Should you buy long-term care insurance?

long-term-careThe costs associated with providing nursing care continue to soar. According to Genworth’s 2013 Cost of Care Survey, the median cost for private nursing home care has increased from $67,525 in 2008 to nearly $84,000 in 2013. This $16,475 increase represents a compound annual growth rate of 4.45 percent.

With research from the Center for Medicare and Medicaid Services showing at least 70 percent of people over age 65 will need long-term care services at some point in their life, it is critical for families to have a plan in place to deal with this difficult reality.

What exactly is long-term care? Long-term care, or LTC, is a term that refers to services available to care for those that are facing long-term illnesses, disabilities and cognitive disorders. Since these costs are generally not fully covered by health insurance, families are required to rely on other means to cover costs.

Many incorrectly assume that Medicare will cover the majority of their long-term care needs. For the first 20 days, Medicare will pay 100 percent of your costs. For days 21 through 100, you pay your own expenses up to $140 per day and Medicare pays the balance. However, you are responsible to pay any costs for each day you stay in a skilled nursing facility after day 100. With the average stay in a nursing home estimated to be 2½ years, 100 days of partial coverage is simply not going to cut it.

Medicare also covers hospice care if you are terminally ill and not expected to live more than six months. Additionally, there is a hospitalization requirement of three days. This means that Medicare’s limited benefits will only pay you if you need skilled care, were admitted after a three-day hospital stay and nursing home admission is within 30 days of discharge. Due to these qualification requirements, the average Medicare covered stay in a nursing home is only 22 days. That’s right — 22 days. This equates to Medicare covering only 5 percent of the nursing home costs nationally.

Another common misconception is the role that Medicaid plays when planning for long-term care costs. It is important to understand that Medicaid is a low-income assistance program for those with little to no assets and you must meet state eligibility requirements. Not all facilities accept Medicaid and there is a five-year look back period for those who have given away property in an attempt to qualify. This five-year look back triggers a penalty period potentially rendering you ineligible for government aid for a period of time.

Since Medicare covers long-term care in limited circumstances and Medicaid is for those with little to no assets, other strategies should be considered. For the wealthiest individuals, self-insuring may be possible but why risk your own assets when you can transfer those risks to an insurance carrier? For those who have assets they would like to protect for their spouse or other beneficiaries and desire to plan in advance, long-term care insurance may be the best fit.

LTC insurance is designed to reimburse a specified amount per day or month to cover the cost to care for the policy holder. LTC policies have some moving parts and pricing will vary depending upon the age when applying, how much the policy will pay per day or month toward care, how many years coverage will continue, the waiting period before benefits begin, shared benefits and other variables including whether the policy’s benefits increase by a stated inflation rate each year. The inflation protection may be especially critical for younger applicants as it helps the policy to keep up with the 4.45 percent increase in nursing home costs that were mentioned earlier.

Many long-term care benefits kick in when the policy holder’s physician determines that they are unable to perform 2 out of 6 activities of daily living or have a cognitive disorder. These activities of daily living include eating, bathing, dressing, toileting, walking and continence. Benefits will begin after the elimination period has been satisfied which can vary from zero to greater than 90 days. This is the amount of time that must pass after it is determined that you require care (benefit trigger) before the policy begins to pay toward your care.

When structured properly, a long-term care policy can provide for nursing home care, assisted living, home health care, adult day care, respite care and hospice care. However, determining the proper structure for a policy requires careful planning, so be sure to consult with your adviser before jumping in.

Determining the right insurance company is no easy task either. Spiraling costs have induced some carriers to exit the business and others have been forced to increase premiums. Remember, many LTC policies are referred to as guaranteed renewable, which means that they will continue to provide coverage but also have a limited right to request a premium increase from the state’s insurance commissioner. Often the increase is only approved if the insurer has incurred significantly higher claims than were expected.

This makes selecting the right insurer even more critical. Before purchasing a policy, consider requesting information on the company’s premium rate history and visit for more information. Since LTC insurance is not for everyone, consider speaking to your financial adviser to determine the most appropriate plan for your unique circumstances.


Kurt J. Rossi, MBA, is a certified financial planner practitioner and wealth adviser. He can be reached for questions at (732) 280-7550, or LPL Financial Member FINRA/SIPC.