Long-Term Care Insurance: Not Just for the Elderly

In 2007, only 31 percent of full-time private industry workers had access to Long-Term Care (LTC) insurance through their employers. Yet the National Academy of Social Insurance reports that nearly 75 percent of baby boomers and seniors are concerned about paying for long-term care.

Why it matters

Many baby boomers have lived lives different from those of their parents. The National Academy of Social Insurance forecast that nearly 10 percent of those born between 1956 and 1964 (the youngest baby boomers) will have never married by the time they reach an age between 55 and 64. According to the academy 21 percent of those age 63 to 72 today live alone. In 10 years, 24 percent of that age group will live alone, and 37 percent of the youngest baby boomers will be living alone when they reach that age.

It may be safe to say that the traditional system of the young caring for the old in their declining years is likely to break down. Baby boomers will be more likely than their parents to need to find care outside their extended families.

Furthermore, your boomer and other employees might need care before they become elderly. The U.S. Government Accountability Office estimates that 40 percent of the people receiving long-term care services are between the age of 19 and 64, so besides helping employees plan for the distant future, it may help sooner than they think.

What care costs

The costs for outside care are continuing to rise. According to the 2007 Unum LTC Cost Survey, the average cost of home health care in California (five hours a day, five times a week) is $23,959 - $32,175 a year depending on your location. While nursing home care in California costs an average of $60,316 - $95,265 a year for a semi-private room. The Bureau of Labor Statistics predicted that by 2030, the national annual cost for a semi-private nursing home room will reach $190,600.

What are the misconceptions

Contrary to what most Americans believe, Medicare and health insurance policies do not provide for long-term care, and Medicaid covers care only after one’s personal assets are depleted. These facts make group long-term care insurance policies even more attractive. Group policies often offer cheaper rates than are available in the open market and may not require group members to meet any medical requirements to obtain coverage. [Note that there are some states that have enacted “partnership programs” that allow people who purchase qualifying partnership LTC policies to retain a specified amount of assets and still qualify for Medicaid.]

What LTC policies cover

LTC policies can vary widely. However, they may include coverage for home health care and care in a nursing home or assisted living facility. Premiums can be paid by the employee, and in some circumstances with no contribution from the employer. However, if the employer does pay some or all of the premium, long-term care insurance is a qualified benefit — as long as it is a standard group policy and the employer is not providing the LTC coverage through a “cafeteria plan.”

In state-licensed nursing homes, policies usually cover skilled, intermediate and custodial care. At home, they usually cover nursing care, physical therapy, homemaking assistance and home health aides provided by state-licensed and Medicare-certified home health agencies, according to a report by America’s Health Insurance Plans (AHIP), a trade association. Pre-existing conditions generally are not covered until after a set waiting period.

Most policies are known as either indemnity or expense incurred policies. An indemnity policy pays a fixed cash benefit amount per day. An expense incurred policy pays actual expenses up to a fixed amount per day, week or month. Home health care benefits are usually about half those offered for nursing home care, according to the Bureau of Labor Statistics.

Typically, benefits are paid for a set period of time or up to a dollar cap. Some polices offer a Cost of Living Adjustment (COLA) Rider where benefits may be adjusted for inflation, but annual adjustments may be capped at a fixed percentage. As the cost of providing LTC increases adding a COLA Rider will be a wise investment.

Coverage kicks in when a person cannot perform what are known as Activities of Daily Living (ADL), such as bathing or dressing, or is cognitively impaired due to senile dementia or Alzheimer’s disease. Most policies have an elimination period in the form of a period of time during which coverage does not apply. A 90-day elimination period on nursing home care would mean the coverage would start paying on the 91st day the insured person was in a nursing home.

Another advantage of a group LTC polices is that those employees covered by a group policy are allowed to continue coverage when they leave the employer, as long as they pay their premiums on time.

Even if an employer-paid plan doesn’t fit your benefits budget, voluntary (employee-paid) plans can often provide better benefits or lower premiums than an individual plan. For these reasons, your baby boomers and other investment savvy employees will likely be interested in long-term care insurance.

For more information on a group LTC policy, please call us.