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Wednesday, November 28, 2018
Personal Financial Planning: An "How-To" Guide (part 37)
Department staff, the announcement said, have been reviewing the 21 waterfowl refuges along the Missouri River and developing criteria to ...
Long-Term Care Health Insurance Provisions and Costs
by
Charles Lamson
Whether you purchase long-term care insurance as an individual or through an employer-sponsored plan, it is important to understand what you are buying. Substantial variation exists between products, so you must be especially careful to evaluate the provisions of each policy. Policy provisions are important factors in determining the premium for each policy. Let's take a closer look at the most important policy provisions to consider in purchasing long-term care insurance:
Type of Care. Some long-term care policies offer benefits only for nursing home care, whereas others pay only for services in the insured's home, such as skilled or unskilled nursing care, physical therapy, homemakers, and home health aides. Because you cannot easily predict whether a person might need to be in a nursing home, most financial planners recommend policies that cover both. Many of these policies focus on nursing home care, and any expenses for healthcare in the insured's home are covered in a rider (a provision of aninsurancepolicy that adds to or amends the coverage or terms) to the basic policy. Many policies also cover assisted-living, adult daycare and other community-care programs, alternative care, and respite care for the caregiver.
Eligibility Requirements. Some very important provisions determine whether the insured will receive payment for claims. These are known as gatekeeper provisions. The most liberal policies state that the insured will qualify for benefits as long as his or her physician orders the care. A common and much more restrictive provision pays only for long-term care that is medically necessary due to sickness or injury.
One common gatekeeper provision requires the insured's inability to perform a given number of activities of daily living (ADLs), such as bathing, dressing, or eating. Some policies also provide care for cognitive impairment or when medically necessary and prescribed by the patient's physician. In the case of an Alzheimer's patient who remains physically healthy, inclusion of cognitive abilities as ADLswould be extremely important. Newer policies no longer require a certain period of nursing home care before covering home healthcare services.
Services Covered. Most policies today cover several levels of service in state-licensed nursing homes; specifically skilled, intermediate and custodial care. Skilled care is needed when a patient requires constant attention from a medical professional, such as a physician or registered nurse. Intermediate care is provided when the patient needs medical attention or supervision but not the constant attention of a medical professional. Custodial care provides assistance in the normal activities of daily living, but no medical attention or supervision; a physician or nurse may be on call, however. Most long-term care policies also cover home care services, such as skilled or unskilled nursing care, physical therapy, homemakers, and home health aides provided by state-licensed or Medicare-certified home health agencies. Newer policies no longer require a certain period of nursing home care before covering home healthcare services.
Daily Benefits. Long-term care policies reimburse the insured for services incurred up to a daily maximum. For nursing home care policies, the daily maximums generally range from $50 to $300, depending on the amount of premium the insured is willing to pay. For combination nursing home and home care policies, the maximum home care benefit is normally half the nursing home maximum.
Benefit Duration. The maximum duration of benefits ranges from 1 year to the insured's lifetime. Lifetime coverage is very expensive, however. The consumer should realize that the average stay in a nursing home is now about 2.5 years (2005). Most financial planners recommend the purchase of a policy with a duration of 3 to 6 years to provide the insured with protection for a longer-than-average period of care.
Waiting Period. Even if the insured meets the eligibility requirements of his or her policy, he or she must pay long-term care expenses during the waiting or elimination, period. Typical waiting periods are 90 to 100 days. Although premiums are much lower for policies with longer waiting periods, the insured must have liquid assets to cover his or her expenses during that period. If the insured is still receiving care after the waiting period expires, he or she will begin to receive benefits for the duration of the policy as long as its eligibility requirements continue to be met.
Renewability. Most long-term care insurance policies now contain a guaranteed renewability provision to insure continued coverage for your lifetime as long as you continue to pay the premiums. This clause does not ensure a level premium over time, however. Nearly all policies allow the insurer to raise premiums if the claims experience for your peer group of policyholders is unfavorable. Watch out for policies with an optional renewability clause. These policies are renewable only at the option of the insurer.
Preexisting conditions. Many policies include a preexisting conditionsclause, ranging from 6 to 12 months. On the other hand, many policies have no such clause, which effectively eliminates one important source of possible claim disputes.
Inflation Protection. Many policies offer riders that, for an additional premium, allow you to increase your benefits over time so that benefits roughly match the rising cost of nursing home and home healthcare. Most inflation protection riders allow you to increase benefits by a flat amount, often 5 percent, per year.
Premium Levels. Long-term care insurance is expensive, and premiums vary widely among insurance companies. For example, a healthy 65 year-old may pay about $2,000 per year for a policy that pays for 4 years' care at $100 per day for nursing home care and $50 per day for home care, with a 100-day waiting period and a 5 percent inflation rider. The same coverage may cost a 50 year-old $850 per year, and a 79 year-old, $5,900 per year. Because of this marked rise in premium with age, some financial planners recommend buying long-term care insurance when you are fairly young.
smart sites
Confused about long-term care insurance coverage? The Guide to Long-Term Health Care at the Health Insurance Association of America site, www.hiaa.org, will provide the answers.
*SOURCE:PERSONAL FINANCIAL PLANNING, 10TH ED., 2005, LAWRENCE J. GITMAN, MICHAEL D. JOEHNK, PGS. 380-383*
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