long term care insurance: the alternative to 'spending down'

By Sandy John

The longer you live, the more likely it is that you'll need some sort of care, according to the Administration on Aging. In its report, "A Profile of Older Americans: 2001," the agency notes that more than a quarter of those aged 65-74 report they are limited in some activities because of a chronic condition, with half of those over age 75 reporting limitations. "While a relatively small number (1.56 million) and percentage (4.5 percent) of the 65+ population lived in nursing homes in 2000, the percentage increases dramatically with age, ranging from 1.1 percent for persons 65-74 years to 4.7 percent for persons 75-84 years and 18.2 percent for persons 85+," the AOA noted. Others in those age groups are cared for at home or in community-based programs such as adult day care.

You can't count on Medicare to cover your long-term care expenses. The government's health insurance plan for seniors is only designed to cover short-term rehabilitation, not long-term care. Generally, Medicare will cover a maximum of 100 days of skilled care following hospitalization for a condition. Those with conditions such as Alzheimer's disease are unlikely to qualify.

Medicaid isn't likely to be much help, either, unless you meet income guidelines that basically require you to spend down most of your assets before you qualify. In 2002, for example, a single senior citizen in California would qualify for Medi-Cal (the state's Medicaid program) only if he had $2,000 or less in assets, excluding his home. That means most people will have to dig into their own pockets to pay for such care, or purchase a long-term care (LTC) insurance policy before they become ill. LTC insurance is designed to pay for custodial care (such as help in getting dressed, feeding and toileting) in a facility other than an acute care hospital. As with any insurance policy, a number of factors determine how much the policy will cost -- including your age when you purchase the policy and the features you choose.

There are several elements you'll have to decide on to get the policy that meets your needs and budget. They include:

· Daily benefit. This is the amount of money you'll receive to pay for your care each day. Investigate the cost of local nursing homes, assisted care facilities and home healthcare providers before selecting the amount that you feel is adequate. In California, for example, the average daily rate at a nursing home was $141 in 2002.
· Benefit period. This is the length of time care will be covered. Options range from a few years to lifetime coverage. While the average length of stay in a nursing home is less than three years, actual time care vary widely. Alzheimer's disease is the leading cause of nursing home stays, and the average length of stay for an Alzheimer patient is eight years, according a 1994 study in Financial Planning News. Diabetes patients averaged a 48-month stay; cardiac patients averaged only 16 months.
· Elimination period. Think of this as a deductible, like the one on your auto insurance or homeowners policy. The elimination period spells out the length of time you will pay for your care before the insurance company begins to pay your daily benefit amount. You can select no elimination period at all, or choose to go three months or more with no benefits. Like a higher deductible, a longer elimination period reduces the cost of the insurance.
· Inflation rider. You know you've selected a benefit that will cover costs today, but how do you know the benefit will be adequate when you need long-term care? Insurers will give you the option of choosing to have the benefit increased annually to help keep up with the rising cost of care; again, this will increase your premium. Shop around when buying an LTC policy. Look for a well-established company that has offered the policies for a long time, financial experts advise. That track record means the company should have a good idea of what its costs are and what premiums will cover them, meaning you're less likely to face unexpected premium hikes. The American Association of Retired Persons suggests those in the market for LTC insurance look for a policy that:
· Does not require prior hospitalization to receive benefits.
· Is guaranteed renewable as long as you pay the premiums. This does not mean that the premiums can't be raised, but it guarantees your policy won't be cancelled because of a change in your condition.
· Offers a premium waiver, meaning you won't have to pay the premiums while you are receiving benefits.
· Has one deductible (or elimination period) for the life of the policy.
· Covers pre-existing conditions as long as you disclose them when you apply for the policy.
· Offers 5 percent compound inflation protection.
· Allows you to upgrade or downgrade coverage if you can't afford the premiums.