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August, 2002 |
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ABOUT FSO |
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About NAIFA |
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The basic idea of L.T.C. insurance is simple. In its simplest form, this insurance helps cover the risk of financial loss resulting from placement in a nursing home, at an annual cost of $35,000 - $50,000 (and much higher in many areas) in 1997. Some very important "bells and whistles" make it more complicated. L.T.C. insurance can make sense for people over 45 years old with assets of $100,000 to $2 million (maybe more for a couple). These people wish to avoid the increasing uncertainty of Medicaid. They also want to leave an inheritance, rather than risk depleting their estates on private-pay long term care. L.T.C. insurance is not for everybody, but there is one criticism that makes little sense: "I don't want to pay for something I might not use." That is quite understandable, but let's be consistent. How many of us would go without fire insurance, for example? Yet the risk of requiring costly long term care is vastly greater than that of a devastating house fire. Still relatively new, about 120 companies now offer L.T.C. coverage. Many have left the field. The industry is experiencing a "shake-out" and consolidation among those insurers with a long term commitment to a long term product. Many policies issued more than a few years ago have some very undesirable features, such as requiring a prior hospital stay before nursing home admission, or excluding coverage for Alzheimer's. Financial planners have criticized L.T.C. insurance in the past, for these and other good reasons. Today's policies, however, are much better and deserve a look. There is now a "Model Act" to use as a standard in regulating L.T.C. insurance policies. It is a pro-consumer "law" developed by the Health Insurance Association of America (HIAA), only as a guide for states to use in drafting their own legislation. The model law has 28 separate provisions, on features and benefits recommended for state adoption. The HIAA has done a state by state compliance analysis showing what model provisions have been enacted where you live. If your state has not mandated the more important of these guidelines, you should be extra studious in comparing a proposed L.T.C. policy to the important features examined later. Some life insurers allow policyholders to tap death benefits in cases of terminal illness or the need for long term care. The policy might cost 5% to 15% extra, for the option to get 25% to 100% of the death benefit in advance. Living benefits can be useful for people unable to get other types of long term care insurance because they cannot afford it or are already in poor health. Usually, though, a straight long term care policy is a better deal. Benefit Basics Insurance companies offer a choice of daily benefits to be applied toward the policyholder's nursing home bill. The choices typically range from $60 to $120 or $150, but the patient is responsible for any remaining actual charges, if higher. A few policies set no daily benefit, but instead have a lifetime dollar maximum to be used as needed. Insurers offer coverage for nursing home stays of two - six or more years, or lifetime coverage, with no limit. Not all options, of course, are offered by every company. F.Y.I. Published estimates of the "average" nursing facility stay range from 450 days to 2.5 years. The American Association of Retired Persons (AARP) estimates the average stay is 2 1/3 years, with 55% staying one year and 21% for five years or more. According to a U.S. Census Bureau report, about 22% of people age 85 and older live in nursing homes, and 45% need help with daily activities. According to the Federal Agency for Health Policy and Research, half of all women and one third of all men who reach the age of 65 will later spend time in a nursing home. Benefits can start as soon as the policyholder enters a nursing home, or they can begin after a "waiting," "elimination," or "deductible" period - usually of 30, 60 or 90 days. You might save about 15% on the cost of a policy with a 90 day waiting period, compared to one that begins paying benefits on the first day. All new L.T.C. policies are either "guaranteed renewable" or "non-cancelable". "Guaranteed renewable" means that coverage must be continued as long as you pay the premiums. You cannot be singled out for a rate increase, but rates can go up for a whole class of insureds. "Non-cancelable" is not common. It means that your coverage and current rates are guaranteed. Most policies have "level" premiums. The age of the insured when he/she applies for coverage determines the annual premium to be paid. Thereafter, the premium is "not supposed to" rise with the policyholder's age. However, premiums can go up if an insurer experiences more claims than it anticipated. The L.T.C. insurance market has matured, so that virtually all NEW policies sold:
Fortunately, the trend
in L.T.C. insurance is toward benefit flexibility in covering home health, alternative
and adult day care, as well as traditional nursing home placement. Matching the benefit
to the customer's needs and desires is a "win/win" situation. It is cheaper
for the insurance company to pay to keep people close to (or at) home, providing
only the level and amount of care really needed. Most people, of course, would prefer
this anyway.
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