I live to 95 years, the investment will be $45,000 over 55 years - much less expensive than one year in a nursing home!

If I get long term care insurance when I'm 60, how can I be sure I'll get what I've signed up for or need when I'm 80?

Continuing to pay your premium throughout the life of the long term care insurance policy is of utmost importance. To protect yourself, premiums should not be paid in cash. Instead, use checks or automatic debit withdrawal. Depending upon the policy, if you lapse for a period of time, generally 30 to 90 days, the policy will be canceled. All of the premiums that have been paid will be gone, and the long term care insurance will no longer be in force. The advantage of purchasing insurance at a younger age is a less expensive premium; this is particularly important as one approaches the retirement age and a fixed income. Also, be certain to examine the financial stability of the insurer. Protection will only be available if the insurer is fiscally sound and investing for the long term. Information about financial stability should be provided annually by your insurer. It also can be found at services that evaluate fiscal viability such as Standard and Poor's and Moody's.

What should be done for people who can't afford long term care insurance?

What about employers offering long term care insurance?

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