Long term care insurance options

By Ronald P. Perilstein, CLU

The Final Jeopardy answer is, “It has much less to do with long-term care than most people think.” What is, “your family?” No! What is, “Alzheimer’s?” No! The correct answer is, “what are nursing homes.”

It’s true, when most people think about long-term care, the first vision that pops into their head is usually a nursing home. In fact, long-term care has little to do with nursing homes and understanding this point can help you protect your family and your financial well-being.

The Consequences of Living Longer

Long-term care is actually the continuum of care services and housing that you will need when you live a long life. And don’t think you won’t live a long life! Just 25 years ago if you had cancer, heart disease or a stroke, you were much more likely to die. Today you are much more likely to live. Few people ever heard of Alzheimer’s; a disease that is today’s leading cause for long-term care services. The fact is that, the longer you live, the more likely you are to need care. The question is not who will take care of you, because in most cases it will be your family. Rather, the real question is what will providing that care do to them, both as a family, and financially?

Long-Term Care is Usually Custodial Care

Long-term care is defined as needing assistance with your activities of daily living (ADL). These ADLs include toileting, bathing, dressing, eating, transferring from one point to another, and continence. It also includes cognitive impairment severe enough to require constant supervision.

If you need custodial care, chances are it will be delivered in your home or in your community, but not in a nursing home. You may have heard compelling statistics from The New England Journal of Medicine stating that 43 percent of those over age 65 will need nursing home care. What the article actually said is that 43 percent of those over age 65 may spend some time in a facility. The fact is, only a small percentage of those needing care in a facility will die while receiving that care.

Every study conducted finds that care is overwhelmingly provided at home. The key question, of course, is who is going to pay for it?

Who Covers the Cost?

Many people think Medicare, the primary health care program for retirees, will cover the cost of care at home. Medicare pays only for skilled (nursing) or rehabilitative care, not custodial care in any venue.

Medicaid, the federal and state program for financially needy individuals, will pay for custodial care, but primarily in nursing homes. Funding for home care and assisted living is extremely limited and based on availability of funds.

Veterans believe that the Veterans Administration will pay for home care, adult day care or assisted living. As with Medicaid, funding is very limited and generally based on service-related disability. In fact, the federal government has conveyed this to veterans by encouraging them to purchase long-term care insurance through the new Federal Long-Term Care Insurance program.

The result is that most of us will be forced to pay for the care we’ll want out of our pocket. Moreover, even the best thought-out retirement plan rarely takes into consideration the huge cost of long-term care. Put another way, the assets and income we are counting on for our retirement, cannot cover both our retirement and cost of long-term care. As a result, one of greatest fears gripping today’s seniors – that of outliving their assets – literally may come true if they need to invade principal and divert income to cover long-term care.

The Role of Long-Term Care Insurance

The use of long-term care insurance thus becomes an important part of planning for disability caused by living a long life. The product has two roles: helping keep families together and allowing your retirement portfolio to be used for the purpose for which it was intended, namely paying for living during retirement.

Think about who will be providing your care. Like it or not, your spouse and/or children will play a key role. Long-term care insurance (LTCI) doesn’t replace the need, or desire, for family involvement in providing care, but rather it builds on it. It pays professionals to assist the family with the toughest tasks such as helping with toileting, bathing, feeding and continence. This, in turn, allows the family to provide a higher quality of care, for a longer period of time, at home. It helps prevent exhaustion and burnout and it also allows family members to stay at their jobs longer. And now the tough question: have you planned for the consequences of living a long life?

From a financial point of view, LTCI allows your retirement plan to be used for its intended purpose. That is particularly important, given the recent steep decline in portfolio values over the past few years.

Some people try to qualify for Medicaid by transferring assets, so it can pay for nursing home costs. Your retirement income (from pensions, social security, IRAs and/or 401k payout) however, cannot be protected. LTCI protects your income stream by providing the cash needed to pay for the care, regardless of where it is provided.

When considering the purchase of long-term care insurance, look for a long-term care specialist. Consider their training, educational credentials and commitment to help solve your long-term care needs. The key is whether your insurance professional talks first about a plan or a product. If he or she is interested in the plan, you are dealing with a professional. If they focus first on a product and/or price, you should seriously consider getting another opinion.

Ronald P. Perilstein, CLU, ChFC, CLTC is President of The Arjay Group, Inc. an independent insurance firm located in Narberth, PA.