Frequently Asked Questions - LTC Costs
One of the most common misconceptions about long term care (LTC) is a belief that health insurance or a government program will pay for LTC.
Health insurance is designed to reimburse expenses associated with medical costs, including tests, medicines, doctor visits, and other specific services. In the case of accident or illness, it only covers the costs to help you get well. Once you have recovered as much as possible, it will not pay the ongoing cost of any chroninc, custodial care which is the most common type of LTC.
As shown in the chart below,1 government programs that help pay for LTC are both restrictive and very limited:
Medicare fully covers only 20 days in a skilled nursing facility, and only if the nursing facility stay is immediately preceded by a three-day hospital stay. From the 21st day through the 100th day, a daily co-payment of $137 is required. Considering that the average daily cost for care in a skilled nursing facility was $2192 in 2009, Medicare coverage doesn’t go very far!
After 100 days, Medicare does not cover skilled nursing care – regardless of your health status.
In addition, Medicare only covers skilled nursing care – not chronic or maintenance care. Thus, as soon as your doctor decides that you no longer need skilled nursing care, Medicare payments for the skilled nursing facility are terminated – potentially before even the end of the 20 days that are theoretically “fully covered.” This is true regardless of whether you are able to return to your own home and live independently at that time.
Medicaid programs pay 41% of long term care skilled nursing facility expenses. However, to become eligible for Medicaid benefits, recipients must first spend their assets down to the poverty level. Furthermore, once qualified for Medicaid, recipients have little or no choice in determining where care will be provided.
The new Community Living Assistance Services and Supports provisions of the Health Care Reform bill of 2010 create a government plan intended to help individuals pay for LTC. However, this plan is expected to cost substantially more than private LTC insurance and to provide lesser quality benefits when it is implemented in 2012.
Accordingly, the best means of planning for and affording your likely costs of LTC is by purchasing private LTC insurance, either through your employer or in the individual LTC market.
1 National Health Expenditures by type of service and source of funds, Calendar Years 1960-2007. Internet, December 22, 2009. Available: http://www.cms.hhs.gov/NationalHealthExpendData/downloads/nhe2007.zip.
2 “The MetLife Market Survey of Nursing Home and Assisted Living Costs,” October, 2009, (Westport, CT: MetLife MatureMarket Institute). Internet, January 4, 2010. Available: http://www.metlife.com/assets/cao/mmi/publications/studies/mmi-market-survey-nursing-home-assisted-living.pdf?SCOPE=Metlife#Page=3
Average annual costs for long term care vary widely, depending on geography and the type of care received. The monthly base rate for Assisted Living Facilities (ALFs) averaged $3,100 in 2009.1 However, only a limited number of services are included in that based rate. For example, the average annual cost of ALF care for Alzheimer’s or dementia was $53,200.2 Skilled nursing care ranged from $48,900 (in Louisiana) to $213,200 (in Alaska) annually, with a nationwide average of $79,900.3 The map below shows average costs of care in 2009.4
Home- and community-based care costs also vary depending on the type and frequency of care required. The MetLife Mature Market Institute found that the average hourly cost of home health care aides ranges from a low of $13 per hour in Shreveport, LA ($14 per hour in Jackson, MS and Birmingham, AL) to a high of $25 per hour in Phoenix, AZ, Rochester, MN, and Madison WI.5 At this rate, as little as 20 hours of assistance each week could cost from $13,500 to $26,000. (A study by the National Alliance for Caregiving found that on average, family caregivers provide 19 hours of care per week.6)
1 “The MetLife Market Survey of Nursing Home and Assisted Living Costs,” October, 2009, (Westport, CT: MetLife MatureMarket Institute),25. Internet, January 4, 2010. Available: http://www.metlife.com/assets/cao/mmi/publications/studies/mmi-market-survey-nursing-home-assisted-living.pdf?SCOPE=Metlife#Page=3
2 Ibid, 9.
3 Ibid, 14-19. Cost is statewide average cost of a private room in a skilled nursing facility.
4 Ibid, 14-19.
5 Ibid, 26-31.
6 “Caregiving in the U.S. 2009,” (n.p.: National Alliance for Caregiving in collaboration with AARP, November 2009), 5. Internet, August 17, 2010. Available: http://assets.aarp.org/rgcenter/il/caregiving_09_fr.pdf.
Yes. However, LTC insurance premiums are based on your age and medical history when you apply for insurance. These rates can only be increased if the appropriate state insurance commissioner approves an increase and if rates for all similar policyholders are also raised. Furthermore, if rates are raised, your new premium will continue to be based on your original age (i.e., your age at the time of purchase – not your age at the time of the rate increase).
While many carriers have requested and received approval for rate increases on existing policyholders, most such increases have been on older products that were priced before the carrier had any real basis for pricing this type of insurance. Such products were often priced very low, due to erroneous assumptions about lapse rates on LTC insurance as well as other factors. Because some of the early products were subject to extremely high rate increases, the National Association of Insurance Commissioners created Rate Stabilization regulations, designed to reduce the likelihood of rate increases on LTC insurance. Most LTC insurance products in the market today are subject to rate stabilization, and are therefore less likely to be subject to rate increases in the future. However, currently, all LTC insurance is “guaranteed renewable,” which means that rates could increase in the future. The only way to limit the possibility of future rate increases is by electing a plan design that includes a limited premium duration – e.g., one which only requires premium payments for 10 years or one that requires you to pay premiums to a specified birthday.
Most insurance carriers allow policyholders to reduce their coverage, and thereby lower their premiums. For example, if you originally purchased a $6,000 monthly nursing facility benefit with lifetime benefits, you might reduce the monthly benefit amount to $5,000 or shorten the benefit period to 6 years.
Most newer LTC policies include “contingent nonforfeiture,” a feature that is designed to protect you if the policy is subject to a significant rate increase. If rates increase over the life of the policy by more than a specified percentage, then you have the option to exercise this contingent nonforfeiture option, by stopping paying premiums but retaining a reduced lifetime benefit equal to the total premiums you paid over the life of the policy. The specified percentage increase varies depending on your age when you purchased the policy. While this feature is nice to have, it is one that offers little value, because the nonforfeiture benefit is so small and because the specified increase percentages are relatively high.
All policies also offer a “nonforfeiture option,” which guarantees you a certain level of coverage, even if you stop paying premiums entirely. However, such options typically raise premiums significantly and typically are not cost-justified. For an additional price, if, after at least three years, the insured stops paying premiums, he or she will receive a nonforfeiture benefit equal to the monthly benefit under the long term care insurance policy, but limited to the amount of premiums paid to the insurance company over the life of the policy. Because LTC insurance premiums are usually minimal in comparison to the cost of care, this benefit is likely to be negligible.
Historically, LTC costs have increased in excess of the consumer price index. For example, according to a MetLife study which has been performed annually, the nationwide average annual cost of skilled nursing care increased from $61,000 in 20021 to $79,900 in 20092 – an increase of 31% in just 8 years. During the same period, the consumer price index rose only 19%.3
Furthermore, with a “silver tsunami” of baby boomers about to reach the age when they are likely to need LTC, we anticipate that a high demand for caregivers will make the cost of long term care rise even more rapidly over the coming years.