This week, Gail has some advice on how to choose a long-term care insurance plan -- if indeed that's what you really need.
I really enjoy reading your column on financial issues. I am concerned that medical costs for persons in their retirement years will be a substantial expense. Especially because many companies are cutting back on or eliminating retiree health-care coverage. I feel that many people (including myself) are not taking into consideration this critical aspect of retirement.
I have heard of "Long-term health care insurance" that provides coverage during retirement years for your health-care needs. Can you shed some light on this?
Dear Doug -
I share you concern that the "wild card" for retirees of the future will be the high cost of medical care and the amount that individuals will have to shoulder themselves. Like you, more and more people are becoming aware of this issue. In a recent survey by the National Council on the Aging (NCOA), baby boomers overwhelmingly put "long-term care" at the top of their list of retirement worries.
However, long-term care care insurance is not the solution to everyday medical bills such as doctor visits, eye exams, prescription drugs, or even surgery. You would look to either private health insurance or Medicare or possibly Medicaid (if you qualified) to help cover these expenses.
Long-term care insurance is used to defray the cost of receiving assistance in carrying out everyday tasks. These are known as "Activities of Daily Living"-- preparing meals, bathing, using the toilet, dressing yourself, etc. This assistance can be provided by caregivers either in your home or elsewhere, such as an assisted living facility. Long-term care insurance could also cover an extended stay in a nursing home.
Receiving this kind of help is costly. Depending upon what part of the country you live in, AARP says the average nursing home costs $150 per day, or $55,000 a year. It can be much higher near major metropolitan areas such as New York, Los Angeles, Chicago, Washington, D.C., San Francisco and Boston. The average nursing home stay is two and a half years.
Perhaps the biggest misunderstanding people have about nursing home care is that it is covered under Medicare. IT IS NOT. Medicare Part A, the basic federal health insurance provided to anyone age 65 or older, only picks up nursing home costs if you go straight from the hospital into a nursing home.
And then it only covers 20 days. After that there is a co-pay for which you are responsible.
If you don't require hospitalization, but just need help, say, getting dressed in the morning and getting to the store to buy groceries, that's when long-term care insurance enters the picture.
Unfortunately, unlike the insurance policies you can purchase for your home or car, long-term care policies are not standardized. The things covered by "Company A" might be slightly different than those covered by "Company B."
For instance, Company A's policy might require that you are unable to perform 3 out of 6 Activities of Daily Living (ADL) before any benefits are paid; Company B might pay once you can't perform 2 of them.
Another way policies differ concerns where you can receive help. Some long-term care policies only cover you if you are receiving care in a nursing home or assisted living facility; others pay for caregivers who come to your house. If you, like most people, prefer to remain in the familiar surroundings of your own home, it would be important to make sure your long-term care policy provided this option.
Don Sowa, a 20-year veteran of the financial services industry, says while it's still impossible to do an apples-to-apples comparison of long-term care policies, they've come a long way from 10 years ago when most insurers had a take-it-or-leave-it approach. These days, when he is investigating coverage for clients, Sowa looks for insurance companies that offer a "menu" of features, allowing you to choose the options you want.
"Long-term care insurance is very expensive," says Sowa. "You want flexibility so you can customize the coverage to suit your needs and tailor the cost so it's affordable." Sometimes there has to be a trade-off.
Maybe you opt for a policy that pays $100/day instead of $150 in order to be able to afford coverage for both in-home and nursing home care. If you are fairly young -- in your 50s or 60s-- and aren't likely to require caregiving for ten or twenty years, then it's probably worth the extra cost to add an inflation rider so your daily benefit increases along with the cost of care. However, if you are older, this might not be as big an issue.
According to Sowa, whose office is in East Providence, R.I., "Another way to reduce the cost is to increase the number of days you cover yourself." For instance, if you can afford to pay the first thirty days in a nursing home out of your own assets, "you can bring the premium down substantially."
Keep in mind that depending upon your age when you buy a policy, long-term care insurance can cost a few hundred to several thousands of dollars a year. So another consideration, according to Enid Kassner,a Senior Policy Advisor at AARP, is whether you will be able to afford the policy in future years. "You don't want to lose the coverage just at the age when you're going to need it."
On the other hand, don't buy just any long-term care policy simply because it fits your budget. "Make sure the policy will provide a meaningful benefit," says Kassner. She says often people settle for a limited benefit or a limited coverage period just to get the cost down. "If you end up having to pay $50/day out-of-pocket that can really add up. I don't think you should skimp on your coverage. If you can't afford a good quality policy, then you're better off taking your chances and spending down your assets to qualify for Medicaid."
Medicaid, the medical insurance program jointly funded by the federal government and each state, does pay for nursing home care, but only for the neediest members of society. This means in order to qualify for Medicaid, you have to essentially deplete your assets. This is probably one reason Sowa is seeing a growing trend of children paying the premiums for their parents. "For $150/month they're insuring their inheritance," he says.
Each state has slightly different criteria and your marital status is also a factor, but according to Kassner, "If you have less than $75,000-150,000 in assets you might qualify for Medicaid. In that case, you're not a good candidate for long-term care insurance. In fact, having a policy can complicate your Medicaid eligibility."
The point is, long-term care insurance covers a very specific type of health care and not everyone needs this coverage. If you have substantial assets, you can probably afford to pay for caregiving out of your own pocket. "You have to look at your complete financial picture and determine if it's appropriate for you," says Kassner.
Chuck Mondin, of the National Council on the Aging, agrees: "You need a long-term plan before you buy long-term care insurance." For instance, is estate preservation important? If you're not interested in passing something to your heirs and have adequate assets, you could self-insure.
"You might also want to consider other ways of financing your caregiving needs, such as a reverse mortgage," he says.
You will find a plethora of information about long-term care insurance on the internet, but look out for sites that try to sell you their own policies. A good place to start is the website operated by The National Council on the Aging, www.ncoa.org. The site has a wealth of information on long-term care policies.
Mondin says one of the biggest mistakes people make when purchasing long-term care insurance is "buying from the first person they talk to." Shop around. I know from personal experience that costs can vary widely.
But that doesn't necessarily mean that cheaper is better. There could be a reason. Remember that insurance is only as good as the company that stands behind it. (Did I just hear someone say "Conseco"?) Sowa, who hosts the popular "Money Talk" radio program in Providence, has this advice: "Check the carrier. How is it rated by Standard and Poor's and A.M.Best?" (These are two independent agencies which evaluate the financial strength of insurers.) "You want to be sure the insurance company is going to be there when and if you need the money."
Last but not least, the best insurance policy against the cost of long-term care is to take care of yourself today by watching your weight and exercising your mind as well as your body!
All the best,
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