Guide to Long Term Care Insurance
Many seniors may eventually find themselves needing to move into an assisted living facility or nursing home. Usually, it’s due to health problems that make living alone more difficult and less save. These can be physical or mental, with neurological conditions like Alzheimer’s and stroke sequelae being many people’s reason for needing long term care.
Assisted living provides residents with help from staff for all kinds of basic everyday activities that get harder to handle as you get older. This can include laundry, household cleaning, meal preparation, transportation, medication management, and more. The degree of assistance can depend on how much help you need. Skilled nursing facilities cater to clients who need the most assistance and care, while many other assisted living homes offer a lot of freedom and independence for seniors who are healthy and more active.
Unfortunately, not all long term care is covered by Medicare and Medicaid. Medicare part A covers inpatient hospitalization, skilled nursing care, hospice care, and home healthcare. Medicare part B covers a lot of other routine care needs.
But while Medicare may cover certain kinds of skilled nursing facilities, it doesn’t cover many other assisted living homes and their costs. Medicare distinguishes “long term care” from skilled nursing care per se, defining the former as “a range of services and support for your personal needs.”
Sadly, the kind of routine “custodial care” that most assisted living facilities offer their residents, is not covered by Medicare. That means you may need to find other ways to pay for assisted living costs when the time comes that you need them.
This is made worse by the fact that with a US national average annual cost of over $39,000, assisted living isn’t cheap.
Paying for Long Term Care
There are several ways that people pay for the cost of long term care in assisted living, when state programs like Medicare don’t cover it. For those who qualify, Medicaid may provide a little bit of help, but generally will not cover the full costs.
Because Medicare often won’t pay for assisted living at all, many people find themselves falling back on their life savings, and paying out of pocket. Although costs of assisted living are rising, due to both general economic factors and increasing lifespans, retirement income for seniors has actually gone down. This can make paying for long term care a serious problem.
One option to help reduce your costs is to purchase a long term care insurance plan.
What is Long Term Care Insurance?
Long term care insurance policies are sold by private insurance companies, and can come with many different combinations of coverage and benefits.
How Policies Are Structured
Long term care insurance policies usually use one of three different approaches to paying out benefits.
- The expense incurred method pays out benefits only when you receive specific eligible services. Your claim’s eligibility is assessed by insurance adjusters. If they determine that you’re eligible, benefits will be paid out either to you personally, or directly to your assisted living care provider. This is the most common payment structure.
- The indemnity method issues benefits in set dollar amounts, but the benefits are not determined directly by specific services you receive. These policies will have an upper dollar limit.
- The disability method only requires policy holders to meet eligibility criteria in order to receive benefits. You’ll receive full benefits even if you are not currently receiving long term care services.
Joint Policies and Pooled Benefits: Going In on Policies to Lower Individual Costs
Most insurance companies offer long-term care insurance policies that cover more than one person, or that cover more than one type of care. These are called “pooled benefits.”
One type of pooled benefit policy is a joint policy that covers two people, usually a married couple or long term domestic partners. If one individual collects benefits from this joint policy, the amount is subtracted from the total. So if the husband uses $50,000 of a $125,000 policy, the wife will be left with access to $75,000 in benefits.
These plans can be more cost effective in the long term than individual policies.
What Costs Will Long Term Care Insurance Cover?
If you’re considering investing in long term care insurance, it’s important to understand what expenses it will or will not cover.
Most policies will cover just about any of the following types of care:
- Nursing home care
- Home health care
- Hospice care
- Personal care services administered in the home, such as assistance with ADLs like bathing or cleaning
- Assisted living facilities
- Adult day care centers
- Services from some other types of community facilities
When it comes to home health care, different policies may offer different degrees or types of coverage. Some may only pay for care from a licensed home health agency. This usually includes services from skilled and licensed professionals like licensed nurses, occupational therapists, physical therapists, speech therapists, and licensed home health aides.
Some types of general personal care, which may not need to be administered by someone with specific licensure and training, may not be covered by some long term care insurance policies. These generally include “homemaker services,” which could mean someone coming in a couple times a week to do your laundry, clean your home, or even prepare meals for you.
However, there are policies that do cover homemaker services, at the cost of higher premiums.
It’s also important to know which kinds of facilities your insurance policy does or does not cover. If the insurance company determines that you’re in the “wrong kind” of facility, you may not receive your benefits.
Coverage can sometimes be restricted to:
- Only state licensed facilities
- Only certain kinds of state licensed facilities
- Only facilities that care for a certain total number of patients
- Only facilities that provide certain kinds of care
Different states may also use different definitions for relevant terms like “assisted living facilities.” A policy that covers long term care in one state, might not cover the same services in a different state. If you move to another state after purchasing long term care insurance, it’s important to find out about how your policy will differ within that state.
There are also a few types of care services that many long term care insurance policies will not cover. Most policies do not pay out benefits for some or all of the following:
- Mental or nervous system diseases or disorders, except for Alzheimer’s or other organic dementias.
- Care for drug or alcohol addiction
- Care for injuries or illnesses acquired in warfare (which generally are covered by veterans’ benefits in the US)
- Treatment in a government facility, or treatment that the government has already paid for (e.g. via veterans’ benefits or Medicaid)
- Self-inflicted injuries due to mental health disorders, such as suicide attempts
The Extent of Coverage: How Much Do Policyholders Usually Get?
Some policies have a maximum benefit limit, meaning there’s a cap on how much you can receive over the total lifetime of the policy. Other long term care policies do not.
A maximum benefit limit may also be quantified over one, two, or three years. For example, you may reach a cap in annual benefits, but can still receive further benefits during the next year.
There are also minimum benefit periods. Many patients stay in a nursing home for a limited amount of time, such as a few weeks or months, while being rehabilitated after a stroke or injury. Long term care insurance may not cover these kinds of temporary stays, and to be covered, you may need to be in a facility for at least one year.
When Do Policyholders Become Eligible for Benefits?
Many long term care insurance policies use certain “benefit triggers” to determine when someone who holds a policy can begin collecting the benefits from it. This often involves being unable to handle certain “Activities of Daily Living (ADLs).” This often includes personal care, like bathing and showering; dressing oneself; toileting and continence; eating; and mobility.
Most of the time, if you are impaired in two or more of these ADLs, you will be eligible to begin receiving benefits. There are often specific definitions as to what it means to be “impaired,” which usually mean that you need actual hands-on assistance to do these things.
You may also become eligible for benefits when you are diagnosed with Alzheimer’s disease, or another cause of cognitive impairment.
When you go into assisted living, you will probably be subject to an “elimination period.” Rather than starting your benefits right away, the insurance company may wait until you have been in long term care for a minimum amount of time, often anywhere from twenty to one hundred days. In some cases, you may be able to pay more for access to a “zero-day elimination period,” where you’ll be covered right away.
Assisted Living is Expensive. Long Term Care Insurance Can Help You Make Sure You Can Cover the Costs
Many people will eventually need assisted living, due to health issues in old age that make living on your own a lot harder. Unfortunately, these services don’t come cheap. Purchasing a long term care insurance plan is one way to help make sure that when the time comes, you’ll be able to cover the expenses associated with long term care. Senior Care Center is here to help you plan for the your loved one’s needs. For more information assisted living costs and financial planning, visit our blog.