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Who should consider long-term
care insurance? |
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Most of us know at least one person who
has stayed in a nursing home or needed professional home
health care. The financial consequences of long-term health
care can have a significant impact on a family's savings
and lifestyle. According to the Health Care Financing Administration
(Fall 1996), a total of $106.5 billion was spent on long-term
care, and nearly half of that was paid, out-of-pocket,
by the patients and their families. Those accumulated expenses
can use up a major part of your savings. For people who
enter a nursing home, the financial outcome can be worse:
according to the Congressional Subcommittee on Aging, 79%
to 80% of nursing home residents deplete their assets within
twelve months.
To understand who needs long-term care insurance,
it's necessary to understand basic changes taking place
in American society. According to the U.S. Census,
there were 32 million people age 65 and older in 1990
but by the year 2030, this figure could double to 64.6
million. Moreover, people are living longer today than
ever before. By the year 2040, there may be more people
over age 85 than there are over 65 today. Not only
are we getting older but, over the next 50 years, the
working age population may increase only 2% to 18%,
while the elderly population is expected to increase
anywhere from 139% to 169%.
For years, it was tradition for adult children to
take care of their parents during the "golden
years." But changing times have brought an increase
in dual-career families, job insecurity, family mobility,
and divorce. Today, many adult children are not able
to stay home and look after their own children, let
alone an aging parent. In addition, corporate downsizing
has eliminated thousands of mid-management jobs throughout
the country. Consequently, many adult children are
not in a position to financially help their parents
as they had planned. Add to this the increasing uncertainty
of health care benefits for senior citizens, and a
giant question mark looms on the horizon.
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Who will pay for long-term
care expenses? |
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Who will support this population and help
pay its inevitable medical bills? The writing is on the
wall. According to Alice M. Rivlin and Joshua M. Weiner,
authors of "Caring for the Disabled Elderly" (published
by the Brookings Institution), the combination of aging
Baby Boomers and an increase in the longevity of the aged
will dramatically heighten the need for more public and
private spending. But when it comes time to pay the bill,
no federal program ? Social Security, Medicare, or Medicaid
? will pay for all long-term care expenses.
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How Secure is Social Security? |
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Social Security is not a savings account
that builds up over time. It is a "pay as you go" system,
paid for through payroll taxes on present employees to
support former workers. Today, according to the Social
Security Administration, each retired Social Security beneficiary
is supported by they payroll taxes of 3.3 workers. By 2020,
it's estimated that each Social Security beneficiary will
be supported by the payroll taxes of 1.9 workers. In other
words, payroll taxes would have to increase by almost 60%
for the system to remain solvent and provide the same level
of benefits in the future.
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Can I bank on Medicare or
Medicaid? |
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Don't Bank on Medicare or Medicaid. Although
Medicare provides health coverage for senior citizens,
it is limited in the area of long-term care coverage. In
1995, Medicare paid a total of 9.4% of all nursing home
care expenses in the country 2. Medicaid, on the other
hand, will cover the cost of long-term care, but there's
one catch: to qualify, you must become indigent ("spend
down" your assets). Remember, once you have depleted
your assets, you have also lost control over where and
when you receive care. Also, because of state and federal
budget cutbacks, the facilities close to your family and
friends might not have openings for Medicaid patients at
the time your need care.
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What does long-term care
insurance cover? |
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Long-term care insurance usually pays
for skilled, intermediate, or custodial care in a nursing
home. It can also cover professional "at-home" health
care. This type of insurance can help pay for a variety
of home and community-based care services, including: physical,
speech, and occupational therapists; home health aides
and visiting nurses; adult day care, and hospice care.
(Note: Generally, skilled care refers to round-the-clock
treatment by a registered nurse under a doctor's supervision.
Intermediate care refers to occasional nursing and rehabilitative
care under the supervision of skilled medial personnel.
Custodial care primarily meets personal care needs in activities
of daily living such as help in eating or bathing.)
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How does a long-term care
insurance policy work? |
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Typically, long-term care policies pay
up to a specific dollar amount for covered services per
day, reimbursing policy owners for expenses incurred. Few,
if any, policies provide full coverage for all expenses.
Annual premiums for long-term care insurance policies can
range from $250 to over $2,500 depending on age, waiting
periods, and the duration and amount of benefits.
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What does a good policy
include? |
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No matter what your needs are, there are
certain things to look for in long-term care insurance.
Be sure that the company offering the policy is financially
secure ? research their ratings. (Most libraries have that
information available from independent ratings agencies;
otherwise, ask your agent.) Keep in mind that premiums
can be costly (depending on age). Find the level of coverage
that is affordable yet still offers what's most important
to you. For example, if you are concerned about the possibility
of being unable to care independently for yourself in the
future, and you don't feel comfortable having to rely on
a stranger to do so, then make sure that your policy provides
benefits allowing a friend or family member to come in
and take care of you. Or, if you do not anticipate needing
long-term health care services for several years, you may
want to consider purchasing an inflation protection option.
And, no matter what, you will want a policy that waives
premiums while you are receiving nursing home and/or home
health care benefits.
(Note: As of January 1, 1997, federal legislation
provides some tax advantages for long-term care insurance.
Part of the premiums are now deductible as a medical
expense. This applies to both existing and new policies
("qualified" long-term care insurance contracts)
that meet the federal standards.)
The National Association of Insurance Commissioners
(NAIC) produces a "Shopper's Guide to Long-Term
Care Insurance." This can be obtained, at no cost,
from your State Insurance Department. The Health Insurance
Association of America (HIAA) also publishes a booklet, "The
Consumer's Guide to Long-Term Care Insurance," which
provides basic information on long-term care. Since
several companies offer long-term care insurance, with
a variety of coverages and options available, it is
important to carefully research the subject and make
an informed decision. Long-term care insurance may
not be for everybody, so if you are considering a policy,
read it carefully. Ask for an outline of coverage that
describes policy features. If you have questions, ask
them. With the help of an informed agent, you will
be able to make an educated decision.
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