What Is Long Term Care?
Long Term care does not mean Nursing Home care.
Long-Term care (LTC) has many technical definitions. Long-Term care is basically the help we need to get through the day. This is the help we need that gives us the ability to stay in our own homes. It is help that is required for an extended period of time; months and even years. It can include the need for skilled medical care, but more often, it involves help with our daily activities such as walking, toileting, bathing, eating and dressing. Many times it includes assistance with household chores, grocery shopping, preparing meals, paying bills, or Doctor’s appointments. In other cases, Long-Term care may consist of providing supervision, companionship or support for loved ones.
2.) What are the Activities of Daily Living (ADLs)?
The insurance industry has specific definitions that they use involving certain activities and functions. These are referred to as Activities of Daily Living (ADLs), which are listed below.
- Dressing
- Bathing
- Transferring (moving in or out of a bed or chair)
- Toileting
- Eating
- Continence
3.) Isn’t Long-Term care For Old People?
Long-Term care is not limited to older people. A frequent misperception is that Long-Term care insurance is only for the elderly or infirmed. 53% of those needing long-term care assistance are working-age adults (18-64 years of age), while 47% are age 65 and older. (Medi-Cal Policy Institute, "Understanding Medi-Cal:Long-Term Care," 2001.
It is not hard to imagine why this is the case: automobile and recreational accidents (skiing, horseback riding, etc.) or illnesses such as multiple sclerosis, stroke or heart attack know no age boundaries. We all know or can think of , younger people who have had accidents which resulted in paralysis or some other disability requiring Long-Term care.
Lisa was only 27 when she purchased Long-Term care insurance through her employer. It would pay up to 5 years or $216,000 in benefits. At 29, she was involved in a motorcycle accident that put her in the hospital for two months. When Lisa finally was sent home, her LTC insurance policy paid for a home health care aide-7 hours a day for almost one full year. Lisa is expected to make a full recovery. When she does, her policy will be restored back to its original full 5-year benefit after she has been off claim for six months.
4.) Will I Need Long-Term care?
Due to advances in our medical technologies, our society has been blessed with an increasing average life span. Unfortunately, along with this comes the drawback that the longer we live, the more likely we will need Long-Term care. It is human nature to think that you will never need Long-Term care. After all, things like that happen to other people, right? That is what most of us would like to believe. Because we don’t think it will happen to us, we’ re often reluctant to plan ahead for future Long-Term care needs. There is a strong possibility that you will need some type of Long-Term care at some point in your life. The reality is that 50% percent of Americans who reach age 65 will someday need Long-Term care services (Health Care Financing Administration 1997 Statistics). You need to understand the chance you are taking by not insuring yourself against the risk of one day needing assistance with the tasks of daily living. Delaying or avoiding the decision to buy a Long-Term care insurance policy can mean the difference between living your retirement years on your own terms, or facing some very difficult financial realities.
The adage “people don’t plan to fail, they fail to plan” has been floating around for decades. “Failure to plan” despite the abundance of clear facts about the likelihood of needing Long-Term care is a denial of personal responsibility. Here is what the Presidents’ council on Bioethics had to say in its report, Taking Care: Ethical Caregiving in an Aging Society: “Already by far the most common trajectory toward death is a lengthy period of debility, frailty and dementia lasting not months but years.”
The council goes on to say, “The defining characteristic of our time seems to be that we are both younger longer and older longer; We are more vigorous at ages that once seemed very old, and we are far more likely to suffer protracted periods of age-related disability and dependence.”
Do you see any reason why you wouldn’t want to protect yourself and your family if you can? This may help give you peace of mind in case something happens to you now or in the future if a long term care event occurs.
5.) How Much Does Long-Term care Cost?
The average Long-Term care costs for Nursing Home and Health care services for the major cities in California are listed below.
Home Health |
Assisted Living |
Nursing Home |
Nursing Home |
|
Care (Aide) |
Private (Monthly) |
Private (Daily) |
Private (Yearly) |
|
Los Angeles |
$19/hr |
$2381/mo |
$215/day |
$78,475/yr. |
San Diego |
$20/hr |
$2811/mo |
$238/day |
$86,870/yr. |
San Fran. |
$23/hr |
$3305/mo |
$371/day |
$135,415/yr |
• Source: Metlife Mature Market Institute, October, 2007
So now the question is, if you are faced with a care crisis, where you or your spouse require Long-Term care, where will the money come from to pay for it? Many families today are two-income families and require both incomes to meet their current financial needs. There is not enough extra money for a Long-Term care situation, particularly if one loses the ability to work. With the average costs for California listed above, again we have to ask the question, where will the money come from to pay for it?
Mary was 82 years old and had purchased Long-Term care coverage. At 82, she now needed some assistance which would enale her to stay in her home. The insurance paid for someone to come in and assist her on a regular basis. The care coordinated helped the process run very smoothly. "We are so happy that our Mom had the foresight to purchase long-term care insurance a policy, otherwise we don't know what we would have done, said one of the sons.
6.) Doesn’t Medicare Cover Long-Term care?
Perhaps the most dangerous aspect of Long-Term care is that many folks think that they have already addressed the issue. They hear that Medicare will pay for most of the care. They hear that they can give away or hide their assets and take advantage of Medicaid (Medi-Cal in CA.). They think their Medicare supplement or HMO program will take care of the costs, or they just plain have never been sick a day in their lives and they count on that good fortune to continue. Once we think we have solved the issue, we go back to denying that we need to make plans for it.
Don’t do it! Health insurance only pays for Doctor and hospital bills and maybe your prescription costs. Medicare generally only covers short-term rehabilitative care that you receive after being hospitalized for at least three days. Medicaid, on the other hand, does pay for Long-Term care services, but will only pay for care if you have very limited assets and meet Federal poverty guidelines. Moreover, having Medicaid pay for your care, also means you may not have much of a say in choosing the facility that will provide your care. Having had the good fortune of living a healthy life to this point does not reduce your chances of needing Long-Term care. The longer you live, statistically, the longer you are going to live. Living a long life increases the odds you will require some sort of Long-Term care.
7.) Won’t My Family Take Care of Me?
Long-Term care needs provided by family members needs to be a subject discussed well before the need arises. If a family member decides to provide the care there are many factors to take into consideration. You will need to consider the costs they will pay financially, physically and emotionally. The caregiving spouse may predecease the spouse being cared for due to stress. Providing Long-Term care is hard work. Family members report exhaustion from the long hours of care giving.
Family caregivers suffer from major depression much more frequently than the rest of the population. That's a fact. When a family caregiver suffers from depression, there are two people at risk - the family caregiver and the family member or friend for whom she or he cares according to the National Family Caregivers Association. (www.nfcacares.org)
Caregiving is not a short duration problem either, the average amount of time caring for an elder is eight years. It is the emotional and financial cost to all those close to us that
creates a inescapable unease.
The emotional toll caregivers experience is another cost your loved ones pay in giving care to you. If you are relying on a family member to take care of you, it is important to understand the type of care you may be asking them to provide. You may be thinking the extent of the care is helping you in and out of bed, assisting you with meal preparation, or driving you to and from the Doctor. But, what if you need more care than that? What if you need assistance going to the bathroom, showering or bathing? Is this a burden you would want to impose on your family?
If you are intending to include your family in your Long-Term care plans, I would highly recommend you discuss it with them ahead of time. Too often people expect more of their family than the family may be able to deliver.
One of the reasons people purchase Long-Term care insurance is because family members want to participate in the caregiving process. Long-Term care insurance allows family members to assist at a level where they are physically and financially capable. It occurs without placing any undo strain on the family member and without compromising the needs of the person requiring care.
8.) So You Think Long-Term care Insurance Is Expensive?
Long-Term Care Insurance compared to what? I recently had a home care service provider ask me what a typical Long-Term care insurance policy would cost somebody in their mid-fifties and I told him somewhere between $3000 and $4000 per year. The home care provider responded, “That’s cheap!” the atypical response should really come as no surprise, since the provider of Long-Term care services has context. He understands the real cost of care and immediately sees the value proposition of Long-Term care insurance.
So let’s get a clear picture—in dollars and cents—of the likely cost of Long-Term care when you are most likely to need it.
Current Cost of Care (National Average)
- Nursing Facilities $76,000-$135,000/year
- Assisted Living Facilities $3,000/month plus add-ons
- Home Care $20/hour
Five percent compound inflation (average historical rate in the LTC sector is 5-6%)
- Clients current age—55 years old
- Likely age of first claim (83-85 years old)
- Typical claim length of 4-5 years
(2004 Millman Actuarial Consultants study of actual claims paid by the major insurance companies)
So based on this information, a good baseline for cost of care is about $72,000 per year. Using 5% as the rate of inflation in the Long-Term care sector means your annual cost of care will double every 14 ½ years.
When are you likely to need care? While you could need it tomorrow, insurance companies predict that your first claim will typically occur between age 83 and 85. If this holds true for you, the annual cost of care when you are likely to need it will be about $280,000 a year.
The average claim length 4-5 years means you will need to have $ 1 million to $ 1.3 million set aside to secure your retirement lifestyle. You will need to have an identical amount set aside for your spouse. Where will the money come from?
After the fact, Long-Term care insurance prices always appear to be a bargain. In fact Long-Term care insurance is a bargain!
Now that you have an idea as to the size and magnitude of the problem, how do you choose to handle it? The “do-it yourself” method (save, invest and hope you are successful) or transfer the risk to an insurance company? With a better understanding and a clear context for decision making, that $3000 to $4000 per year premium that I mentioned, looks like the bargain of the century.
9.) When Is The Right Time To Buy Long-Term care insurance?
Long-Term care insurance, it is recommended, and if you can afford the premiums should be purchased in your 40’s or early 50’s. An injury or illness can happen at any time. Coverage is dependent upon current health status and yearly premiums are based upon your age when you apply. Long-Term care insurance is less expensive at younger ages.
The cost of a Long-Term care insurance policy depends on the following factors:
- Your Health
- Your Age
- Your marital Status
- The benefits your choose
- Any discounts you are eligible for
Howard was 55 years and had just retired .He was beginning to look at the options he had regarding Long-Term care insurance. While he was working in the yard, he knew he wasn’t feeling right. He made an appointment to see his physician. The physician immediately scheduled him for a quintuple by-pass. The by-pass surgery went very well however, the second day home from the surgery he suffered a stroke. Howard’s opportunity to buy Long-Term care insurance has vanished.
10.) Won’t I save Money If I Wait to Purchase a Policy?
Cost of Waiting
Many people think that they will save money spent on premiums if they just wait to buy Long-Term care insurance. This is absolutely untrue. The longer you wait, the more you will pay in premiums over your lifetime.
Each year that you wait:
- Increases the annual cost of the insurance because you have to buy a higher daily benefit due to the fact that the cost of Long-Term care has gone up.
- You are a year older so your premium will be increased
- You are at risk in the event you have a health change and cannot qualify for coverage.
The following example uses a Long-Term care insurance policy that includes $150 daily benefit, four-year benefit period, 90-day elimination period, and inflation protection with a major carrier.
Bob is 50 years old and the annual premium is $1338.75 in this example. If he paid this premium until he was 85 years old, he would have paid in a total of $46,856.25 in premiums.
If he waited just five years to purchase the same policy the annual premium would be $1974.37. The increased premium takes into account that Bob is now five years older and has to purchase a higher daily benefit since the cost of care has increased. If he paid until he was 85 years old he would have paid in a total of $59,231.10.
Waiting five years cost Bob an extra $12,374.85 in premiums over his lifetime…it did not save him a single penny! In fact, he was also uninsured for five years.
Bob’s total premium of $46,856,25 (purchased at 50) or $59,231.10 (purchased at 55) is a substantial amount of money. However, because Bob’s policy included inflation protection, his monthly benefit if he were to go on claim at age 85 would be over $20,000 a month. Three months benefits would be greater than the total amount of premiums paid over a 35 year period. Now take the $20,000 a month benefit and multiply it by the 48 months (4 years) benefit period and you see that your total benefit has increased to over $960,000. This is why you purchase Long-Term care insurance. By purchasing insurance you are transferring the risk. You are paying a small amount of money up front (premium) to protect yourself against a large potential loss later.
11.) Why Not Invest The Premiums Instead Of Buying insurance?
The invested amount of premiums over 20 years, may be only 5% to 12% of the potential insurance benefit. A 6 year insurance benefit may only yield ½ year of Long-Term care if the premiums are invested instead. Besides, if you invested premiums, where would the money come from if you needed Long-Term care next year or even 5 or 10 years from now. The saved premium account wouldn’t have time to grow.
12.) Why Waste Money On Insurance If You Have Assets To Cover The Cost Directly?
The same question could asked of auto, home owner’s or medical insurance. Why not self-insure there as well? You could just as easily pay your medical bills from your pocket. Or pay for damage to your cars and loss of your home out-of pocket and possibly save a lot of money over time. No matter what the risk, the total cost of premiums over a long period is usually a fraction of the cost of paying a claim from your own pocket. The reason we buy insurance is to preserve assets by leveraging premiums to buy a benefit at pennies on the dollar instead of paying dollar-for-dollar out-of pocket for a loss. The probability of a house fire is 1 in 1200, of having a major auto accident is 1 in 240 and of needing Long-Term care is 1 in 2. With a much higher probability doesn’t Long-Term care insurance make as much sense as buying those other coverages?
13.) Why Don’t You Get Your Money Back If You Don’t Use The Insurance?
This question always begs the underlying reason for its being asked. In essence the person with this concern is thinking, “it won’t happen to me, so it’s a waste of money”. To play to this objection, many carriers design policies with cash values, life insurance death benefits or return of premium at death. But these features increase premium cost and sometimes make coverage unaffordable. The same question could be asked of all insurance. Why don’t we get a refund with term life, health, disability, commercial lines, auto, or homeowners insurance? People seem to take it in stride, paying $80,000 for auto insurance or $20,000 for homeowners insurance over their lifetime. Then when they make a claim, if they ever do, they get their coverage canceled or more likely their rates are increased to cover the cost of the claim. Yet, out of denial or ignorance they can’t see why they should pay $40,000 over their lifetime for Long-Term care insurance where the probability for a claim is higher and the risk of loss is 4 to 10 times higher than the risk of loss with a car or home.
14.) Where Can You Receive Long-Term care?
Long-Term care can be received in a variety of settings. The setting is usually determined by the level of care needed.
Home Care is generally considered appropriate at the custodial and non-skilled care levels. Skilled care can be provided in the home however, it can be very expensive. Home care could consist of a weekly visit by a homemaker that performs housekeeping chores, a personal care attendant that provides assistance with bathing, dressing or it may be a daily visit by a home health registered nurse or therapist.
Mary was diagnosed with Parkinson’s disease two years ago. Now she is unable to walk without assistance. She cannot bathe or dress herself. Her daughter, Shirley, is currently helping her with these needs. Her daughter has to go back to work in order to save money for her two children who will be going to college in the next two years. Mary is now going to have to tap into her life savings and pay for a caregiver to come in and help her, so that she can stay at home.
Adult day care is a community based service that was developed to keep people out of nursing homes and in their own homes. Adult day care facilities offer custodial care during the weekdays (some provide weekend service). This care can be provided to people that need minimal assistance and have moderate impairments.
Adult day care centers offer a form of support for those that live in their own homes, or maybe with their children. Adult day care centers offer family members who are providing care the much needed break during the day to continue to live their lives and provide care for their loved ones.
Sam lives with his daughter, Pearl. Pearl works full time. Lately, she has noticed that Sam has been forgetting to prepare and eat his meals during the day. One day she was called at work by a neighbor who found him wandering down the street. Pearl wants to take care of her father after work and on the weekends, but she needs help during the day. An adult day care would provide her with the solution she is looking for.
Assisted living facilities, or residential care facilities provide non-skilled care for people that need help with their activities of daily living, but can also provide a lot of their own care and get through the daily routine with minimal assistance. Usually skilled care is not provided in assisted-living facilities.
These facilities are an excellent alternative to a nursing home. The residents live in individual apartments that they can furnish and personalize to make it more like home. Meals are usually provided in a community dining room. In addition, there are many activities and social events to attend within the facility. You can find these facilities as part of a larger independent retirement community, or as a stand alone facility that only offers assisted living. There are also small board and care homes that care for anywhere from 3-10 people. These are homes that have been converted to a board and care.
Leah was 87 years old and living in her own home. She was not getting out of the house and not socializing with anybody. Her daughter, Bea, arranged to have her mother move to an Assisted Living Facility after she realized that she was forgetting to take her medications and was not able to handle her own hygiene issues. She didn’t need skilled nursing care, but she did need help with her activities of daily living. Now Bea will not worry as much since there will be caregivers ensuring her mother gets her medications and assistance with her personal hygiene. Her mother will be able to participate in the weekly activities so she will remain active socially.
Skilled nursing facilities act as a cost-effective way to enable patients with injuries, acute illnesses or post-operative care needs to recover in an environment outside of a hospital.
Skilled nursing facilities also serve a second purpose in caring for residents who have chronic illnesses and Long-Term care needs. Most of these patients will never recover or stabilize to the point where they can take care of themselves and go back home. Recent studies on nursing home populations reveal that both the age of residents and their need for medical help is increasing. It seems the elderly are finding alternatives to the nursing home until their health gets to a point where the nursing home is the only option for care.
Jack recently had his hip replaced. Although he is expected to recover fully, he needs physical therapy to be able to walk again. He was admitted to a skilled nursing facility to receive his therapy. He will remain there as long as he needs therapy on a daily basis and is getting better.