Frequently Asked Questions - LTC The Need
Costs for long-term care can be significant, and statistics show that of 9.3 million Americans receiving assistance with activities of daily living or instrumental activities of daily living, 77% have been receiving care for more than one year and of that number, 29% have been receiving care for more than 5 years.1
By purchasing long-term care insurance, you accomplish four key objectives:
- You provide yourself with greater control over how and where you will receive care. You are not limited by the options available through Medicaid.
- You reduce your dependency on family members, and avoid becoming a burden to them.
- You preserve your assets – very important if you will recover from this disability, if you have a surviving spouse, or if you want to leave a legacy to your heirs.
- You increase the likelihood that all of your needs for assistance will be met. A government study found that “lacking the necessary assistance with ADLs, approximately one half of those in need experienced a serious negative consequence such as burns from bath water, weight loss, or being chair- or bed-bound.” 2
Therefore, unless you have a net worth in excess of $5 million, chances are you should buy long-term care insurance coverage. Even individuals with net worth in excess of $5 million may want to purchase LTC insurance, if any of the objectives listed above are important to them.
1 J. M. McNeil, “Americans with Disabilities: 1994-95,” P70-61, n.pag., detailed table 12. Internet, August 14, 2000. Available: http://www.census.gov/hhes/www/disable/sipp/disable9495.html.
2 Health, United States, 1999 with Health and Aging Chartbook, (Hyattsville, MD: National Center for Health Statistics, 1999), 60.
One of the most common misconceptions about long-term care insurance is that only the elderly need long-term care. In reality, many working age adults experience disabling injuries and illnesses that require ongoing care. Consider the following statistics:
- In 1995, approximately 25.6 million Americans not living in long-term care facilities were severely disabled1 This represents 9.9% of the total population.
- An estimated 12.8 million Americans need long-term care. Of these, 10.4 million (81%) live at home or in community settings and 2.4 million (19%) live in institutions;2
- 5.1 million (40%) are working age adults between the ages of 18 and 64.3
- 6.2 million (48%) have difficulty performing one or more of the activities of daily living (ADLs), including 3.8 million adults who live outside of institutions.4
1 J. M. McNeil, “Americans with Disabilities: 1994-95,” P70-61, (Washington, DC: U.S. Department of Commerce Economics and Statistics Administration, August 1997), 6, table 1. Internet, August 14, 2000. Available: http://www.sipp.census.gov/sipp/pubsmain.htm.
2 Jane L. Ross, “Long-Term Care: Diverse, Growing Population Includes Millions of Americans of All Ages,” GAO/HEHS-95-26, (Washington, DC: General Accounting Office), 5. Internet, August 15, 2000. Available: http://frwebgate.access.gpo.gov/cgi-bin/useftp.cgi?filename=he95026.pdf&directory=/diskb/wais/data/gao.
3 Jane L. Ross, “Long-Term Care: Diverse, Growing Population Includes Millions of Americans of All Ages,” GAO/HEHS-95-26, (Washington, DC: General Accounting Office), 5. Internet, August 15, 2000. Available: http://frwebgate.access.gpo.gov/cgi-bin/useftp.cgi?filename=he95026.pdf&directory=/diskb/wais/data/gao.
4 Jane L. Ross, “Long-Term Care: Diverse, Growing Population Includes Millions of Americans of All Ages,” GAO/HEHS-95-26, (Washington, DC: General Accounting Office), 6. Internet, August 15, 2000. Available: http://frwebgate.access.gpo.gov/cgi-bin/useftp.cgi?filename=he95026.pdf&directory=/diskb/wais/data/gao.
If you are over age 18 and can afford the premiums, it is never too soon to buy long-term care insurance. Remember that not only the elderly require long-term care: of the 12.8 million Americans who need long-term care, 5.1 million (40%) are working age adults between the ages of 18 and 64.1
If you delay your purchase, you may be unable to qualify for the insurance when you want to buy it. If you become ill or disabled, you may be turned down for long-term care insurance or your premiums may be rated (i.e., you may be charged a higher monthly amount).
In addition, because premiums are determined based on your age, the younger you are when you buy long-term care insurance, the lower your premiums will be. As shown in the chart,2 waiting to buy insurance ultimately costs significantly more, not to mention the risk that you will not qualify for the insurance at a later age.
1 Jane L. Ross, “Long-Term Care: Diverse, Growing Population Includes Millions of Americans of All Ages,” 5.
2 Chart is based on the cost for a 35-year old resident of Illinois to buy $6,000 monthly nursing home benefit with 75% Total Home Care, 6-year benefit period, and 5% compound no cap inflation protection. Premiums used for older ages are based on premiums to purchase the compounded monthly benefit amount the 35 year old will have at those older ages.
Disability insurance is intended to replace your income in the event of a disability. Long-term care insurance is intended to pay for expenses incurred when long-term care is needed. A good disability insurance policy will provide enough income to allow you to maintain your standard of living while recovering from a long-term disability. However, it will not necessarily provide enough money to cover the increased expenses of long-term care. Such expenses will need to be covered by health insurance (which only rarely covers any portion of LTC), out-of-pocket payments, or long-term care insurance.
Health insurance only pays for acute - as opposed to chronic - medical care; i.e., care that is intended to restore your health. When it is determined that you have recovered as much as possible from an injury or illness, and that further medical care will not further restore your health, health insurance benefits will cease. Most health insurance plans do not pay for LTC. Some provide a small benefit for skilled care services (restorative in nature), but not for custodial care.
Long-term care insurance benefits, on the other hand, cover chronic needs for care that do not necessarily require professional services. For example, a person who has been injured in an accident or a stroke victim may require assistance with activities of daily living such as dressing, bathing, and eating. Such individuals will likely require physical or supervisory assistance for an extended period of time. However, because this type of care is not considered skilled medical care, and because it is not restorative in nature, it generally is not covered by health insurance.
One of the most common misconceptions about long-term care is that government programs will cover such expenses. Medicare, which is a health insurance program for people over the age of 65, fully covers only 20 days in a Medicare-approved 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 co-payment of $97 is required. Considering that the average daily cost for care in a skilled nursing facility was $1361 in 1997, Medicare coverage doesn’t go very far!
In addition, Medicare only covers restorative care – not chronic or maintenance care. Thus, as soon as doctors determine that your condition will not improve, Medicare coverage is terminated – potentially before even the end of the 20 days that are theoretically “fully covered.”
After 100 days, Medicare does not cover skilled nursing care – regardless of your health status. As shown in the chart2, Medicare pays only 9% of the long-term care facility expenses for its beneficiaries.
Medicaid is a federal and state funded welfare program. Historically, Medicaid programs have paid approximately 44% of long-term care 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. While a healthy spouse will be allowed to keep a personal residence and a limited amount of assets for his or her lifetime, upon the death of the surviving spouse, Medicaid is required by law to attempt to recover from the estate any Medicaid benefits that were paid to the Medicaid-qualified spouse.
1 Celia S. Gabrel, “An overview of nursing home facilities: Data from the 1997 Nursing Home Survey. Advance data from vital and health statistics; no. 311,” (Hyattsville, Maryland: National Center for Health Statistics, 2000), 10, table 8. Internet, June 9, 2000. Available: http://www.cdc.gov/nchs/products/pubs/pubd/ad/ad.htm.
2 Health and Health Care of the Medicare Population (1996),” (n.p.:Health Care Financing Administration, 2000), Table 4.7. Internet, August 8, 2000. Available: http://www.hcfa.gov/mcbs/PublDT.asp.
If needed, the costs of long-term care will easily exceed the amount that could be accumulated by saving and investing the premium dollars. For example, consider the following average annual cost statistics1:
Skilled nursing facility care in the United States costs approximately $49,600
Residential care facility (i.e., a facility providing only low level care) costs more than $35,300
Skilled nursing facility care in the Northeast costs approximately $64,300
A survey conducted by the MetLife Mature Market Institute found that the average cost of a nursing facility ranges from a low of $90 per day in Louisiana ($32,850 per year) to a high of $413 per day ($150,745 per year) in Alaska.
By comparison, even for a 59-year old, premiums to purchase long-term care insurance with a $6,000 monthly nursing home benefit are only $3,308 per year. On this basis, one year of care in a residential (low level) care facility will cost more than 10 years of premiums.