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Paying for Long-Term Care

Care administered in the last six months of a person’s life is expensive. The cost for treatments, procedures and medications may range anywhere from $14,000 to $23,000, depending on where a person lives.

Luckily, Medicare usually picks up the tab for these last-minute medical treatments, saving family members, or even in the patient in question, from paying the full expense.

When it comes to longer-term care options, however, Medicare is less likely to foot the bill. 

According to this article published in U.S. News and World Report, Medicare only covers short-term hospital stays and nursing-home stints for patients to recover from treatable medical conditions.

So folks who require intensive, day-to-day care for an extended period of time are usually on their own when it comes to making payments.

Traditionally, middle and upper-income Americans have spent their personal funds (home equity, savings, and income from adult children) to finance nursing home or other assisted-living care.

Those who have less income to begin with, or who exhaust the entirety of their savings on these care options, must typically rely on Medicaid to cover costs.

As a result, Medicaid and personal finances currently pay for the bulk of long-term care:

  • Personal finances account for 25% of long-term care spending.
  • Medicaid pays for about 70% of nursing home patients, 12% of assisted living patients, and nearly all people with developmental disabilities.

In comparison, the private insurance market has played a relatively small role in the financing of this care. In recent years, long-term care insurance (LTCI) has covered only 10% of all seniors, and paid for just 7% of our long-term care bill.

  • In 2007, for example, LTCI paid $4 billion for disabled policyholders, out of nearly $200 billion spent on national long-term care spending.

But interest in long-term care insurance is growing.

Why?

For one, as the baby boomer generation ages, long-term care costs will continue to grow.

  • Medical technology is helping patients to live longer with serious illnesses and degenerative conditions like Alzheimer’s, cancer and heart disease.

Just because we are living longer does not necessarily mean that we can afford to do so.

  • Gains in life expectancy have not been matched by comparable gains in retirement finances.
  • If anything, folks have less personal savings to pay for long-term care today than they did just a few years ago due to the economic recession.
  • At the same time, the cash-strapped state governments can little afford to take on additional Medicaid patients.
  • In fact, many states are slashing funding for Medicaid and long-term care benefits.
    • According to the Center on Budget and Policy Priorities, at least 21 states and D.C. have cut or are considering cuts to medical, long-term care, or other services for the elderly and disabled.

As a result, there are a growing number of middle-income Americans who fear that neither their financial assets, nor existing public programs, will be sufficient to cover their long-term care costs should they be diagnosed with a debilitating condition.

These folks are turning to the long-term care insurance market to protect against exorbitant bills and family bankruptcy.

How Does LTCI Work?

Folks typically purchase LTCI plans in their 50s or 60s, and pay annual premiums that range anywhere from $1,500-$6,000. (Although recently, people as young as 41 have purchased LTCI through their employers.)

The premiums vary depending upon the age of the person, and whether the coverage is purchased for an individual or for a couple.

LTCI plans can cover the costs of nursing home care (average cost of $70,000 per year), assisted living facilities (average cost of $35,000 per year) and home healthcare ($35 per hour for a certified aide).

Like other types of insurance, LTCI benefits are paid out on a fee-for-service basis, with reimbursements going either to the provider or directly to the policy holder. Most plans have a daily reimbursement maximum (between $100-$200), and some plans also have deductibles and a mandatory waiting period (usually of 3 months) before coverage kicks in.

The more expensive plans typically include better benefits- higher daily maximums for reimbursements, lower deductibles and longer coverage periods (5 years, instead of 3, for example).

What Are the Concerns About LTCI?

As with other types of private insurance, LTCI has its downfalls.

Plan premiums are high, and rising. These costs are an often an obstacle for many middle-income families.

  • People who shop for, but do not purchase, LTCI cite cost as the number one factor for their decision.
  • About 50% of people buying LTCI earn $75K or more annually.
  • LTCI is complicated, and may be difficult for elderly folks to figure out.

    • There are a wide range of choices, as is the case with the Medicare Part D prescription drug plans.
    • Policyholders must decide which benefits are best for their particular situation, which can be a confusing process.
    • The Kaiser Family Foundation argues that a community education initiative might be necessary to help more seniors sign up for these types of policies.

    Finally, regulation of these plans is spotty.

    • There are federal regulations governing the design and sale of these products, but 15-20% of all applicants are denied a policy due to pre-existing medical conditions.
    • Some claim requests are also denied even once an individual has purchased the plan.

    Despite these concerns, many argue that LTCI is an important and vital insurance product.

    Jesse Slome, the Executive Director of the American Association for Long-Term Care Insurance, insists that LTCI is worth every penny paid in premiums, especially for those who end up needing the care.

    Consider these examples:

    • A woman purchased long-term care insurance at age 43, paying an annual premium of $1,800. Three years later her claim began and has continued for almost 12 years ($1.2 million in benefits already paid).
    • Another woman purchased long-term care insurance at age 72 and paid an annual premium of $12,766. Three years later her claim began and has continued for almost 9 years ($1.02 million is benefits already paid) for her nursing home care.

    Rest assured, we would never try to sell you on an insurance product based on the recommendation of an industry rep alone!

    This study conducted by the Kaiser Family Foundation found that a majority of LTCI policyholders found their policies beneficial. Study participants also said that they would have to decrease the amount of paid care they received if they did not have such coverage.

    The study suggests that LTCI has great potential to help pay for long-term care in the coming years.

    How Can We Make LTCI More Affordable?

    A majority of states now have a Medicaid-LTCI partnership program, which allows Medicaid to oversee and subsidize the purchase of these products for some of its recipients. We’ll have to see if funding for these programs is pulled due to the recession.

    UPDATE: Senate democrats just included a new, government-run LTCI program in one of their reform proposals. They claim that their program would complement (rather than compete with) existing private insurance products, and that the benefits under the government program would cover about half of the average cost of long-term care.

    The Congressional Budget Office (CBO) estimates that this insurance option would actually generate about $58 billion in revenue for the federal government over the next ten years. After that, however, the CBO argues that premiums would have to rise significantly for the program to remain fiscally sound over the long-term.

    Bottom Line

    The question of how to pay for long-term, and end-of-life care, is an important one. Reducing the cost of this care not only helps families to provide for their loved ones, but it also has the potential to decrease our total healthcare bill.

    We hope that legislators will consider initiatives to make long-term care more accessible for those that need it. There are simply too many families that face stress and anxiety as they ponder how they will tend to their ailing parents and grandparents.

    This article was written by Julia Nagle.

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