Risk Management

Plan Ahead for Long-Term Care

By Michael Meyers
Mr. Meyers is a freelance writer in Charlottesville, VA. He has written extensively about the insurance industry.

[Digest, Fall 1999]

Most doctors and other professionals would never dream of going without life, auto, homeowners, and medical insurance for their families. Yet they risk the assets they’ve worked so hard to build up by overlooking another equally important personal insurance protection: long-term care insurance. They often believe that a nursing home represents a loss of independence, that it is the only form of long-term care available, and that long-term care insurance is too expensive.

Nursing homes are not the only long-term care option. More and more people are taking advantage of assisted-living facilities, senior housing with services, adult foster care, home health care, and other innovative forms of long-term care to avoid the high cost of a nursing home stay. According to the Health Care Financing Administration, the average annual cost of a nursing home stay is $47,000 and rising. Of course, the cost of alternative services can add up quickly too, and even a single year of long-term care paid for out-of-pocket can be more costly than insurance.

Changes in federal income tax incentives in 1997 allowed qualified long-term care insurance premiums to be deducted as medical expenses, in whole or in part, subject to certain limits, provided the plan meets federal guidelines. Employers who pay premiums for an employee and/or spouse can deduct them as a business expense. Solo practitioners or doctors in a partnership, including S corporations, may deduct long-term care premiums to the same extent they do health insurance premiums.

The younger a person is at the time long-term care insurance is purchased, the lower the premium. Many people wait too long to buy this coverage. Not only does this raise the premium, it increases the likelihood of developing a chronic illness that will disqualify the applicant for coverage. When evaluating the need for long-term care insurance, take into account the individual’s personal situation, retirement plans, and family relationships. Ask yourself the following questions:

How Long Should Coverage Last?

Given the statistics on lengths of nursing home stays, you probably want to shop for a long-term care policy that provides two to four years of care. More coverage may be a waste, less a big risk.

How Do I Decide on a Daily Benefit Amount?

Research the costs of nursing home care where you live, keeping in mind that it is likely you will need to pay a nursing home more than the basic rate each month because of added charges for drugs and special services. One approach is to select a daily benefit equal to the nursing home’s published rate and plan to pay out-of-pocket for extra services. You also may want to take into account your projected discretionary income and how much you will be able to afford to pay out-of-pocket.

How Much Can I Afford Out-of-Pocket?

Even with this insurance, you will have to pay some costs yourself. First, you must meet a deductible (elimination period). Then, some plans pay a fixed amount for each day you are in a nursing home, regardless of how much your nursing home care cost, while other plans pay actual charges up to a fixed amount. How a plan pays its benefits will influence how large a benefit you select, so factor this into your decision.

What Coverage Benefits Should I Look For?

The company behind the coverage.
The carrier’s financial stability and experience providing long-term care insurance are the first things to consider. You want assurance that the company will be around in ten or fifteen years if you need to apply for benefits. A.M. Best, Moody’s, or Standard & Poor’s rating systems can help you judge.

Type of coverage provided.
Look for a plan that covers skilled, intermediate, and custodial nursing home care.

Home health care.
You’ll most likely want a plan that offers home health care as an option or as one of its regular benefits in situations where nursing home care is not necessary.

Definition of a covered stay.
A good plan should cover your nursing home stay not only if you are injured or sick but also if you need continual help with two “activities of daily living” (i.e., dressing, toileting, continence, transferring, or feeding) or you need supervision because of cognitive impairments like Alzheimer’s Disease.

Choice, choice, choice.
Different people have different needs based on their income and assets, nursing home costs where they live, and how much they can or want to “self-insure.” Select a plan that gives you a choice of daily benefit options, elimination periods (deductibles), and benefit limits. That way you can build a plan to meet your individual needs.

Inflation protection.
Because you are purchasing insurance today to meet tomorrow’s costs, you probably will want inflation protection. There are two types of inflation protection available: one automatically increases your benefit level by an equal percentage each year; the other compounds the benefit increases.

Guaranteed renewable.
This means you can always renew your coverage as long as you pay your premiums on time, even if your health condition worsens. In most cases, however, the insurer will reserve the right to change premiums for all persons in a given class or state.

Waiver of premium.
This allows you to continue coverage without cost after you have been receiving benefits for a certain period of time, such as 90 days. Some plans offer a “return of premium” or nonforfeiture benefit in case you die or terminate your coverage. However, this provision can add significantly to the cost of a plan.

If you need additional help shopping for long-term care insurance, contact the National Association of Insurance Commissioners at (816) 374-7259 for a copy of the Shoppers Guide to Long-term Care.

The American Academy of Ophthalmology offers comprehensive long-term care plans to active Academy members and their spouses, parents, and grandparents. To learn more about these plans, call the Academy Insurance Center at (800) 906-7607 for a free consultation.