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Long
Term Care Insurance: To Buy or Not to Buy
AUBURN, Aug. 11---To
buy or not to buy -- that is the question. Should you purchase
insurance that will provide extended care in your home or a skilled
nursing facility if someday you become chronically ill or require
assistance with activities of daily living?
The Long Term Care
Insurance (LTCI) business is booming. Presently, there are about 9
million nursing home residents in the United States. Estimates
suggest that by the year 2020 there will be 12 million. If you are
one of the 73 million "baby boomers," your interest in
long-term care may be just coming of age.
LTCI is a relatively new
kind of insurance, says Robert White, Extension agent on special
assignment. The first policies were modeled after Medicare and were
very restrictive in the coverage and benefits offered. As our
population ages and witnesses firsthand the health care needs and
issues of the elderly, consumer demand for policies are rising
steadily.
Over the past 15 years,
the number of insurers and the scope of coverage have increased
dramatically. Policies now offer endless selections of service
coverage, benefit levels, premiums, riders, options, wavers,
clauses, provisions and discounts.
"If you thought
selecting the best long distance phone plan was a pain, just imagine
the headache you'll get when you begin comparison shopping long-term
care insurance policies," White says.
Before you decide which
policy you need, first consider whether you need a policy at all.
The purpose of insurance, any insurance, is to protect you from a
loss you can't afford. People buy life insurance because they might
die. The risk is a loss of income. There is no insurance against
death. People buy health insurance because they might get sick. The
risk is the cost of medical care. Medical insurance doesn't prevent
sickness.
Should you buy LTCI
because you might get older and need extended care? No insurance
will prevent aging! The risk is the cost of long-term care.
The average annual cost
per resident in a skilled nursing facility is about $36,000. There
are not enough beds available for everyone needing long-term care.
If the supply of new bed space doesn't keep pace with the increasing
demand for beds, the price will rise rapidly. Inflation averages
about 5 percent annually. If it continues to do so, the price of
long-term care will rise slowly. Either way, the cost for care is
going up. So if you're worried that the cost will double by the time
you may need long-term care, is that a good reason to buy LTCI?
Maybe, maybe not, says
White. The cost of long-term care is a risk, but a risk to what? It
is a risk to your accumulated wealth. You can't take wealth with you
when you die. Since you can't take it with you, you must decide what
you are going to do with it. You have two basic choices -- spend it
or pass it on.
If you have little or no
wealth, you probably don't need LTCI, White adds. Almost 95 percent
of current residents in skilled nursing facilities don't have LTCI.
Medicaid is the primary source of payment for long-term care. About
70 percent of the 9 million people now receiving long term care have
no financial resources or LTCI and are covered by Medicaid. Many of
these, almost half, were not eligible for Medicaid when their
extended care began. After spending down their wealth, they were
supported by a system of health care that was originally developed
as a safety net for the poor.
If this safety net will
provide for your long-term care, why pay for LTCI? There are a few
other questions to answer before you make up your mind.
Medicaid is a state and
federally funded program. Social Security is a federal program and
there is concern about its future. If that bothers you, then maybe
you might worry about the future of Medicaid as well.
Medicaid-certified facilities are limited and space, when and where
you want it, may be limited. LTCI insures your freedom of choice
about your future long-term care facility.
Lastly, there is the
matter of wealth. To receive Medicaid benefits you can not retain
your wealth. Your family farm, house, savings, investments and other
assets accumulated over your lifetime are collectively referred to
as wealth. Wealth is built for a purpose. Your purpose may be to
enjoy your retirement with sufficient income for as long as you
live. That would include having enough financial resources to pay
for your and your spouse's long-term care should that be necessary.
If so, this "self-insurance" means you are accepting the
risk of using up your wealth. If you don't want to be self-insured,
consider buying LTCI.
Many people have a
selfless reason for building wealth. They want to pass it on to
loved ones, special causes or institutions. This transfer of wealth
represents a financial legacy that serves the future needs of
others. If you are concerned that the wealth you are building will
be used for your long term care rather than your financial legacy,
then LTCI may protect your future goals.
People sometimes try to
hide assets so they will appear financially eligible for Medicaid.
Usually, it's not illegal for someone to try this. Such attempts may
attract the attention of the Internal Revenue Service. It is,
however, illegal for a paid advisor to instruct or assist you in
such efforts.
When someone applies for
Medicaid, a 36-month financial transaction "look-back" is
conducted. A 60-month "look-back" is made for transactions
involving trusts. If for example, someone transferred $120,000 of
assets (for instance, a home) 12 months before applying for
Medicaid, this transaction would be found in the review. The state
in which the application was made would then calculate a period of
ineligibility based on the value of the transferred asset. Let's say
the average nursing home cost in that state is $30,000 annually. The
period of ineligibility is determined by dividing the average cost
into the asset value and subtracting from this the number of months
since the transaction took place. In this case, $120,000 divided by
$30,000 would be 4. That's 48 months. The transfer took place 12
months before the Medicaid application, so 48 months less those 12
months equals 36 months. The person in this example would be
ineligible to receive Medicaid benefits for three years. If you want
to protect your wealth, find a LTCI that meets your needs.
Primarily, long-term
care insurance is protection against the risk of losing wealth you
have built over your lifetime. If you are thinking about buying a
policy, don't pay more for the policy than the value you want to
protect.
SOURCE: ROBERT WHITE,
Extension Agent on Special Assignment, Alabama Cooperative Extension
System, (334) 844- 2235
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