Long Term Care Insurance Guide – LTC Costs & Benefits

What is Long Term Care Insurance (LTC)?

Long term care insurance, also known as LTC, is a form of policy plan that provides care and services that are not covered by traditional healthcare plans. Long term care caters to older generations of people who seek to have their basic needs met through monitoring of health and custodial services. This insurance typically covers people who have a chronic illness, cognitive impairment, or need assistance performing Activities of Daily Living, also known as ADLs. Most LTC policies reimburse the insured for care in a variety of settings, including in-home care, nursing homes, assisted living homes, and adult day care centers.

How to Qualify

Under most LTC plans, the benefits of the policy cannot be realized until certain criteria are met. Care can be initiated for a person with a chronic illness (such as Alzheimer’s, dementia, ALS, etc.) or that has a disability that requires medical and non-medical needs to be met. These are situations that require medical documentation, but there are also other ways in which people can qualify. Activities of Daily Living, previously noted as ADLs, are functions that a typical, healthy person would be able to perform without assistance. The six ADLs are as follows; bathing, dressing, eating, caring for incontinence, toileting (getting on/off), and transferring (in/out of beds, chairs, etc.). For care to begin a person must demonstrate that they are unable to perform at least 2 of the 6 ADLs.

The Process of Receiving LTC

Sending in medical documents and reporting all conditions is a standard practice when looking to receive any healthcare coverage, including LTC. After reviewing all medical documentations, LTC insurers will then typically request an in-person evaluation to be done by a nurse. If an insurer then decides to proceed with extending an individual coverage, then they are officially insured. When it comes time for care to be issued, the insured will have to endure an elimination period. An elimination period is typically a span of 30, 60, 90 or more days (depending on the policy) in which the insured must pay for all their care out-of-pocket. After the elimination period subsides, the policy kicks in and begins paying for care.

How to Obtain LTC

Long Term Care insurance can be purchased through several different avenues. This type of care is becoming harder and harder to obtain because insurance companies are recognizing that there is a lot of uncertainty in future healthcare costs. Also, low interest rates affect healthcare companies’ interest-sensitive investments that are used to make profit. There are many corporations that are pulling out of the market due to these uncertainties and some large LTC-providing firms, such as Genworth, have dialed back their use of brokers and now only sell their policies through an in-house sales department. This makes it so that a person now may find LTC most readily offered to them through group policies offered by employers. While it is easier to obtain an LTC policy through a group, individual policies are still available through insurance brokers and directly through insurance companies. 

Costs Associated with LTC

There is a lot of variability associated with LTC. Rates often depend on several factors that are out of one’s control. Age, health, gender, marital status, insurance company used, and amount of coverage all weigh into the price of a policy. Prices for these plans are not always guaranteed either, as premiums may rise after policy purchase if the insurer is able to prove rising costs, which can lead to difficulty when financially planning for retirement.

Does Medicare/Medicaid Cover LTC?

Medicare does not pay for Long Term Care. Medicare will cover up to 100 days of skilled care at a long-term facility following a discharge from a hospital stay lasting at least 3 days, but this is different from Long Term Care. LTC includes services that aid with Activities of Daily Living, which heavily involve custodial care and supervision. These services are provided as need arises from degenerative health conditions of older generations of people rather than resulting from accidents that require care for an extended period of time.

Medicaid, on the other hand, is the single largest payer of LTC coverage in the United States. Medicaid is a means-based program that is only available for those that qualify under income and asset caps set by the government. Medicaid cannot be utilized for LTC unless a person is eligible by proving they have insufficient means to pay for their own healthcare. Thus, the average consumer looking to purchase a LTC policy must do so without government subsidization.

Financial Considerations

Most LTC policies only cover a portion of the actual cost of care.  For example, there are plans that provide $6k per month, but the average cost of nursing home care in CT is around $13k per month.  So, while these plans help cover a portion of care costs, someone could still go bankrupt even with the policy.  Also, these plans can be prohibitively expensive, for example, a couple is quoted for an LTC policy that is $10k per year each.  If they were only planning to spend $50k in retirement, they would have to add $20k annually to their income plan. This would have them run out of money at 73 instead of 95.  Tough choices must be made and although it doesn’t make sense to use insurance to cover everything, it is an important option to consider.

Difficulty Finding the Best Plan for You?

When presented with a group LTC option through an employer, it is easy to think that this the best price available. In some cases, this is not true, as policies from different insurers can allow rates to vary significantly. It is recommended that an individual works with a licensed insurance agent that sells policies for at least three different corporations in order to receive the best rate possible.

Timing Affects Policy Price

LTC must be purchased before medical needs arise or before the age of 75. Much like normal healthcare excludes many pre-existing conditions, Long Term Care is also considered preventative and, thus, must be purchased before care is needed. It is recommended to purchase this type of care in a person’s late 40’s or early 50’s as rates tend to skyrocket after a person turns 60.

Benefits Associated with LTC

Aside from the actual care received through a LTC policy, there are other benefits associated with these healthcare plans. LTC plans protect estate savings, carry tax advantages, and provide more options for care.

Financial Stability

Purchasing Long Term Care insurance is one way to help protect your estate. This insurance is expensive, but is far less than the actual cost of care in a nursing home.  If you have seen a friend or family member experience the financial impact of LTC, you will appreciate the peace of mind having coverage will bring.

There are also tax advantages associated with LTC. Medical expenses are tax deductible and LTC coverage could be considered a medical expense if a tax-qualified policy is purchased. Not all policies are tax-qualified though, so it important to look specifically for plans that meet the criteria.

Shared Care & Other Options

Purchasing a LTC policy will lead to more availability for care in the future. No one wants to be stuck with sub-standard living conditions due to personal financial woes, and LTC insurance is a great way to make sure that there are options available. Shared care is also a benefit that serves to help married couples who both have LTC plans. With shared care options, couples can elect to have their spouse’s policy kick in if their personal limits are reached.


Why is LTC Important?

Over half of Americans will need Long Term Care at some point in their life, yet less than a quarter of people buy a policy. For some, they cannot justify the costs of having health insurance, life insurance, and LTC insurance. For others, they may think they cannot afford a policy or are relying on familial health history to keep them from needing this sort of care. Whatever the reason may be, having a LTC policy is an important consideration for a good retirement plan.   This investment could save a person from bankruptcy or the emotional distress stemming from being unable to pay for necessary care.

Everyone’s financial situation is different. If you are unsure if Long Term Care Insurance is right for you, talk to a Certified Financial Planner, or CFP® for advice and guidance on this major decision. LTC Insurance is a piece to the puzzle of retirement planning. To make sure your plan is consistent and fits together to match your lifestyle and plans, talk to someone who specializes in retirement planning. If you have any questions regarding Long Term Care Insurance or your retirement plan in general, feel free to email us at [email protected].

Ben Fuchs

Ben Fuchs, founder of Fuchs Financial, is a CERTIFIED FINANCIAL PLANNER (CFP®) and Certified Private Wealth Advisor (CPWA®) with over 15 years of investment experience.

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