Long-Term Care Insurance

Long-Term Care Insurance, (hereinafter, “LTCI”), is thought by many professionals to be an important component of a well-designed financial plan.  Like other insurance, it is purported to insure you against certain events; more specifically, the depletion of retirement savings and income, and the loss of choice and independent decision making when long-term illness or disability to the insured occurs.  For that reason, I suggest its inclusion as a component of most estate planning packages.  However, Americans are not flocking to buy LTCI.  Of those seniors polled in a recent Prudential Insurance Company of America study, the primary reason for not purchasing LTCI included the following:  55% indicate other expenses are taking a higher priority; 44% think it’s too expensive; 28% think they don’t currently need it; and 27% are waiting until their finances improve before they buy, and 20% say they need more research.

A Prudential Insurance Company of America study on LTCI notes that only one-in-four Americans mention LTCI as a potential source of paying for extended care services that may arise someday, but most believe Medicare, private health insurance and personal assets/savings will be sufficient to pay for any future long-term care expenses.  Unfortunately, the statistics should cause alarm to these unwary individuals.  According to their study, Prudential indicates 35% of Americans believe they already have sufficient personal assets or savings while 30% believe they will have sufficient income to cover any such expenses.  The truth is that most retirees will not have sufficient funds or income to pay for long-term care.  The Center for Retirement Research at Boston College recently published statistics indicating that only 20% of American households approaching retirement had accumulated sufficient savings to cover the average costs of healthcare and retirement (excluding the costs of an extended nursing home stay).  To that end, eight out of ten soon-to-be seniors have not fully prepared for the financial ruin that may be approaching.  Even more alarming is when adults begin thinking about the purchase of LTCI.  Prudential reports that among those individuals who do not own LTCI, 40% say they think the time to buy is after age 60; the time when most Americans find the coverage to be too expensive to afford.

Two of the most important factors to consider when buying LTCI are: (1) Your age and current health – Like any insurance policy, premiums cost more when the likelihood of claims increases; therefore, policies cost less if you are young and in good health.  If you are older or have a pre-existing condition, you are likely to spend more; (2) The premiums and their financial impact on your way of life – Payment of premiums is paramount to any insurance relationship but they are particularly important to seniors on fixed incomes considering LTCI.  Similar to life insurance policies, premiums for LCTI may increase over time.  If you are unable to consistently pay the required policy premiums, you could lose all the money you already invested in the policy.  If you envision concerns about paying premiums as you grow older, a LTCI policy may not make sense.  Perhaps you are more suitable for Medicaid – a/k/a Missouri HealthNet (sure, the quality of care may be less but if you lack the funding it may be your only option).  Speak with an experienced attorney or financial advisor to discuss whether you are likely to meet Medicaid’s eligibility requirements.

Still other factors to consider when buying LTCI include: (3) Ask Missouri’s state insurance department for a list of companies approved to sell long-term care insurance.  This governmental agency will tell you whether there were complaints lodged against any of the companies; (4) Confirm how long the prospective insurer has sold LTCI.  Websites like Moody’s Investors ServiceStandard and Poor’s, and A.M. Best are good referral sources; (5) Be a wise consumer and compare information and costs from three or more insurance companies; and (6) Never fall prey to the quick sell and never pay an insurance premium in cash or to an individual.

What services are covered through a LTCI you ask?  Like most legal questions, the answer is it depends.  Some insurance companies require you to use services from a pre-approved certified home care agency or a licensed professional, while others allow you to hire independent or non-licensed providers or family members.  Each insurance company may have its own rules for qualifying long-term care providers so as to prevent fraud and make certain only qualified individuals or companies are providing care.  For those that do own a LTCI policy, the broad range of services that can occur include:  (1) Nursing home expenses – A residential care facility that provides full-service and skilled health care, rehabilitation care, personal care and daily activities; (2) Assisted living – Perhaps your policy will pay for a residence that appears like an apartment-style unit while still affording personal care and other individualized services such as transportation or beauty treatments; (3) Adult day care services – Services outside the home that provides health, social and other support services in a supervised setting; (4) In-Home care – An agent or individual comes to your home to provide services like bathing, grooming and help with chores and housework; (5) Home modification – Perhaps your policy will pay for adaptations to your home such as installing ramps or grab bars; and (6) Care coordination – These services are similar to hiring a consultant.  Trained providers assist with determining needs, locating services, and arranging for care without physically providing the same directly to the insured person.

When do LTCI benefits begin in a private insurance setting?  Triggering events for insurance payments to begin are wide ranging but in general, most insurers look to your inability to perform certain “activities of daily living” (ADLs) to begin issuing money or paying for services.  According to the Scan Foundation, some insurance companies are explicit about ADL assessment and require a licensed health care practitioner to perform a judgment about an individual’s ability to perform their ADLs.  For example, your inability to bath, eat, dress, use the toilet, walk and maintain the necessities of life are the common ADLs used.  According to the Scan Foundation, almost all companies (93%) require ADL demonstrations during the assessment process in order to determine benefit eligibility based upon ADL functioning.

The gray line between incapacity because of old age and incapacity because of a disability is often unclear.  For example, those with Alzheimer’s disease may be physically able to perform the aforementioned ADLs but are no longer capable of doing them without assistance from others.  In those circumstances, mental-functioning tests are commonly substituted as benefit triggers for cognitive impairments.  All companies surveyed by the Scan Foundation use the Mini Mental Status Exam (MMSE), also known as the Folstein test, to identify whether you have severe cognitive impairment.

Todd Miller is the Senior Partner of the Law Office of Todd Miller, LLC in Jefferson City, Missouri.  He received his B.S. cum laude from Lincoln University in 1991 and his Juris Doctorate from the University of Missouri in 1999.  He was selected as candidate for one of the “10 Best” Attorneys for the State of Missouri by the American Institute of Family Law Attorneys; one of the  “10 Best” attorneys for the State of Missouri by the American Institute of Criminal Law Attorneys and one of the Nation’s Top Attorneys by The National Association of Distinguished Counsel. He formerly hosted a radio talk show entitled the “Mid-Missouri Legal Advocate” on KRMS News Talk 1150AM and 97.5FM.  You may also find him on Facebook, Google+, LinkedIn, Twitter and at www.toddmillerlaw.com.