Determine your general need for coverage
Generally speaking, if you can afford coverage, if you can qualify for coverage, and you have sufficient assets to preserve, (and you wish to do so), then long term care coverage is a great idea. Current statistics indicate that approximately 40% of the population will need long term care coverage. That number will continue to climb as the aging population increases. How much is enough, in terms of assets? For purposes of this Guide, I will assume that the person will require long term care in excess of what MEDICARE would pay. Medicare usually pays for 90 days of "skilled nursing care." Anything beyond this, the patient would need to private pay. MEDICAID is a welfare program designed only to cover the needy. If a person only has a home, modest bank assets and a car, then he or she may need all of their money to pay for their living expenses and long term care coverage may not be cost effective. For this person, Medicaid will provide a cushion to cover their long term care.
Medicaid provides coverage if there is no other alternative. If may not provide the best of care in the best of facilities. Medicaid only reimburses nursing homes about 65-70% of what the private pay rate would be. So most nursing homes have no incentive to take Medicaid patients and many facilities limit or exclude such patients. If you cannot afford to pay for your care, you might be stuck in a substandard facility. (This is not to suggest that facilities that take Medicaid patients are all substandard. As a generalization, however, the nursing homes that can afford to provide the best care tend not to accept Medicaid patients or to limit them.) To the extent that you can afford to pay for your care, you are likely to have a much greater selection of facilities that are considered top of the line. That is where long term care coverage can help.
Paying for care - so how much is it going to cost?
In 2005, the most recent year for which I could find credible figures, the average cost nationally for nursing home care for a private room was $75,000 per year. The cost for a semi-private room was about $10,000 less. Costs are increasing at a rate of 5-8% per year. And those figures are MUCH higher in some states. In Connecticut, the cost was $133,590 and in Alaska, $141,620. At this rate, it does not take long to completely drain lifetime savings and investments. Even at the average cost, a three year stay, (which is the national average), would cost $225,000.
What does long term care coverage cost?
This is a very difficult question to answer because the prices vary widely based on state, the age and health of the insured and the desired benefits. There are a great many different types of policies and they can be customized to deal with many different situations. In 2002, a policy offering a $150 per day long-term care benefit for four years, with a 90-day deductible, cost a 50-year-old a national average of $564 per year. For someone who was 65 years old, the national average cost was $1,337, and for a 79-year-old, the national average cost was $5,330. The same policy with an inflation protection feature cost, on average nationally, $1,134 at age 50, $2,346 at age 65, and $7,572 at age 79. Please note that these are only national averages. The cost of long-term care varies significantly by state. For the cost of care and coverage in your area, check with a representative of a long-term care insurer, an insurance agent, or financial adviser.
How much coverage do I need?
This depends on your age, your life expectancy, your family health history, your assets, and how averse to risk you are. Given the costs involved and the projections for the future, you should consider the best policy you can afford. A rider for inflation is also a great idea because, over the next ten years, costs could easily double. Without an inflation rider, you would need to absorb those costs through your savings and investments. Another consideration is whether or not you wish to pass money on to someone as an inheritance. If the answer is no, then you may decide to get a lower cost policy with the idea that you are willing to cover whatever else is necessary to pay for your care. There are newer policies which are "hybrid" products in that they provide both long term care and life insurance. One of the knocks on LTC coverage is that if you do not need care, the money is wasted. With the new policies, if you do not need long term care there is a death benefit for your heirs.
What if I have a spouse?
That is probably one of the best reasons to purchase long term care coverage. Without coverage, your spouse would need to use joint assets in order to pay for your care, unless or until you were able to qualify for Medicaid. This could have a serious impact on the spouse's ability to pay bills and maintain a modest lifestyle. Each state has rules regarding the "community spouse resource allowance", which is the amount that the "community" spouse, (the person NOT needing the long term care), is allowed to keep. This is usually a fraction or percentage of the combined assets of the couple. (Keep in mind that the marital residence is an exempt asset, for Medicaid purposes, as is one car). Beyond that, the spouse is allowed to keep a portion of the couple's income. The rest must be paid to the nursing home. Long term care coverage can help eliminate these concerns.
What if we don't qualify?
Generally speaking, you are better off applying for long term care coverage at an early age, because the premiums will be cheaper, and you will have far less likelihood that you will have experienced a health problem that renders you ineligible for coverage. Any serious health problem could make qualification difficult, more expensive, or impossible. If you have already been denied coverage, then you should check with a number of different carriers to see if there is one that will cover you for an affordable amount. If there is not, then the next best step would be to meet with a qualified estate planning and elder law attorney to assess your situation and to determine how best to proceed. You should also meet with a financial planner to make sure that your savings are invested in such a way that you can maximize your chances of being able to cover as much care as possible, on your own.
Do not forget your estate planning!
Just because you are focusing on long term care, there is no reason to neglect your estate planning! National figures indicate that almost 70% of the population has NO estate planning. That means that for the majority of the population, they have worked their entire lives to amass their estate, and they have no idea what will happen to it, when they die. What will happen is that your heirs will be at the mercy of the State intestacy rules, in the state where you live. This may reflect an approximation of the distribution you would otherwise have provided, but it may be totally different from your intent. You owe it to yourself and your loved ones to take control of this situation. A qualified estate planning attorney is likely to charge you much less than you expect to prepare your estate plan. In any event, you will have the peace of mind of knowing that your wishes will be carried out.
One last thing
No discussion on long term care would be complete without mentioning a General Durable Power of Attorney, as well as a Power of Attorney for Health Care. These forms designate a person (or persons) of your choice to step in and make decisions for you and to handle your affairs, in the event you become incapacitated. In the absence of these forms, the only alternative is to seek appointment of a guardian and or conservator through the probate court. These proceedings, sometimes referred to as "living probate," can be costly, time-consuming, and can generally put your loved ones through a legal ringer, when they are trying to focus on taking care of you and your needs. Power of Attorney forms completely eliminate the need for these proceedings. I feel very strongly that every person needs a Power of Attorney. Make sure that the form you sign is "durable", meaning that it continues in effect even after you become incapacitated. For most people, that is precisely when the form is needed.