Frequently Asked Questions: Long-Term Care
With November being Long-Term Care Insurance Awareness Month, let’s look at the most common frequently asked questions we receive from our clients and community.
1. What is Long-Term Care Insurance?
Long-Term Care insurance (“LTCI”) is insurance that can mitigate the risk of needing and having to pay for assistive care should the insured need assistance with what are deemed the “Activities of Daily Living” (ADLs), which include:
Eating
Bathing
Dressing
Transferring
Toileting
Continence
It’s important to note that Long-Term Care (“LTC”) services differ from traditional medical care services in that the latter attempts to treat or cure illness whereas LTC services are designed to maintain lifestyle.
2. What does Long-Term Care Insurance cover?
LTCI, as mentioned above, covers assistive care. This may be provided in your own home, in a residential setting, or in a more formal care setting, such as a nursing or assisted living facility. Depending on your level of care, services may be provided by a home health agency, family or friends (such as with in-home care) or more formalized, institutional care (such as with a nursing home).
3. How does Long-Term Care insurance address the rising cost of care? Is there inflation protection?
When you purchase a LTCI policy, the amount you pay for your coverage is based upon your age, health, the amount of coverage you purchase, and other policy features and riders. Because policies vary from carrier to carrier and individual to individual, give us a call about your specific policy.
4. Who needs Long-Term Care insurance?
Research[i] has shown that a 65-year-old individual today in average-to-good health has over a 50% chance of needing LTC services – and that these services will last between 3-5 years.
Still more research[ii] shows that a 65-year-old individual today will spend $157,500 in un-reimbursed medical costs, even with Medicare.
In short, everyone should consider a LTC service need and the impact such an event would have on their overall financial plan as well as the impact of such an event upon loved ones.
5. What if I’m unable to qualify for Long-Term Care insurance?
If you’re unable to qualify for LTCI and end up needing LTC services, you will need to pay for this care in other ways. Besides personal assets or accounts, the most common ways to cover the costs without LTCI include:
Annuities: Some annuities may have riders in place that provide a stated amount of coverage upon certain triggers (such as being unable to meet 2 or 3 out of the 6 ADLs, mentioned above)
Trusts: Trusts can allow for strategic opportunities around planning and ensuring you pass your assets down to family. They can also be structured to provide care for you or a loved one but there can be a number of caveats which can muddy the water quite quickly. We encourage you to give us a call and consult your estate planning attorney to see if exploring this option makes sense for your unique situation.
Reverse Mortgages: If you have equity in your primary residence and are 62 years of age or older, you may be able to borrow against the equity in your home. Here, there are a number of strings and provisions attached which must be met and we encourage you to speak with us before committing to this option.
Medicaid: If you are 65 or older, blind, or disabled and have very limited income or assets, you may be able to explore going onto Medicaid, which may help cover the cost of LTC. Here again, there are a number of strings and provisions attached which must be met and we encourage you to speak with us before committing to this option.
6. How much does Long-Term Care insurance cost? How much does it pay? How often can premium increases occur?
If you have a LTCI policy, you will pay a pre-set premium, which will then pay for the services you need, when you need them – up to its stated coverage limit. This premium may vary greatly based on your age at the time of purchase (typically, the younger you are, the cheaper your premiums may be), the policy you select, and the coverage you select (higher coverage limits will likely result in higher premiums).
On occasion, insurance companies may adjust the price if the assumptions that were initially used to price the premiums prove wrong.
You will typically not be expected to pay premiums while receiving LTC services.
To bring this all together, Genworth has a Cost of Care calculator on their website which shows that the average cost of home health care in Seattle in 2021 was $6,769 per month while the average cost of a private room in a nursing home care facility in 2021 was $11,984.
7. How do I file a claim?
Typically, filing a claim will require the following:
Contact us, your LTC specialist, or the company that issued the LTCI policy to request a claim packet. They will also be able to walk you through what to expect. Typically, this will involve:
Physician Statement: filled out by the attending physician, this will verify that care is necessary
Plan of Care: this may be filled out by a physician or nurse, where they write an assessment of the policyholder’s current condition and a detailed plan of care that they recommend
Statement: Information detailing the level and length of benefit coverage that the policyholder may be eligible for.
Besides the above, if you have a reimbursement policy, be sure to keep receipts to submit once the elimination period ends.
8. My Long-Term Care insurance policy recently sent me correspondence about either a) adjusting my benefit, b) increasing my premiums, or c) cashing me out. Why? How do I know what the right option is? What are the consequences of these options?
We mentioned above when discussing the cost of LTCI premiums, that, on occasion, insurance companies may adjust the price if the assumptions that were initially used to price the premiums prove wrong. At McKay, we’ve seen an uptick in recent months of just this, especially for older policies. Specifically, the underwriting assumptions have changed from when these policies were first written until now, resulting in the insurance companies often increasing premiums. This increase in premiums has often been accompanied by a variety of options should the policy owner want to maintain or decrease their premium.
No two LTCI policies are the same, so it is difficult to paint with a broad brush. If you receive a letter notifying you of premium or benefit adjustments to an existing LTCI policy, give us a call and together, we can walk through what the various options means and what the impacts of the various options could mean in the broader context of your overall financial plan and goals.
9. I’ve heard about Washington State’s Long-Term Care insurance – what is that, how does it work, and who’s eligible?
See our recent blogpost here!
10. This is all confusing – what are the key terms and what do they mean?
Activities of Daily Living: Consists of eating, bathing, dressing, transferring, toileting, and continence.
Benefit Period: The length of time that the LTCI policy will cover (example, 3 years)
Benefit Amount: The maximum amount (typically expressed as per day or per month) that the LTCI policy will cover (example: $11,000 per month)
Elimination Period: The length of time between when an individual has been determined to be eligible for a claim and when the actual benefit is paid. During this time, the individual must cover the costs. (Think of this as similar to a deductible on your automobile insurance policy)
Indemnity: A type of policy that involves insurance providers sending a pre-determined monthly payment to the policyholder, regardless of the actual price of any care that’s incurred.
Medicaid: A Federal/State entitlement program that pays for medical assistance for certain individuals and families. Medicaid is the largest source of funding for LTC services, but certain provisions are in place to ensure its usage is limited to its intended population – individuals and families with low incomes and resources.
Medicare: Federal program that covers healthcare for persons 65 and older or for hose under 65 with disabilities. Importantly, Medicare may help cover short stays in a skilled nursing facility but generally does not cover LTC services.
Reimbursement: A type of policy that reimburses the policyholder for expenses incurred each month (up to the benefit amount)
Chronic Illness: Usually defined as any permanent condition that inhibits you from performing at least two of the six basic ADLs.
Critical Illness: With regards to LTC, this typically is a list of specific illness and health conditions that you must develop for the benefit to be activated (this can be much more narrowly defined than chronic illness. If you have questions, consult your financial planner or LTC specialist.)
Where can I find additional resources?
Washington State Long-Term Care Services and Information
[i] Favreault, M., & Dey, J. (2015, June 30). Long-term services and supports for older Americans: Risks and financing research brief. ASPE. https://aspe.hhs.gov/reports/long-term-services-supports-older-americans-risks-financing-research-brief-0
[ii] Fidelity. (2023, June 21). Fidelity® releases 2023 retiree health care cost estimate: For the first time in nearly a decade, retirees see relief as estimate stays flat year-over-year. The NewsMarket. https://newsroom.fidelity.com/pressreleases/fidelity--releases-2023-retiree-health-care-cost-estimate--for-the-first-time-in-nearly-a-decade--re/s/b826bf3a-29dc-477c-ad65-3ede88606d1c
How do I make a long-term care insurance claim?. Life Happens. (2020, August 4). https://lifehappens.org/long-term-care-insurance-101/how-do-i-make-a-long-term-care-insurance-claim/