About the policy
H What does it take to qualify for benefits? The only acceptable answer is any one of the three conditions that follow. In order for you to qualify for your benefits, and have your insurance company start paying your LTC bills, you are going to have to prove to this company that in fact you really need long-term care. This is called “making it through the gatekeepers.” You won’t see a penny until you qualify.
The easiest qualification, or gatekeeper, is medical necessity. This is where your doctor says, “Yes, my patient needs long- term care.” Make sure that if the policy says that medical necessity will serve as a gatekeeper for long-term care, the person who gets to decide is your own doctor and not someone you have never seen before who probably works for the insurance company.
The second gatekeeper is not to be able to carry out certain activities of daily living (ADLs). In order to function normally, most of us need to be able to 1) be ambulatory; 2) bathe ourselves; 3) feed ourselves; 4) clothe ourselves; 5)transfer ourselves (get in and out of bed, chairs, and the like unattended); 6) be continent; and 7) use the toilet. With a good policy, if you got to a point in your life where you could not do two out of these seven ADLs, then you would qualify for benefits.
The last gatekeeper is cognitive impairment, which simply means that you qualify if you come down with, say, Alzheimer’s disease or cannot think or act clearly on your own and therefore cannot care for yourself. Here, again, doctors make the decision. Make sure it is left to your doctor to decide, not the insurance company’s.
An important note here is that in certain cases, your LTC insurance premiums may be tax deductible as a medical expense, if your medical expenses come to 7.5 percent of your adjusted gross income. According to the Health Insurance Portability and Accountability Act of 1996, which took effect january 1, 1997, your policy must meet certain requirements for the premiums to be deductible. You either had to have purchased a policy prior to 1997—in which case your policy will he grandfathered in and is qualified for the tax deduction—or, if you purchase one in 1997 or later, then your policy may not offer medical necessity as a gatekeeper, and it must be based on six ADLs rather than seven. The ADL that has been eliminated is being ambulatory. There are other differences as well but these two are the most significant.
To find out more about the differences, you can call the HICAP or Health Insurance Counseling and Advocacy Pro-gram (800-434-0222) to find an office near you that can provide more information. You’ll have to decide whether you want a policy that is tax qualified but offers less generous options, or one that is not tax qualified. If your premiums would not be deductible anyway because they’re less than 7.5 percent of your AGI, then stick to the recommendations above and look for an LTC policy that offers all three of these gatekeepers I mentioned, and where any one of them will allow you to qualify to receive benefits. Ask to see a specimen policy that defines the gatekeepers as well as the ADLs and find out if your policy. meets the definitions to be tax qualified or not.
I How much is it going to cost? Not as much as you would think—if you find the right company.
There is a huge difference among companies offering LTC insurance (or any insurance, for that matter). I have seen policies from different carriers offering essentially the same benefits but with a difference of up to $1,500 a year—a big difference, especially for retirees, and especially when premiums can be raised. When you are comparing these prices, make sure that you are comparing apples with apples, that you are comparing policies that have the exact same benefits across the board. Otherwise your price comparisons won’t give you the information you’re really looking for. The benefit period, the elimination period, the benefit amount, the inflation rider, and home health care will all need to be identical when comparing prices among different companies. Here are explanations of what those terms refer to.
The benefit period means the length of time the policy will pay for your long-term care. I recommend choosing between the four-year and the lifetime option, depending on what you can comfortably afford now and will be able to afford in the future.
The elimination period means the amount of time you have to pay out of your own pocket before the policy will kick in. I recommend a zero-day elimination if money is not an issue. If it is, then go for no more than a thirty-day elimination. Can you imagine where your loved ones would get the money to pay for the first ninety days of your stay, for instance, if the cost of a home was $10,000 a month? I would rather see you pay a little more now than possibly a lot more later.
The daily benefit amount means how much the policy will pay per day if you use the benefits. I recommend $100 per day for LTC care and about $50 per day for home health care. This assumes that you are going to take the inflation rider option and that the average cost of a nursing home in your area today is $3,500 a month. If it’s a lot more or less, adjust it accordingly.
The inflation rider means how much the daily benefit amount paid will increase year after year. I recommend 5 percent compounded inflation. Unless you are in your late seventies, then 5 percent simple inflation or a higher daily benefit to start is the way to go.
The home health care (HHC) clause means that you can receive certain kinds of care at home if this care is administered by professionals, friends, or individuals deemed qualified by the insurance company to provide HHC. Some plans state that if you belong in a nursing home but would rather be at home instead, the policy will pay your LTC benefits at home, just as if you were at a nursing home. I view HHC as coverage you would need at home for the short term—for a broken hip, for example. With HHC, you are expected to get well. With LTC, you are not expected to get better. I recommend no more than two years of home health care.
If you or a loved one you’re responsible for ends up in a nursing home, all the great things you wanted to do with your money, all the sums you eventually accumulate, all can be lost. Don’t let this happen. There is nothing worse than seeing someone in his or her seventies or eighties devastated emotionally by losing a spouse to a nursing home, then also having to endure the financial devastation that can follow. Although our bodies age, we all still feel deep inside that we’re twenty or thirty years old, and we don’t want to deal with things like this. But we must. We may even feel that our parents are still invulnerable.
But they’re not. If you have two sets of parents alive today, between you and your partner, the chances that at least one will end up in a nursing home are 90 percent. Love and loyalty aside, if you are to pay for this, it will leave you very little money with which to create more money and not very many ways to hold on to what you already have.
With long-term-care insurance in place, this won’t happen. You will have gcne a long, long way toward being responsible not only to those you love, but also to yourself and the money you’ve worked so hard to earn.
Tags: financial