(Article from Fall 2006 Profiz Zone)

The cost of nursing home care in America continues to increase. According to a Met Life Mature Market Institute study, the average nursing home cost in 2005 was $203 per day, or $74,095. That is up nearly six percent from the 2004 study of $192 per day ($70,000 annually).

The study also shows that the average stay in a nursing home is 2.4 years, or $177,828. Nearly one out of every two persons age 65 and older will probably spend some time in a nursing home.

With these statistics in mind, it is no surprise that long-term care (LTC) insurance policies are being sold rapidly to an ever-increasing number of baby boomers. But like any insurance product, consumers need to know what they are buying and the coverage that a long-term care policy will offer.

Here are a few tips to follow when evaluating the need for LTC insurance:

• If you do not understand the policy’s terms, do not buy it until you fully understand what you are buying or else hire someone who can and will make sure you are making an informed decision. Some attorneys specialize in coverage questions. They know and understand insurance coverage issues. Ask potential lawyers if they have experience in insurance coverage questions and to detail that experience for you. Before you retain a lawyer, come to an understanding on the fees to be charged to interpret the policy.
• When buying long-term care, make it a family decision. Bring together everyone who has an interest: your spouse, children, siblings, and closest personal friend. There is a special value in collective decision-making that will help avoid some of the pitfalls that have been well documented.
• Fearful of losing economic independence, older Americans are looking for security in long-term care insurance. Even though for seniors over 65 premiums can range from $2,000 to over $10,000 per year, long-term care insurance is “the fastest-growing type of health insurance sold in recent years.” Still, only five percent of those over 65 have purchased private long-term care insurance. Uninsured seniors constitute a lucrative market and as a result over 100 insurance companies now offer long-term care policies.
• Long-term care policies pay the cost of the day-in, day-out care for a person with an acute or long-term illness or disability. Many seniors receive this care in nursing homes, but more effective and less expensive care at home and at adult day-care centers is growing in popularity, because it is less expensive and still provides the security of a longstanding home.

Defining Long-Term Core

As a result of disability or a prolonged illness, long-term care is the assistance provided when a person is unable to provide for himself or herself. It ranges from providing personal care at home, such as bathing and dressing, to skilled nursing services in a nursing home.

Long-term care is offered through home care agencies, senior centers, adult day care centers, traditional nursing homes and retirement communities that provide ongoing care.

In considering long-term care insurance policies various kinds of care are mentioned. Here are the most commonly used terms and their generally accepted meaning. Remember, the definitions given here can and often times are re-defined by carriers in their policy and given special meaning under a particular contract. It is important to read the fine print.

Benefits are usually described in terms of the amount the carrier will pay per day for care in a nursing home and vary from $75 up to $250 a day. Gain familiarity with the general charges for nursing homes in your area before you buy a policy. Keep in mind that prices will increase by the time you will need care, so all you are obtaining is a reference level to familiarize yourself with the market. Once you know prices in your area you can calculate the range of future charges by following the Rule of 72.

This simple formula allows you to determine the length of time it will take for a price to double at a given rate of interest. Assuming a nursing home near you charges $100 per day and that nursing home charges will increase at an annual rate of six percent per year. How long will it take the price to reach the $200 level? The answer is calculated by dividing the number 72 by the interest rate. Seventy-two divided by six gives a quotient of 12. Assuming a six percent rate of inflation, the $100 a day charge will double in 12 years. So if you are 60 years of age and purchasing a policy with the expectation that you may need nursing home care in your early seventies, you should be looking for a policy that will be paying benefits of at least $200 per day 12 years from now.

Home care is growing in popularity with patients and carriers so read policies carefully for limits. Many policies usually agree to pay for home care at a rate that is one-half of the nursing-home rate. Other policies limit the benefits for home care to a specified daily sum or limit the number of hours at a specific rate per hour.

Calculating When Benefits Will Start

Most policies do not pay benefits until after a waiting period, commonly called an elimination or a deductible period. That means benefits begin 20, 30, 60, 90 or 100 days after you are admitted to a nursing home. Some policies have no elimination period and they naturally cost more. During any waiting or elimination period, you are responsible for paying for your care, but there are significant trade-offs. Having a reasonable waiting period during which you are personally responsible for your care means the insurance company can expect to pay out fewer benefits and accordingly underwriters can establish lower prices for these contracts.

Who Determines If You Are Entitled to Benefits?

All policies have “gatekeepers” who have the power to decide if you are eligible for benefits. Every policy contains terms usually referred to as “eligibility for benefits,” “qualifying for benefits,” or “benefit conditions.” Gatekeepers are a critical feature of every long-term care policy and one you should carefully study before you buy because there is a big difference between companies when it comes to who decides if the company will pay out money. For some companies this issue is so important that the policies provides for more than one gatekeeper.

Under the best policies, you can qualify for benefits if your doctor orders specific care. Other policies will require that care be “medically necessary for sickness and injury.” You already know who will make that determination. If you are in need of nursing-home services, but are not sick or injured, you would not qualify. The insurance company would determine whether you were sick or injured. A third type of rule limiting your right to benefits requires that you be unable to perform a certain number of “activities of daily living,” commonly referred to as ADLs. These normally include bathing, dressing, walking, moving from bed to chair, toilet, maintaining continence and eating.

When considering a LTC product, seek the advice of a qualified, objective and experienced professional.