Don’t Assume All Your Clients Costs Will Be Covered When They Retire
Miami Herald (FL)
Long-term care insurance -- also called custodial insurance -- doesn't top the wish lists of most people.
That is, until they realize that if they live long enough, they'll probably need a lot of money to pay for a home caregiver, nursing home, assisted living facility or some other type of long-term assistance.
In South Florida, for example, a semi-private room in a nursing home with skilled nursing care can cost about $90,000 to $100,000 a year or more, depending on the type of facility and the level of care provided.
Families often become the caregivers if age or illness severely limits a loved one's ability to live independently. But not all families can offer this kind of support, and they cannot provide adequate care if an individual requires 24/7 medical attention or suffers from Alzheimer's disease or dementia.
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For long-term home care, expenses can be high. A registered nurse (RN) in South Florida, for instance, costs an estimated $95 per hour, a licensed practical nurse (LPN) $76 hourly and a home health aide (HHA) about $20 an hour. Other home assistance -- like an unlicensed visiting aide or companion -- may be available for less than an HHA's fee.
In some cases, individuals and families are forced to spend their savings on the costs of long-term care (LTC) and may be bankrupted by healthcare bills.
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People can pay out of pocket, buy a long-term care insurance policy or use Medicaid. Medicare does not cover long-term care for the elderly. Some charitable organizations also provide services to low-income individuals who need LTC.
In 2019, 57 percent of all U.S. long-term support and services (LTSS) was paid by Medicaid, 16 percent by other public sources, 11 percent from Social Security payments, 12 percent elders and their families and 5 percent private insurance, according to the American Association for Long-Term Care Insurance, a trade group. LTSS includes long-term care for elders and for all others requiring LTC, regardless of age.
The U.S. Department of Health and Human Services predicted that at least half of elderly Americans will need long-term care in the coming years. Medicaid will continue to pay for the bulk of LTC services in the future, but private insurers will still play a role.
What is long-term care (LTC) and who needs it?
"Long-term care is the ongoing personal assistance that many people need when they can no longer independently take care of themselves," said Michael Teller, a Boca Raton-based insurance broker and specialist in long-term care insurance and long-term financial planning.
This type of care can result from auto, sports or home-based accidents, chronic illness, cognitive disorders (like Alzheimer's disease, dementia) or frailty from advancing age, he added.
Long-term care may be provided at home or at an institution like a nursing home, assisted living facility, adult day care center or other setting. It helps individuals maintain their level of functioning, rather than improving or correcting medical conditions, according to the Florida Office of Insurance Regulation (FIOR), which oversees all insurance policies issued in the state.
The elderly and people with illnesses or disabilities frequently need assistance in carrying out six basic activities of daily life (ADLs), which include bathing, dressing, going to the toilet, continence, feeding and moving from place to place in their residence (including moving in/out of bed, a chair, a wheelchair, etc.). Individuals with cognitive impairments usually require supervision and assistance for their daily activities.
In Florida, individuals with long-term care insurance should be eligible for benefits if they cannot perform at least three of the six basic activities, FIOR stipulates.
What is long-term care insurance (LTCI)?
This type of insurance offers a variety of options that help cover the costs of LTC and may simultaneously provide annuities and/or life insurance benefits. Policy costs, terms and benefits vary widely and contracts can be very complicated for average consumers, said Teller, who is the owner of the All Vest Associates brokerage firm.
The simplest plans are traditional long-term care policies. Under these, an individual normally pays a monthly or yearly premium to the insurance company for certain benefits, which include:
The daily or monthly amountto cover the costs of long-term care services at home, at a nursing home or other facility.
A maximum benefit.When buying a policy, the consumer chooses a maximum sum of money that will be available for LTC costs.
Elimination period. This is like a deductible on a health or car insurance policy. It refers to the number of days you receive LTC services at home or in an institution before the policy begins paying for care. This period is usually 90 days, but a consumer can pay extra to reduce it to any length of time, even zero days. In some cases. Medicare may cover the out-of-pocket costs during the elimination period.
Consumers opt for each benefit level when buying the policy. Policies with higher benefits and shorter deductible periods cost more, and men usually pay lower premiums than women, since insurance company actuaries don't expect males to live as long as females.
In some cases, policyholders may die without needing LTC. In these cases, the insurance company receives the benefit of years of premiums and never pays for the individual's LTC.
Insurance companies also offer a range of options that are called linked benefit plans or hybrid policies.
Hybrids link the benefits of a traditional LTCI policy with a variety of other options such as premium prepayments, death benefits, annuity payments, cash value (when a policy is surrendered), tax-deferred annuities, etc. Each category also provides options like inflation protection, automatic benefit increases and options to buy additional benefits over time.
One example is a life insurance policy that has a traditional LTC policy included, or attached as a rider, Teller said. In this case, the policy would cover LTC expenses and pay a death benefit to a beneficiary. The death benefit may be reduced by any LTC payments made while the policyholder is alive. In some cases, the policyholder may access the full death benefit to pay for LTC.
There are also hybrid policies that link existing life and annuity policies with an LTC benefit policy, which can create tax benefits.
Teller warned that consumers should ensure that any LTC plan they purchase follows the LTC rules established by the Health Insurance Portability and Accountability Act.
What do long-term care policies cost?
"Policies can cost anywhere between $1,000 a year in premiums for traditional long-term care benefits to $10,000, $16,000 or more, depending on the product," Teller said. "How much does a car cost?" Consumers choose what they want and how much they want to pay.
Some people can afford to pay a relatively small monthly or annual premium -- which is likely to increase in future years -- while others pay a large amount up front, so they won't face higher premiums later on.
"These products are confusing, so I try to make choosing a plan as simple as I can and find one that suits the buyer's needs," said Teller, who has more than 30 years of experience selling LTC products.
One example is a policy for a healthy 50-year-old male who prepays the premiums on receiving the policy. He pays $100,000 for a policy that provides a $500,000 LTC benefit that will remain in force for the rest of his life. Upon death, a $170,000 benefit will be paid to his beneficiaries, less any LTC benefits paid out.
For people who pay monthly or annual premiums, a healthy 50-year-old woman buying a policy with a total health limit of $300,000 and death benefit of $150,000 would pay approximately $3,000 a year in premiums. For an unmarried man of the same age, the annual premium would be $1,800, since actuaries predict women will live longer than men, and thus are more likely to require LTC. These policies include 3 percent annual inflation growth on benefits.
The cost of LTCI policies depends on several factors:
The amount of benefits-- A policy providing maximum LTC benefits of $1 million will be more expensive than one with a $300,000 benefit limit. Linked benefit plans are more expensive than traditional LTC policies since buyers are paying more for death benefits, annuities and other features. Policy costs also depend on the amounts for daily or monthly benefit payments and the elimination (deductible) period.
Gender: Women pay higher rates than men, since men, on average, are less likely to live long enough to require LTC. "Changing your gender after your policy is issued will not affect your rate," Teller said in a guide he prepared for potential LTCI buyers.
Age at the time of application: Rates are based on age and each year you defer applying for LTC insurance, your rate class goes up for the rest of your life, he said. Apply for this insurance at the youngest age you can. This will guarantee lower premiums. "If you wait until you're in your 60s, the chance of obtaining LTCI decreases rapidly. By 70-75, it closes in on zero probability."
Fifty-five percent of people who bought traditional LTCI in 2019 were between 55 to 60 years old, while 27 percent were under 55 and 18 percent over 66, said the American Association for Long-Term Care Insurance, a trade organization.
Health:This is a major factor. Insurance companies carefully analyze applicants' medical histories and are very tough. Declining coverage for health issues is common.
Florida is one of the top states with traditional LTC insurance consumers, according to the American Association for Long-Term Care Insurance, ranking fourth after California, Texas and New York with 316,427 policy holders. This figure covers only traditional LTC policies, not hybrid policies, and does not include polices held by people who moved to Florida from other states with existing LTCIs.
Teller said that the LTCI market started in the U.S. in the 1960s, offering traditional LTC policies. The market has evolved significantly since then, with some insurance companies going out of business or being absorbed by other firms, and with companies today offering a wide range of traditional and hybrid products.
The U.S. Department of Health and Human Services said that at least 50 percent of elderly Americans will need LTC in coming years. Medicaid -- not Medicare --will continue to pay for most of these services.
Medicaid covers a wide range of medical and other services for qualified individuals, including long-term care for people 65 and older who need the level of care provided by a nursing facility. It also covers other situations, such as qualified people 18 and older with a disability who require nursing home care, people 18 and older diagnosed with cystic fibrosis who need hospital care, home care, hospital stays, medical care and other categories. Medicare does not cover long-term care.
Of course, the option of purchasing long-term care insurance is available for those who can afford it. But the insurance industry is changing: The number of private insurers offering LTCI fell from just over 100 in 2004 to "about a dozen in 2020," said the National Association of Insurance Commissioners.
Some of the insurance companies offering LTC insurance in Florida are Mutual of Omaha, OneAmerica, Nationwide Life Insurance and New York Life Insurance.
Costs of long-term care in South Florida
A semi-private room at a nursing home with continuous skilled nursing care and support can average more than $103,000 a year in the Miami-Fort Lauderdale area, according to 2020 estimates from LTCG, a firm the manages long-term care (LTC) policies and claims and New York Life Insurance.
An assisted living facility in South Florida, which provides different levels of health and personal care in a residential setting, may charge over $74,000 per year for a two-bedroom unit.
Long-term care facilities, Medicare, Medicaid coverage
When a physician decides that a patient needs long-term care, some individuals can receive care at home. If that option is not available, a doctor will send patients to long-term care facilities like these:
Nursing homes offer a range of health and personal care services and focus more on medical care than assisted living facilities. Services cover nursing care, 24-hour staffing and supervision, help with medications, assistance with everyday activities, meals and social events. Some people stay in nursing homes for short periods after being hospitalized, and can go home after they recover. Rehabilitation services -- like physical and speech therapy -- are available. Most nursing home residents, though, live there permanently due to ongoing conditions.
Assisted livingresidents usually live in their own apartments or rooms and share common areas. Assisted living residences are for people who need daily care but not as much as nursing homes provide. Assisted living centers offer different levels of care, and residents pay more for higher levels of assistance in performing activities of daily living (ADLs). Residences offer meals, help with medications and personal care, housekeeping, laundry, 24-hour staffing and social and recreational activities.
Skilled nursing care may be provided in nursing homes and assisted living facilities certified by Medicare, or at home. Skilled nursing care, according to Medicare, refers to administering intravenous injections and other specialized procedures that can only be carried out by a physician or registered nurse.
Medicare Part A -- or hospital insurance -- will cover inpatient care in a skilled nursing facility (SNF) or care at home for limited periods of time. But Medicare will only pay for skilled care -- a registered nurse, or a physical or occupational therapist. It will not pay for long-term care or for a home health assistant who helps a patient bathe or take medications. Medicare also covers hospice care.
Medicaidcovers some long-term care, but to qualify for Medicaid in Florida, an individual must meet several requirements, including a "financial situation characterized as low income or very low income," according to the Florida Medicaid website. For a family of two, the maximum annual income is now set at $23,169 before taxes.
Florida's Agency for Health Care Administration (AHCA) manages the state's Medicaid program and licenses and oversees nursing homes and other health service facilities.
Sources: National Institute on Aging, Medicare, Medicaid, AHCA of Florida