LONG TERM CARE INSURANCE

Long term care can be an expensive burden for many older people. Few people can afford to pay the often-astronomical costs of long term care out of their own pockets for very long. Nursing home costs average about $160 a day or $58,000 a year. Nationally, costs range from $35,000 to $90,000 (Alaska’s average in 2002 was $448 per day). In some facilities and for some levels of care, costs can exceed $160,000 per year! Home health care services provided just three days a week could cost more than $20,000 a year. Medicare provides only limited nursing home and home health coverage. Medicaid requires an individual to spend almost all of his or her savings and assets before becoming eligible for nursing home coverage.

Private Medigap policies only fill in gaps left by Medicare and does not extend coverage for long term care beyond Medicare limits. Employee group health and major medical plans cover acute illnesses, but provide very limited long term care coverage. Consequently, many people look to private long term care insurance as a way to cover the catastrophic costs of nursing home and other long term care services.

Long term care insurance is different from other types of insurance in that it is designed specifically to pay for some long term care services. Long term care insurance is not a substitute for either Medicare or Medigap insurance. Instead, it covers services neither of these includes. Moreover, availability of these policies is very limited because of restrictions on the age of potential purchasers, health screening and the absence of policies in many geographic areas.

Long term care insurance is a relatively new form of insurance coverage with five or six companies providing the bulk of coverage. Policies vary considerably in cost and benefits. The lack of consistency among policies can make it difficult to compare policies and make an informed choice. A comparison checklist will allow you to evaluate several different policies as you try to decide which policy to purchase. It lists the major elements and provisions of long term care insurance and some guidelines that may be considered as minimum standards when evaluating and comparing policies.

Your financial decision as to whether to purchase long term care insurance at all and, if so, which specific policy to select, probably will be based on a number of factors: your assessment of your chances of entering a nursing home; what services long term care insurance will cover; other resources, especially family support available to you relating to the provision of long term care; the cost of long term care insurance to you; and policy restrictions, such as waiting periods and pre-existing condition exclusions.

BUYERS BEWARE

A person’s need for long term care services may develop in many different ways. To adequately protect a person from excessive long term care expenses, insurance policies should be flexible and provide protection for all levels of nursing home care and for care in the home without severe restrictions.

The following types of policies provide some coverage for nursing home or in-home services, but may not actually cover most long term care services for individuals with chronic, debilitating problems. Purchasers need to understand the restrictions and limitations of these policies.

• Medigap policies that supplement Medicare

This also includes other policies that supplement the Medicare skilled nursing home benefit. Medigap policies can offer valuable protection from hospital and physician bills, but these policies have limited coverage for nursing home stays.

Remember, Medicare nursing home coverage has severe restrictions. Medigap policies, which only supplement the Medicare nursing home benefits, contain these same restrictions for nursing home coverage.

• Policies that only cover skilled nursing care

Most people who stay in nursing homes for long periods do not need skilled nursing care for most of their nursing home stay. Nursing home residents receiving a lower level of care, intermediate or custodial care, would not be covered under these policies.

• Policies covering nursing care only after long stays

Some policies only cover custodial care after stays of 20 or more days in a skilled or an intermediate nursing facility. Some individuals do not require skilled nursing care when they enter a nursing home, or do not require skilled nursing care for more than a few days.

Coverage would be limited by this type of policy, and it is possible that coverage would be denied since treatment did not begin in the designated facility.

• Policies giving benefits only in Medicare approved homes

Many nursing homes are not Medicare certified or approved. If a particular home were the best choice because of its location, cost or other qualification, it might not be eligible for benefits.

• Policies with coverage only in a skilled nursing home

These policies may provide coverage for all levels of nursing home care, but only if the care is provided in a skilled nursing home.

You should check to determine if the nursing homes in your area are skilled nursing homes and whether these homes provide different levels of care to residents over longer periods of time.

• Policies paying only a small part of the expected costs

You will find that some policies pay only a fraction of the costs of long term care services, such as $10 per day if you are in a skilled nursing home. Regardless of the amount, the policy benefit will tend to diminish with time in its ability to offset expenses.

• Covering home health care only after confinement

Many policies cover home health care only after a long nursing home confinement. Statistics show very few people who stay in a nursing home for a long period of time return to the community.

Sources: GE Financial, Long Term Care Division, GE Long Term Care Insurance Nursing Home Survey, March 2002. Financial Planning Consultants, Inc.