10 Misconceptions About Long-Term Care Insurance
Should you make the investment?
En español | Does this sound familiar?
Long-term care insurance is complicated, costly and unnecessary. I'm healthy! I have family who will care for me, and I refuse to go into a nursing home, anyway. Medicare and Medicaid will cover care once I need it — why waste money on insurance?
The odds that you'll need long-term care are likely greater than you imagine. Seventy percent of all Americans age 65 and older will likely need some form of long-term care (LTC), according to a study in the journal Inquiry. That includes nursing home care as well as assistance with activities of daily living (ADLs): toileting, bathing, dressing, eating, transferring out of bed and incontinence care.
On average, people need care for three years, but 20 percent of today's older adults will need care for five years or more, according to the HHS' National Clearinghouse for Long-Term Care Information. More than 40 percent will need care in a nursing home. And considering the average annual cost of nursing home care is $75,000 a year , this level of care can quickly eat through your savings.
"Long-term care expenses are one of the greater economic risks that older Americans face," says Richard Johnson, director of the Program on Retirement Policy at the Urban Institute. "Nursing homes are incredibly expensive, and if you don't have insurance you're going to have to pay out of pocket, as Medicaid doesn't kick in until you basically spend all of your money on long-term care."
Here are 10 misconceptions about LTC insurance to consider when deciding whether to make this investment:
1. Medicare will pay for care
Medicare only covers LTC for short periods of time, such as rehabilitation after an injury or illness. It does not cover assistance with ADLs that many older adults need to maintain their independence. Medicaid will cover nursing home care only if your income is below a certain level and after you've depleted almost all your savings.
2. Insurance only covers nursing home care
When LTC insurance was first introduced in the 1980s, it was meant to cover only nursing home care. Not anymore. Today most policies are joint policies, meaning they cover both in-home assistance and nursing home care. "You can think of it this way: Long-term care insurance might keep me out of a nursing home," Johnson says.
3. My family will take care of me for free
Yes, they likely will. But think about whether you want them to. If you need help using the bathroom, bathing or changing soiled undergarments (incontinence does happen), would you want your children doing that or would you prefer the help of a skilled medical professional? LTC insurance covers in-home assistance from licensed home health agencies.
4. I'm too young to worry about it
The younger you are, the more likely you are to qualify for coverage. "The median age when people purchase is 57, but the sweet spot is between 52 and 64 because once you qualify for Medicare your health history tends to get more complicated as you suddenly get all these free medical screenings and tests," says Jesse Slome, executive director of the American Association for Long-Term Care Insurance.
5. When I need it, I'll get it
"Once you have a diagnosis of an illness, you can't get coverage," says Maryglenn Boals, an independent long-term care insurance agent in Phoenix. "Think of it this way: We can't insure a house once it's on fire." When you apply for coverage, the insurance company will look at your most recent medical history to evaluate your health. Only 17 percent of people in their 50s are denied coverage, but that number jumps to 45 percent for people in their 70s, says Slome. Once you have coverage and pay your premiums, you have it regardless of what medical issues arise.
6. I'll fail the medical screening
Don't assume that just because you have high cholesterol or are a few pounds overweight that you won't qualify. For most applicants, especially the young ones in their 50s and 60s, underwriting only looks at your most recent medical records from your doctor to see what illnesses you've been diagnosed with and what medications you are on. You'll also undergo a cognitive exam via phone. There's no in-home visit by a medical professional.
7. I was denied and so am uninsurable
Yes, a denial is a strike against you, says Boals. But it doesn't mean you should stop shopping around. There are many companies out there, and an independent long-term care insurance agent can help you find one that might not consider you as much of a risk, says Boals.
8. I can't afford it
Coverage might be less costly than you think, especially if you purchase in your 50s. For a husband and wife, both age 55 and in good health, the average annual premium is $2,350, says Slome. (The range is $2,085 to $3,970 depending on your health history and the individual insurer.) Premiums can rise over that time, but increases are never based on your personal medical history and require state regulatory approval.
9. Insurance will cover all my needs
Long-term insurance is not limitless. In the above scenario, the 55-year-old couple qualifies for $338,000 in coverage as soon as they pay their first premium. That amount increases over time to $821,500 by age 85. Many plans also have deductibles, meaning you will have to pay out a certain amount for care before coverage kicks in. And if your medical needs exceed those amounts, you will have to pay the balance.
10. It's too complicated
If your eyes glaze over at talk of contingent, non-forfeiture, share care … you're not alone. Many different companies offer many different plans. But the LTC insurance industry is working to make it less confusing. "I think as agents, we've made it complicated, but it doesn't have to be that way," says Boals. "We talk in insurance terms. But what I ask my clients is, 'If something happened, what would you want it to look like? Where would you want to be? What are the things that you worry about?' And then we craft a policy from there."
Cynthia Ramnarace writes about health and families. She is based in Rockaway Beach, N.Y.