Florida elder law and Medicaid - Sean W. Scott, Esq.

LONG TERM CARE INSURANCE FACTS

By Sean W. Scott, Esq. Elder Law Attorney

How we, as a nation, will pay for long term care will be a topic of much discussion in the next millennium. While we do not know exactly how the future's long term care system will work and who will be covered, we can generally assume that the government will try to do more with less and may even do less with less. Therefore, while there currently exists government benefits to pay for the cost of long term nursing home care, the future is uncertain and the client may want to consider long term care insurance. Remember though that the insurance must be bought before the need arises. You can not get long term care insurance if you are sick or going into the nursing home.

Every senior 55 or older should consider private long term care insurance as an option to government benefits. Are you a good candidate for long term care insurance? The answer to that question depends on many factors including age, health, and asset level.

When the insurance salesman promotes long term care insurance, he or she will extol the following virtues:

1. Independence and choice of facility

2. Protection of your family

3. Assurance that you are provided with quality alternatives for care

4. Protection of retirement savings

5. Protection of property and family assets; and

6. Peace of mind.

Translated this means:

1. If there is a choice of a private/insurance pay client or a Medicaid client some facilities show a preference to take the more profitable private pay patient. Long term care insurance may give you an edge in choice of facility. Generally speaking though, Medicaid or private pay, makes little difference in choice of facility.

2. Your family will not feel obligated to pay for your care. In reality, your may not be able to pay for your care. In rare cases, with rich children, this may be an option, but most children are unable to shoulder the $4,000 a month cost of care, especially when Medicaid is available to pay for this care.

3. Alternatives for care means home health care, hospice, or assisted living care. Most long term care policies do not contain this kind of coverage, so if alternative care is an important consideration then double check for this coverage. By the way, greater coverage will usually translate into a higher cost for the insurance.

4. Means you do not have to use your own money to pay for care. This is the obvious reason for buying long term care insurance. Be careful, I see many clients that bought a policy without a provision for increase in coverage with inflation. Now they find themselves with a policy that does not adequately cover their costs of care.

5. See reasons number 2 and 4.

6. The best reason to buy long term care insurance, the peace of mind that when this problem arises you will have a solution already in place to pay for the care.

KEY POLICY PROVISIONS

Here are some important provisions in long term care insurance that you should look for when deciding on which features to include in your policy:

BENEFIT PERIOD

The policy covers a nursing home stay for a certain period of time. You should consider a plan that provides coverage for at least the 3 years. This will allow you the most opportunity to evaluate your continuing long term care needs and your options for asset preservation. Longer coverage periods of 4 years, 5 years or life are available. Depending on the amount of your assets you may want a longer period of coverage. Longer periods of coverage equal a higher premium.

EXCLUSION PERIOD

Another provision in long term care insurance policies is to require a waiting period before the insurance coverage comes into play. This waiting period is called the exclusion period and can be from a few days to several months. Choosing a longer exclusion period might be made on the basis that the financial strain would not be felt until you had been in the nursing home for the period selected. Usually the shorter the exclusion period the greater the cost of the policy.

DAILY BENEFIT

Make sure your policy has a “daily benefit.” What this means is that you should select a plan that provides an adequate amount of coverage that pays your cost of care in your area and does not require you or your spouse to pay out of pocket for care or reasonable living expenses. Again, keep in mind that the insurance premium goes up with the greater benefit amount selected. One of the choices in selecting a 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 1999 most rates are in the area of $130 PER DAY. Companies often specify the maximum total amount that would be paid out under given coverage.

LEVELS OF COVERAGE

Some policies will restrict coverage and pay only under certain restricted situations based upon the level of care to be provided, skilled nursing care for example but not custodial care. You should choose a policy that covers more than just skilled nursing home costs. The policy’s additional coverage should cover the costs of care in facilities that provide multiple levels of care including custodial. Common levels of care include: Skilled care, intermediate care and custodial care. It should not be a prerequisite for coverage that you require skilled care for coverage under the policy.

The policy should specifically include at a minimum the following facilities:

Skilled nursing care

Custodial care

Home health care, including adult dare care

Assisted living facilities (ALF’s)

Hospice facilities

Mental health facilities

NO HOSPITAL STAY REQUIRED

Your health care insurance should not require you to have an overnight hospital stay before your insurance becomes effective. This factor is important to consider because more than half of nursing home patients go directly to long term care facilities from home.

COVERAGE FOR ALZHEIMER’S DISEASE AND SENILE DEMENTIA

Benefits must be paid for those suffering from these illnesses. These illnesses were common exclusions in long term care policies a few years ago. Make sure your policy does not include these exclusions.

BENEFIT TRIGGERS

There are 3 ways in which your insurance benefits are usually triggered:

Medically Necessary Care: This is when care is provided as a result of a physician certifying that due to injury, illness, or chronic condition, you require care and assistance.

Activities of Daily Living: Your benefits should become active when a physician certifies that you require assistance with at least 2 daily activities including bathing, dressing, mobility, toileting, continence or taking medications.

Cognitive Impairment: Benefits are usually triggered here when as a result of a cognitive impairment, you require assistance to perform the activities of daily living.

MAKE SURE TO LOOK FOR….GUARENTEED RENEWABLE

The policy you choose should be renewable, regardless of change in your health, at a level rate for the life of the policy. Consumers who choose long term care insurance run the risk of unpredictable premium increases that may make it difficult to retain their policies. If the client allows the policy to lapse, he will lose the money he invested in premiums.

INFLATION PROTECTION

Look for inflation protection. 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 1999 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.

With this option, insurance benefits increase annually and are indexed for inflation. This can be a costly addition to coverage and is often not cost effective for those over 75 years of age. For those over 75, it is usually better to elect a higher daily benefit without inflation protection.

INSURANCE COMPANY STABILITY

Make sure the insurance company that you select is financially sound. This can be assessed by considering the rating given to a company. Insurance companies are rated by services including: A.M. Best, Moody’s, Standard & Poors, Duff & Phelps and Weiss Rating. Ask your agent for the companies rating information.

LONG TERM CARE INSURANCE SUMMARY

Long term care insurance is an option to managing the risk of long term care costs. Whether or not it is the option of choice depends on many factors, the most significant being cost. My rule of thumb is that for most clients the cost of insurance is prohibitive in relation to the protection provided. In other words, a person who has relatively few assets to protect ($0.00 to $200,000) and is or may easily become Medicaid eligible is NOT a candidate for long term care insurance. Those clients who have significantly larger estates $800,000 or more may be considered self-insured. Those clients in the middle are the prime candidates for long term care insurance. They can afford the cost of the insurance, and they have an amount of assets that would make it more difficult to become eligible for Medicaid.

Before you sign up long term care insurance get advice from someone who is knowledgeable on this subject. You may want to contact your local Area Agency on Aging office or your state insurance department.