The Need For Long-Term Care Insurance

This is custodial care and it is beyond the ability of most families to provide. Thus nursing home care is required. Studies show that the average term for such care is between two and three years. However, it is not unknown for such patients to remain in custodial care for two and three times that period. If you have no long-term care insurance, you must pay the bill, at least until you have exhausted your resources.

When you exhaust your resources, you become eligible for Medicaid. That program requires very limited resources, but it does pay the cost of nursing home admission and custodial care.

The cost of nursing home care has been subject to the same inflationary factors we have seen in all medical care. Depending upon the location and standards of the institution, yearly costs in 1995 ranged from $25,000 to $50,000. There is every reason to believe that these increases will continue in the future.

Having identified the need and the costly nature of long-term care, we will identify some of the variables that exist in selecting appropriate insurance.

DOLLAR COVERAGE: One of the choices in selecting a LTC policy is the amount of daily cost you choose to buy. For example, you can decide to buy a policy that will cover only a part of the cost of a day's care. Thus a $50 a day policy would leave you to cover the remainder of the cost out of your own pocket. As of 1995 most daily rates are in the area of $90. Companies often specify the maximum total amount that would be paid out under given coverage.

Many policies carry an inflation formula of about 5% to cover the increase of costs from year to year. This is a wise provision to have included in the policy you choose. For example, if you bought an $80 daily coverage plan beginning in 1995 at the age of 65, and you entered a nursing home when you became 70, the daily cost would have risen to about $105.25.

Another choice in LTC insurance is to have a waiting period before the insurance coverage comes into play. This waiting period could be from a few days to several months. Such a choice might be made on the basis that the financial strain would not be felt until you had been in the hospital for the period selected.

The other vital alternative you must choose when buying LTC insurance is the period of coverage. If the average time spent in a nursing home is about three years, you need to decide whether to gamble on less coverage than that or to purchase more. All of these choices have a direct bearing on the premium you will pay. When that period of coverage is exceeded, you are back into the position of having no insurance, and must manage all costs from your own resources. Selecting a life-time care option carries substantially higher premiums than coverage for definite periods.

HEALTH CONSIDERATIONS: All policies have a waiting period for preexisting conditions. They are defined as conditions for which medical advice or treatment was recommended by or received from, a provider of healthcare services, within the defined period preceding the effective date of coverage of the insured person. That is consistent with most health insurance policies of all kinds. It is wise to have a clear understanding of this provision and to be absolutely honest about the existence of such conditions. It is possible that a failure to be candid will result in the cancellation of your coverage just when you need it most.

Don't wait until you have had medical confirmation of a fatal illness before buying insurance. Insurance companies must enforce preexisting-condition regulations to safeguard their clients who share the costs through their premiums. Most insurance companies have specific exclusions for their policies. They are:

• Being outside the United States or its possessions.
  
• Being in a Veteran's Administration or federal government institution unless you are charged for the stay.
  
• Needing care as a consequence of war or an act of war.
  
• Needing care as a consequence of an attempt at suicide or an intentionally self-inflicted injury.
  
• Needing care as a consequence of mental, nervous, psychotic, or psychoneurotic deficiencies or disorders without demonstrable organic disease. (Some states prohibit such an exclusion if it is for Alzheimer's disease or a related illness, unless preexisting.)

Another variable affecting premium rates is the age at which you purchase coverage. If you are 60 years old, premiums will be less at your entry into the program than if you are 70.

Because of these variables, it is difficult to make easy comparisons between policies and there are several other types of care available through LTC policies. Some have provisions for skilled nursing care, intermediate care, and home healthcare. You should check to see what these provisions are when you examine the policies you are considering.

At the end of 1994, approximately 1.6 million Americans purchased long-term care insurance. Although the National Association of Insurance Commissioners (NAIC) established standards for this insurance, 24 states still have not developed standards requiring insurers to guarantee policy renewal, and 18 states have not adopted standards disallowing Alzheimer's disease exclusions. Most policies still contain restrictive definitions that potentially limit access to benefits.

Consumers also riskunpredictable premium increases that make it difficult to retain their policies. Yet, if you allow your policy to lapse, you will lose the money you invested in premiums. Some unscrupulous insurance agents will sell you policies when you have Medicaid or policies you don't need.

Before you sign up for this type of insurance get advice from someone who is knowledgeable on this subject. Contact your local Area Agency on Aging office or your state insurance department.

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