A recent study by America's Health Insurance Plans found that many baby boomers, even those approaching age 60, have not focused on planning for long-term care expenses. One reason may be that more than half of boomers mistakenly believe long-term care costs will be covered by Medicare or another form of health insurance.
It is an oversight that could have financially devastating consequences.
The reality is that most health insurance plans do not cover long-term care expenses. Further, while Medicare does cover long-term care expenses, the best case scenario may provide for a hundred days of care. And while Medicaid will cover these services for low-income individuals, stringent spend-down requirements cause most individuals to deplete their financial assets before coverage begins.
Without long-term care insurance coverage, many middle-class retirees in need of such care could deplete their financial assets too soon. According to the AARP Public Policy Institute, the average cost of a nursing home stay is more than $67,000 per year and exceeds $100,000 per year in some urban areas. Assisted-living facilities can cost more than $35,000 per year, while home care agency rates average $37 per hour for a licensed practical nurse and $19 per hour for a home health aide.
The AVMA Group Health and Life Insurance Trust has long been a proponent of long-term care insurance as a way for participants to protect their well-being and assets. Part of the Trust's advocacy involves educating its members—baby boomers in particular—on the benefits of coverage and what they need to know when evaluating plans.
First, it is important to dispel a few myths, starting with the common misconception that coverage is too expensive.
According to the 2007 Long-Term Care Insurance Price Index from the American Association for Long-Term Care Insurance, a 55-year-old can expect to pay $655 per year if married or $1,075 per year if single. At age 65, a married individual will pay $1,292 per year, while a single individual will pay $1,923.
Compare that with the average cost of a nursing home or assisted-living facility, and the expense argument does not hold up. In fact, according to AHIP's Benefits of Long-Term Care Insurance study, this insurance reduces by 66 percent an individual's chances of having to spend-down assets to the point of impoverishment and Medicaid eligibility—meaning the individual can actually enjoy the nest egg they've worked to accumulate.
Another common myth is that the decision to purchase coverage can be put off until a person is close to retirement age. Actually, the longer a person waits, the harder it is to obtain coverage and the more expensive it will be.
The younger the participant is, the more affordable the premiums. Ideally, individuals should begin seriously exploring long-term care options between ages 38 and 50. During that time, the chances are lower than they are later that a carrier will decline coverage, while the likelihood of qualifying for good-health discounts is high. Discounts can reduce the annual cost by 10 percent to 20 percent. In addition, the Trust has established business arrangements with a select group of highly rated, financially secure insurers, making plans available that can provide a 5 percent discount.
In a nutshell, long-term care insurance covers expenses not paid by disability or traditional health insurance. For example, disability insurance replaces all or part of a participant's income for certain illnesses or accidents, but it does not cover the cost of the related medical care. Health insurance, on the other hand, does cover the cost of medical care but typically not the cost for assistance with performing basic living activities such as dressing, bathing, eating, and walking.
Long-term care plans and premiums vary by a number of factors, including age, gender, lifestyle, health, and family health history. The premium is also impacted by policy and benefit choices such as the following:
- Daily benefit amount: This represents how much of the care expenses the policy will pay. Most policies let participants choose from $50 to $500 per day, and they can often choose whether they want the policy to pay the same daily benefit amount for care in all settings, or whether they want the policy to pay less for care in less costly settings.
- Maximum lifetime benefit versus total lifetime: Some policies offer a choice of limited lifetime dollar amounts, which may correspond to a period of time, or "lifetime" or "unlimited" coverage that has no dollar limit.
- Comprehensive or facility care only: Most policies are comprehensive, but some people prefer to buy facility-care-only policies that pay for care in a nursing home or assisted-living facility, but not for home or community care.
- Inflation protection: Inflation protection is an important option that protects participants from the rising cost of care over time.
The Department of Health and Human Services has a wealth of information on long-term care and long-term care insurance at the National Clearinghouse for Long-Term Care Information, which can be accessed online at www.longtermcare.gov.
For more information on AVMA GHLIT plans—including eligibility, rates, renewal provisions, exclusions, and limitations—or to find a GHLIT agent in a particular area, call the Trust office at (800) 621-6360.