Is Affordable Long Term Care Insurance Just a Myth?
Youth comes with a lot of energy, vibrancy and drive. There is so much you can do, physically as well as mentally, when your mind and body are at their peak performance. As you get older, however, your energy declines and you’re more likely to be struck with medical conditions or injuries that leave you dependent on others for long term care.
Why Long Term Care?
Investing in an insurance plan that offers coverage for long term care can ensure that you (and your loved ones) are not burdened with the entire associated expenses of managed care, like medicines, physiotherapy and assistance with daily activities.
What’s the Problem with LTC Plans?
Most LTC policies do not actually provide the kind of coverage that people need, and can cost quite a lot in terms of premiums, which makes them less attractive to people who don’t anticipate any problems in the near future.
To understand why, let’s look at insurance in a little more detail, as well as the difference between traditional and modern forms of managed health care.
What Does Insurance Mean?
Insurance is a term used to define financial products that protect you (and your loved ones) against financially catastrophic events. Life insurance, for instance, ensures that your family receives compensation in the form of death benefits if you die prematurely, enabling them to meet expenses and carry on with their lives.
Long-term care insurance is a specific product that helps pay for health care over a long period, which could be due to simple old age and declining health, or even an illness/accident/injury while you’re still young.
LTC Today – Traditional (Nursing Home) Vs. Modern (Home-Based) Care
With increased life expectancy for seniors, LTC claims are on the rise, although for lower amounts. Most insurance consumers and providers still consider managed long-term health care in a nursing home the “worst case scenario”, but modern technology, medicine and advances in health care practices allow most people to opt for home care.
According to the American Association for Long-Term Care, only around 12% of nursing home stays last 5 years or more today. In fact, almost 50% of nursing home stays last a year or less, and 75% last under 3 years. For stays of 2-3 years, many patients actually accumulate this stay time over multiple shorter visits.
At the same time, the need for long-term care is on the rise, which contributes to rising LTC policy costs. Many carriers are even dropping these products due to their inability to offer them at competitive rates. The chances of an average male aged 60 or up needing short or long-term care is now 50%, and up to 65% for women in the same age group!
Possible Solutions to the LTC Dilemma
Here are some ways that the issue with LTC policies may be addressed:
- Changing to an effective structure – Most plans offer coverage for 2-3 years, and 90% of these have an elimination period of 3 months, equivalent to a deductible for these plans. By extending this period to 2-3 years, the average nursing home stay will not be covered under most LTC plans.If customers self-insure stays of 1 year or less, they still enjoy coverage for longer stays of 5-10 years, which have a larger financial impact. The cost of shorter stays will not be much more than the cost of most LTC policy premiums.This kind of policy will encourage people to invest in coverage for long-term managed care expenses, as well as reduce taxpayers’ Medicaid burden. Paying up-front LTC premiums will let retirees plan finances better, since they are already aware of their maximum expense for managed care.
- Investments in LTC riders – The other option is for consumers to invest in long-term care riders on existing life insurance and annuities. Some annuity riders can double the monthly payout for up to 5 years if managed care is needed, and life insurance riders offer accelerated benefits with monthly or lump-sum benefit payouts for chronic illness, disability or long-term care expenses.Often, these riders have no elimination period, and accumulated cash value can be used for other deductibles or coverage limits. There may be added underwriting costs and an increase in premiums, but this method offers varied coverage under one plan.
- Investing in high-deductible plans – When you use LTC coverage on a frequent basis for smaller losses, you’re likely to end up with higher premiums and lower payouts. Any insurance plan is most beneficial when the financial catastrophe you’re buying protection against has a low chance of actually happening.Advisors encourage investing in a high-deductible LTC policy, so funds saved can then be moved into liquid accounts. These can be used to pay for deductibles in case a claim arises, or remain available for other needs if no claim occurs.