What are the main concerns with Long Term Care?

Most of us will live a long life. Getting old increases the probability of becoming ill and needing care. There are also countless things that can go wrong before getting old that cause the need for long term care. When you need care, the consequences to your family and friends can be devastating, especially if it drags on and on for many years... and you are on the hook for the cost of that care.

Unfortunately, there isn't a solid system within our government or health insurance industry that you can count on to pay for ongoing care wherever you want to receive it. If you want to stay in your own home and receive daily ongoing long term care services, it will likely come out of your retirement savings. This usually means your principal, which is meant to provide the income you are counting on for a secure retirement. Most people count on retirement savings for their retirement dreams, family, and legacy, but not for long term care costs. Even if you have enough money to pay for several years of care, your spouse could live on for several years with a reduced standard of living. Your children could bear the brunt of the caregiving while trying to juggle things with their own families, and may live far away. Long Term Care for one family member could mean a terrible quality of life for the rest of the family.

Long term care insurance doesn't have to replace family, but it can help them provide care better and longer. The insurance can be used exclusively, or just as a tool to subsidize family members who have other responsibilities. A healthy spouse can become ill trying to provide all the care. Most policies offer care coordination services to help put a plan of care together, find caregivers in the area, and oversee the process. You can't underestimate the importance of this feature, because a care manager can make the entire difference in how smoothly the process can work for a family.

Understanding the Insurance

Long term care insurance can be simple, if you look at the big picture. The big picture is that if you need care for 90 days or more in two of six specifically-defined activities of daily living, or, separately, just in the area of cognitive issues alone, such as Alzheimer's, you will qualify for benefits. The six main areas are: bathing, eating, dressing, transferring, toileting, and continence. If you are in poor health to start with, qualifying for the insurance might be difficult. However, conditions such as high blood pressure, being overweight, asthma, depression, and well-controlled diabetes are not automatic disqualifiers.

How do the policies work?

If you need care that satisfies the triggers above, virtually all plans sold today will cover the cost of home care, adult day care, assisted living, and nursing homes. The plans include an elimination period to be satisfied before expenses start getting paid, similar to a deductible. You can choose how long that is, but shorter periods are more costly. There are variations in how these work, including one option to not have any wait for home care, but only for facilities. This is a popular choice, since most people start off with home care first.

How to decide what company is right?

First, you should decide whether you like the indemnity or the reimbursement model. The next step is to consider companies that are rated significantly higher financially as a group, or are flexible with specific medical conditions you may have. Within that group of companies, you may find a solid plan that is both competitively priced and covers your specific needs. Depending on your particular set of variables, one or two companies may become the obvious choice immediately.

These variables include marital status, age, and health. It's important to consult an expert in long term care insurance to seek recommendations. There are many little pitfalls that a specialist can guide you through to help you identify the best choice. If your financial planner, CPA, or lawyer is being included in this decision, they must also take the time to learn from the long term care specialist. It is very common for these professionals to chime in on this, without the proper understanding.

Reimbursement vs. Indemnity Plans

Many plans offer the choice to be reimbursed for your expenses, or instead, pay you a set amount of cash, regardless of how much care you receive on a particular day. They are called either reimbursement or indemnity plans. There are a few different variations of these models. Reimbursement plans do just that. They reimburse you for your actual expenses, up to your benefit limit. The indemnity models have appeal because even if you spend only $50 for care in a day, you will still receive the full daily benefit that your policy allows. So, if you had purchased a policy that will pay $200 per day, you will have received $150 extra.

The main reasons why indemnity plans can be attractive are the following:

You can hire unskilled caregivers with the extra cash, to do simple tasks such as shop for groceries, or shovel snow; and

You can pay a family member that is losing time at work to care for you, and

You don't have to save all the receipts. Just send one receipt for qualified care for that day and the full benefit will be sent; and

Most reimbursement models won't pay for both a private aide and an assisted living center at the same time, but the extra cash will; and

You can bank the extra money and save it for a day when you have significant care needs.

Indemnity plans typically cost between 12-20% more than reimbursement plans, depending on the company. There is also a luxury version of indemnity, called "cash" plans, that will actually pay you the full benefits in cash on a monthly basis, even if you don't show receipts for any care. These plans are significantly more costly than typical indemnity plans, however, they are popular with those who may plan to live overseas, or want complete flexibility.

How is a plan designed?

There are many options, but let's consider the most important first. The main choices are:

Indemnity or reimbursement;

Benefit amount - can be from $50 to $500/day, or $1,500 to $15,000/month;

Benefit period - usually 3 years to unlimited lifetime;

Inflation option - Benefit growth, usually 3% or 5% compound, and 5% simple/equal, but there are more choices;

Elimination period - Deductible period that you pay for your own care. Usually 90 days, but some other choices.

Once these decisions have been made, you are 95% of the way there. The next step is choosing the correct company that fits your circumstances. That can be tricky. Once chosen, you are ready to look at any of their options that are of interest to you.