Long-Term Care Insurance – What’s Right for You?

In this episode, John Ross and Lisa Shoalmire discuss several of the long-term care insurance options available. The question is, which one (if any) is right for you?

Episode Transcript
Lisa
Well, welcome everyone to another edition of Aging Insight. I'm Lisa Shoalmire and I'm here with my co-host John Ross and we're elder law attorneys based right here in the Ark-La-Tex area. And it is our desire that you get from this program information that you can use as you plan for yourself through retirement and aging and also, as you plan for your family at your death and we wanna make sure that you have good information to make those decisions and plans on. So, John, today we really wanted to talk about a topic that... You know, we're always talking about how part of our idea here is that we wanna help people who don't wanna go to a nursing home, who want to remain financially independent, to not be a burden on their family, and also for folks who don't wanna go broke in the aging process.
John
Right. Yeah, absolutely.
Lisa
So one topic that comes up quite frequently because it hits on all of those things is the idea of long-term care insurance. And it's a pretty common topic. It's not an insurance product that a lot of folks have, but we have seen some people who have purchased that product. And I'll just start off by saying we are certainly not insurance salesman. We're here to give you some information about that insurance product and whether or not it may be something that you find useful to add to your tool box for your aging process.
John
And really where this comes into, you have essentially three ways that you can pay for your care as you get older. Whether you need in-home care, whether you need assisted living care, whether you need nursing home care; realize, first of all, that the actual cost of these sort of things... That nursing home is gonna run $4,500 to $5,000 a month. That assisted living might be $2,000 or $3,000. In-home care, which most people that we talk to would prefer to age in their home, but in-home care is often the most expensive option because if you're paying somebody $10 or $15 an hour and you need that level of care 24 hours a day, now we're talking about $200 or $300 per day, which can easily be $6,000 to $10,000 a month for that level of care. And the problem here is that you know, yeah, when you retire you've got Medicare, maybe you've got some supplemental insurance and a lot of times people assume that Medicare and their supplemental insurance is gonna pay for that in-home care, that it's gonna pay for that nursing home care. The fact is, it's not.
Lisa
That's right. So a lot of folks are... They say, "Hey, I have Medicare and I have a good supplement, or I have good retiree health insurance that supplements my Medicare, so I don't have to worry about long-term care issues."
John
That's right, but...
Lisa
And that is just not the case.
John
You can either pay cash for this and there's lots of rumors about if you go to the nursing home, they're gonna take your stuff. They're not gonna take your stuff, that's just rumor. They're just really expensive apartments and as long as you can pay the rent you can stay there. Problem is at $5,000 a month, most people can't pay that. But so, one option though, is just to pay cash. Another option is to qualify for government assistance, like Medicaid or perhaps VA benefits, which we've talked about on prior episodes. But the third option out there is long-term care insurance and that's one that a lot of people forget about.
Lisa
Right, and so the history of long-term care insurance, this is something that's a fairly new product, because as the baby boomers have aged and they've seen their parents age, people have become concerned with the cost of long-term care. So really we saw a surge in popularity of this type of product back, I would say in the late 80s, early 90s. And a lot of insurance companies... There was 20 or 30 insurance companies that sold a long-term care policy and that policy... The terms varied from policy to policy. But essentially the idea was that you pay a premium that they calculate and if you pay that premium, you continue to pay it up until the time you either qualify and need the type of care that the insurance policy covers or frankly either you drop the policy or you die.
Lisa
So this was the model of long-term care insurance. And we have seen a lot of that. Paying for long-term care, people who've kept that insurance, had a couple of folks who they had policies that actually paid for their in-home care. The policy they had paid $80 a day, $110 a day, whether they were at home or whether they were at assisted living or nursing facility. And so they use those per day rates to pay for in-home care. But the problem, John, we have seen is that those policies, like I just described, we have fewer insurance companies offering those type policies. And the benefits are different. So what we wanted to talk about to you today is if you have a policy, we want you to get it out, and look at it after you've heard our discussion. So you can look at your policy to see what it covers. And if you don't have a policy but are considering buying one, hopefully somethings we talk about will be things you can ask your insurance professional about.
John
Yeah, and there are certainly a number of different elements in all of this. We wanna learn about the types of policies that are out there, what they pay for, what they don't pay for. And some things that you need to look at as it relates to you personally. What is about your personal situation, are you trying to insure? And so, when we come back from the break we're gonna talk about these sort of things. So we'll see you in just a second.
John
Welcome back to Aging Insight. I'm John Ross. This is Lisa Shoalmire. And today on Aging Insight, we're talking about long-term care insurance. Now, as Lisa talked about in the opening segment, we're not insurance salesman, we don't sell long-term care insurance. But when it comes to paying for your care, long-term care insurance is one of the pieces to the puzzle. It's not appropriate for everybody. But it is appropriate for many people. And so, whether you have long-term care insurance in place or whether you're considering it for yourself, there's a few things that you need to keep in mind.
John
A lot of times when I talk to people about long-term care insurance, I ask them a question and when I ask them, they look at me somewhat funny, like they had never thought about it in these terms. But if you have homeowners insurance, what are you insuring? Well, you're insuring your home. If you have car insurance, you're insuring the value of your car. But what is it that you are insuring, what are you trying to protect with your long-term care insurance? So, for example, if you had very little income and very little assets, there probably is no reason to pay for long-term care insurance because you're already going to qualify for things like Medicaid if you ever need the care. So, the first thing is do you even need the long-term care insurance? What is it that you are insuring?
John
If there are things, if you do have some assets, some valuable things, maybe you own real estate, maybe you have financial assets, stocks and bonds and you wanna try to preserve those with insurance, the next part is what type of policy do you have? Or should you be looking at? And at first these can come in a couple of different forms. The first one would be more of a traditional type policy and this is where you're making a premium payment each month. And as long as you keep making the premium payment, you have the insurance.
Lisa
Right. And this is the situation where if you apply for this type of long-term care insurance, there is an application, it asks you a lot of questions about your health and circumstances and then you submit that application, it goes to an underwriter, who comes back and says, "Yes, we will issue a long-term care policy for Mrs. Johnson and her annual premium will be $4,300 a year." And this type policy, basically, there might be an elimination period to where this policy does not cover long-term care expenses, for say the first 90 days when you have some sort of medical crisis, but it kicks in after that 90 days. Also, one of the issues in the policy would be, how many months, how long will this policy pay? And John, I think you would agree with me that in the past, insurance, underwriters often would issue a lifetime policy.
John
Right.
Lisa
That if you pay premiums and you needed long-term care that insurance policy would pick up and pay for the care needs that you had for your lifetime.
John
Right. And a lot of times, people would end up choosing not to get the long-term care insurance, because if you think about it, and this makes sense, the longer the insurance company is potentially liable for your care, well, then the more they're gonna charge you for that insurance. And so, you might could get a policy for say three years, or get one for five years, or get one that will potentially pay for your entire lifetime. But the longer they might have to pay, the more that's gonna cost. And you're right, typically, they used to... They would offer these policies generally as a lifetime benefit, which were so expensive for so many people that they just never gave it another thought. They said, "Nope, I can't afford it." But the fact is, do you even really need that much? So the first thing to consider is, well, how long are you likely to need that long-term care in the first place?
Lisa
Right. And the reality, the situation is, and one thing we are about on Aging Insight is dealing with realities. The reality of the situation is for most people, you're not going to be in a long-term care situation or need that type of long-term care for say more than five years. A lot of times, if your health has declined to the point that you need that type of support, a lot of times we pass on before we use that five years worth of long-term care insurance. So that is one way to deal realistically with the cost of a long-term care policy.
John
Right. Statistically speaking, something like 90-something percent of the people that enter a nursing home will pass away within the first 24 months. And so, if you think about a lifetime benefit that could potentially pay for 10 or 15 or 20 years, when nine times out of 10, you would only use about two years worth of benefits having a much shorter policy probably makes more sense for most people and is gonna be considerably cheaper. Now, Lisa, you also mentioned five years because the other thing is you wanna think about how does the long-term care insurance relate to other things that might be out there, like for example, Medicaid benefits.
Lisa
Right. So, many people have heard that to qualify for Medicaid benefits, which is a government, the only government program that pays for long-term care, nursing home type benefits. They've heard that they can't give their stuff away, that they'd be penalized or there is a five-year look-back period for any gifts or transfers that you make for at the time you apply for Medicaid. So this five-year time period, right now, is sort of a magic time period that is included in the law at this time. So the bottomline is, if I purchase a five-year long-term care policy, then I can make other arrangements with my assets and know that I've got that long-term care policy in place. So if I am one of those folks who uses up five years worth of long-term care benefits as I enter year six and my policy benefits have run out, I can actually have already made plans with my assets that qualified me to maybe receive Medicaid or government benefits for my long-term care, beginning in year six.
John
Right. And so, again, you wanna consider how these things are coordinating together. Yes, you might need some long-term care insurance, but you might not need a lifetime's worth of benefit because five years worth of the benefit could be enough to get you to the point where some other benefit might could take over. For example, Medicaid benefits. The other part about figuring out how much long-term care insurance you need is figuring out that daily benefit. How much do they pay per day? And here again, we've gotta figure in a lot of other factors, not only what's your current situation is, but what your potential future situation might be, which we'll talk about when we come back here in just a second.
John
Welcome back to 'Aging Insight,' I'm John Ross, this is Lisa Shoalmire. And today, we're talking about long-term care insurance and some of the issues related to this and how they impact you. Now, one thing to consider with long-term care insurance, you've got a couple of different elements here. You've got how long of a period of time is it gonna pay for? For example, it might pay for two years, or three years, or five years, or a lifetime's worth of benefit. And what you wanna consider in this is, one; what is the potential length of time that you might need in care facilities. What's your family history? For example, do you have a history of Alzheimer's, Alzheimer's disease many times can cause a longer stay in a nursing home, and so that may be one of these cases where you need more long-term care insurance because of your family history. But the other thing to keep in mind is your access to other government benefits like Medicaid, which if you, under Medicaid rules, there's a five-year window, where you could for example, shield your assets with a asset protection trust and qualify for Medicaid, but only after five years. So if you had five years worth of benefits, then while you're waiting for that time period to pass, you've got the insurance there that's helping cover the costs of your care needs during that penalty period. So there's that. So one part is the length of care. The other side of this is the daily benefit.
Lisa
Right, John, these insurance policies, they typically will set out in the policy that the insurance company will pay a certain amount per day toward long-term care expenses. And that amount could vary. Again, your premiums are gonna be paid based on the level of coverage, the length of time, and the daily rate of coverage that you select as part of purchasing long-term care insurance. So the average daily rate for care as we sit here this year runs about $150-$160 a day at a skilled nursing facility. So you may look at things like your current income, what income do you expect to receive? Social Security, retirement pensions, that type of things. So if you already have income coming in of say $40 a day, well then maybe you want to purchase long-term care insurance that is sufficient, has a sufficient benefit such as $110 a day to bring you up to where your income essentially can pay the daily rate of your cost of long-term care. And John, you mentioned something a moment ago about looking to see what other benefits you might qualify for and you mentioned Medicaid. And of course, there is another benefit out there for our veterans and the surviving spouses of wartime veterans, which will also provide an additional monthly pension income, if that person is in need of the aid and attendance of someone else.
John
That's right.
Lisa
And of course, if you're needing long-term care and those type of supports, well then you probably are someone who needs some aid and attendance. So again, we can adjust our level of long-term care insurance purchase to what we think our income and including other benefit such as VA might would be. So for instance, as a surviving spouse of a wartime veteran, you may qualify for up to about $1,100 a month in VA benefits. Well, if your Social Security or pension benefits already bring in $2,000 a month, and then you qualify for this VA benefit, so now you're bringing in $3,000 a month, well, John, you said the cost of care for a nursing home stay is around $4,500 on average. Well, so our shortfall from an income standpoint to pay our way is only $1,500 a month under those facts. So in that situation, again, we might want to purchase long-term care insurance, but in order to keep the premiums down, we wanna purchase what we need, which is an additional $1,500 a month of potential benefit, rather than, a over purchase.
John
That's right, and what you've gotta remember is that, the more you pay for, the more expensive it is. And so you wanna, you wanna match the amount of insurance that you buy to what your needs are. And there's a big difference, if you needed an extra $3,000 a month to cover that $5,000 nursing home bill, well, you're gonna buy $100 a day worth of benefit. But if you didn't realize that as a veteran you're entitled to $1,500 to $1,700 a month to help cover that cost later on down the road. Essentially, that's gonna cover half of that deficit. So, instead of needing $100 a day worth of insurance, you might could reduce that down to $50 a day. And oftentimes when you cut the amount of the benefit like that, in half, so does the premium.
Lisa
Right, so, and one thing to look at when you're looking at a long-term care insurance policy is, another thing you want to look for is, is this policy going to... Does it have an inflation adjustment? Because we all know that medical expenses seem to rise much faster than our other expenses and long-term care is no different. So you wanna make sure that any policy you're looking at has an inflationary protection rider, or if it doesn't, I want you to go into purchasing that policy eyes wide open, and knowing that it does not offer inflation protection.
John
Right. Now, the last thing I wanted to mention when it comes to long-term care insurance, everything that we've talked about so far have been more related to traditional policies, where you make a premium payment every month, and if at some point in time you need the insurance, you get the money for that care. Now, there are, there's been a lot of different things that have come up in the world of insurance, there's lots of different types of policies now that are available. For example, there are single premium policies, where it's more like a life insurance policy. If you never need long-term care, you get the money back. But if you do need the care, then it starts reducing that death benefit. There are some that are tied to Medicaid, so the more insurance you have, the more assets you can keep and still qualify for Medicaid. So, there's been lots of advancements in the world of long-term care insurance, the key is figuring out what's right for you.
Lisa
Yup. So, it's a complicated world, I tell folks all the time as we get older life seems to get more complicated. But that's why we're here on Aging Insight, to help guide you through some of these things. So, I hope today that you've learned a bit about long-term care insurance and looking at the time period of coverage that you need, looking at the daily rate of coverage that you may want to purchase, and also looking at how you can coordinate this insurance policy with other benefits you may be entitled to.
John
That's right, and of course, if you have questions about long-term care insurance, or any of the topics that we talk about, find us on Facebook at Facebook.com/AgingInsight, and until next week. We'll see you again on Aging Insight.
Lisa
Bye bye.

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