Underwriting is the process assessing risk of issuing insurance. Undewriters evaluate applications,
While Medicare covers many medical services and equipment, it does not cover long-term care. Long-term care services are services provided to support the needs of people living with chronic health conditions. These conditions would usually that prevent individuals from performing the activities of daily living on their own. There are six routine activities that are critical to being self-sufficient. These activities include:
- Transferring (walking)
- & Continence (holding back bodily functions)
Medicare & Long-Term Care
Medicare limits the number of days it will pay for hospital stays. Medicare Part A covers up to 90 days of inpatient hospital care per benefit period, in addition to an additional 60 lifetime days.
If your hospital stay exceeds 90 days and you have used up your lifetime reserve of 60 days, you are responsible for 100% of your medical expenses.
Medicare also covers the first 20 days in a skilled nursing facility (AKA nursing home). You will have to pay increasing daily copays for the 21st-100th day.
Medigap & Long-Term Care
Owning a Medicare supplement (Medigap) plan can help offset some of these costs. While a Medigap plan does not cover long-term care, it will cover an additional 365 lifetime days in a hospital. It will also cover a skilled nursing facility beyond the 90 days covered by Medicare.
A Medicare supplement can also help cover the copay for days 21-100 in a nursing home. However, you would still be responsible for 100% of expenses for stays exceeding 100 days.
While Medicare and Medigap policies have basic coverage for long-term hospital stays, it may not be sufficient for patients who need care beyond 150 days. This is why many people consider buying a long-term care insurance plan at some point in their lives.
The Beginning of the Long-Term Care Services Industry
Before Social Security, adult children took care of their elderly parents to the best of their abilities. If they were unable to care for their elderly parents, parents often went to government-sponsored residences called almshouses. Local and caring charitable organizations supported them. Over time, the government outlawed almshouses. This forced many elderly residents into private institutions. In many cases, the almshouses transferred to private control. This began the long-term care services industry.
Increase in Average Life Expectancy
There has been a recent dramatic increase in average life expectancy. It jumped from 60 years in the 1930s to 80 years presently. That’s an additional 20 years we get to enjoy, but it’s certainly not without some setbacks.
Part of living longer and the aging process is the decline of physical and mental functions. If we live long enough, there’s a chance that we will need long-term care services of some type at some point.
In fact, according to www.longtermcare.acl.gov/, approximately 70% of people turning 65 will need long-term care services at some point in their life. On average, women need long-term care for a longer duration of time than men will need (3.7 vs. 2.2 years). Statistics also show that as much as 20% of the population will need long-term care services for than a period of more than five years.
The cost of long-term care services is not cheap. In fact, according to www.longtermcare.acl.gov/, the average cost per day for these services equal up to $205/day or $6965/month for a semi-private room. That comes out to $83,580 a year for someone to receive long-term care services. The 2010 US Census data showed that the average income for retired people in the US was $25,757. This shows that many people cannot afford this cost, especially at an older age.
Long-Term Care Coverage Options
In general, long-term care services cost less when you are younger and healthier. Buying a policy at an older age will be more costly. This is because in general, people tend to have fewer health conditions when they are younger. Monthly premiums can also increase in price. Policies with higher benefits, longer benefit limits, shorter elimination periods, and higher inflation protection reflect these higher prices.
Although these policies don’t usually increase in price year-to-year, claims 20 to 30 years from the time of your purchase can impact the price. This is about the time you would most likely need it the most.
It’s hard for actuaries to predict what cost of services will look like that far in the future. This has caused insurance companies to leave the long-term care insurance business in the past decade.
Most of the reasonable plans currently cost between $200-300/month. Many factors affect the cost of your monthly premium, such as:
- Daily/Monthly Benefit – How much the policy will pay out per day/month
- Benefit Limit – The number of days or years the policy will pay out (usually one year through lifetime)
- Elimination Period – How long before the policy kicks in from the time you’re admitted
- Inflation Protection – A percentage the policy will increase in value each year to track inflation (usually 2-5%)
Paying for Expensive Long-Term Care
So, how are you supposed to pay for long-term care services should you ever need them?
Here are the most common ways people pay for long-term care:
- Self-fund – This will likely consume your income and assets over time – especially for longer stays. It’s not uncommon for people to go through their life savings when self-funding long-term care services. Children may also need to get financially involved to help pay for these services.
- Medicaid – If you qualify for Medicaid (if you have an extremely low income and few assets), you may be able to get some help from your state to cover the costs of these services. Back in the 80s and 90s, many people would spend down or give away all of their assets and reduce their income through a process called Medicaid Spend Down. This was abused to some extent because it placed a significant burden on the system. This led Medicaid to tighten the rules for spending down to qualify for Medicaid. Thus, it’s may not be as easy as it used to be to qualify for Medicaid, but it’s certainly an option to explore early on. It can take a few years of spending down to qualify for Medicaid. Also, not all long-term care facilities or services will accept Medicaid as a form of payment. This means that Medicaid may reduce your options on where you can get care.
- Long-term care insurance – This type of insurance helps to cover the cost of long-term care services and has been around since the late 1970s. With long-term care insurance, you have to pay a monthly fee to have a level of coverage for long-term care services. You do have to qualify medically at the time of purchase, and in general, the more you spend, the more your insurance will cover.
- Hybrid Insurance Products – A relative newcomer to the market and what is likely a better option for many is a type of insurance product called hybrid life insurance or hybrid annuity insurance products. This is usually a life insurance or annuity policy with long-term care benefits included. The idea is that if long-term care services are needed, it will pull from the benefits of the life insurance policy of the annuity policy. If you have enough discretionary spending to buy one of these products, you can essentially knock out two issues with one policy and reduce the risk of paying for a long-term care insurance policy you may never use. Ask your financial advisor for details.
While there are various ways to attempt to protect yourself from the threat of long-term care costs, the cost of these services is very expensive. It is a huge financial burden on individuals and the Federal Medicaid program.
*Please Note: GoMedigap does not sell long-term care insurance at this time. We recommend that you ask your state insurance department for a list of companies that have been approved to sell long-term care insurance policies. Do as much research as you can on the different policies and costs before you make your final decision due to the expensive nature of this type of insurance.
To learn more about long-term care services, you can visit https://longtermcare.acl.gov/.