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Who
should consider long-term care insurance? |
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Most
of us know at least one person who has stayed
in a nursing home or needed professional home
health care. The financial consequences of
long-term health care can have a significant
impact on a family's savings and lifestyle.
According to the Health Care Financing Administration
(Fall 1996), a total of $106.5 billion was
spent on long-term care, and nearly half of
that was paid, out-of-pocket, by the patients
and their families. Those accumulated expenses
can use up a major part of your savings. For
people who enter a nursing home, the financial
outcome can be worse: according to the Congressional
Subcommittee on Aging, 79% to 80% of nursing
home residents deplete their assets within
twelve months.
To understand
who needs long-term care insurance, it's
necessary to understand basic changes taking
place in American society. According to
the U.S. Census, there were 32 million people
age 65 and older in 1990 but by the year
2030, this figure could double to 64.6 million.
Moreover, people are living longer today
than ever before. By the year 2040, there
may be more people over age 85 than there
are over 65 today. Not only are we getting
older but, over the next 50 years, the working
age population may increase only 2% to 18%,
while the elderly population is expected
to increase anywhere from 139% to 169%.
For years,
it was tradition for adult children to take
care of their parents during the "golden
years." But changing times have brought
an increase in dual-career families, job
insecurity, family mobility, and divorce.
Today, many adult children are not able
to stay home and look after their own children,
let alone an aging parent. In addition,
corporate downsizing has eliminated thousands
of mid-management jobs throughout the country.
Consequently, many adult children are not
in a position to financially help their
parents as they had planned. Add to this
the increasing uncertainty of health care
benefits for senior citizens, and a giant
question mark looms on the horizon.
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Who
will pay for long-term care expenses? |
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Who
will support this population and help pay
its inevitable medical bills? The writing
is on the wall. According to Alice M. Rivlin
and Joshua M. Weiner, authors of "Caring
for the Disabled Elderly" (published
by the Brookings Institution), the combination
of aging Baby Boomers and an increase in the
longevity of the aged will dramatically heighten
the need for more public and private spending.
But when it comes time to pay the bill, no
federal program ? Social Security, Medicare,
or Medicaid ? will pay for all long-term care
expenses. |
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How
Secure is Social Security? |
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Social
Security is not a savings account that builds
up over time. It is a "pay as you go"
system, paid for through payroll taxes on
present employees to support former workers.
Today, according to the Social Security Administration,
each retired Social Security beneficiary is
supported by they payroll taxes of 3.3 workers.
By 2020, it's estimated that each Social Security
beneficiary will be supported by the payroll
taxes of 1.9 workers. In other words, payroll
taxes would have to increase by almost 60%
for the system to remain solvent and provide
the same level of benefits in the future. |
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Can
I bank on Medicare or Medicaid? |
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Don't
Bank on Medicare or Medicaid. Although Medicare
provides health coverage for senior citizens,
it is limited in the area of long-term care
coverage. In 1995, Medicare paid a total of
9.4% of all nursing home care expenses in
the country 2. Medicaid, on the other hand,
will cover the cost of long-term care, but
there's one catch: to qualify, you must become
indigent ("spend down" your assets).
Remember, once you have depleted your assets,
you have also lost control over where and
when you receive care. Also, because of state
and federal budget cutbacks, the facilities
close to your family and friends might not
have openings for Medicaid patients at the
time your need care. |
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What
does long-term care insurance cover?
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Long-term
care insurance usually pays for skilled, intermediate,
or custodial care in a nursing home. It can
also cover professional "at-home"
health care. This type of insurance can help
pay for a variety of home and community-based
care services, including: physical, speech,
and occupational therapists; home health aides
and visiting nurses; adult day care, and hospice
care. (Note: Generally, skilled care refers
to round-the-clock treatment by a registered
nurse under a doctor's supervision. Intermediate
care refers to occasional nursing and rehabilitative
care under the supervision of skilled medial
personnel. Custodial care primarily meets
personal care needs in activities of daily
living such as help in eating or bathing.)
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How
does a long-term care insurance policy work? |
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Typically,
long-term care policies pay up to a specific
dollar amount for covered services per day,
reimbursing policy owners for expenses incurred.
Few, if any, policies provide full coverage
for all expenses. Annual premiums for long-term
care insurance policies can range from $250
to over $2,500 depending on age, waiting periods,
and the duration and amount of benefits. |
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What
does a good policy include? |
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No
matter what your needs are, there are certain
things to look for in long-term care insurance.
Be sure that the company offering the policy
is financially secure ? research their ratings.
(Most libraries have that information available
from independent ratings agencies; otherwise,
ask your agent.) Keep in mind that premiums
can be costly (depending on age). Find the
level of coverage that is affordable yet still
offers what's most important to you. For example,
if you are concerned about the possibility
of being unable to care independently for
yourself in the future, and you don't feel
comfortable having to rely on a stranger to
do so, then make sure that your policy provides
benefits allowing a friend or family member
to come in and take care of you. Or, if you
do not anticipate needing long-term health
care services for several years, you may want
to consider purchasing an inflation protection
option. And, no matter what, you will want
a policy that waives premiums while you are
receiving nursing home and/or home health
care benefits.
(Note: As
of January 1, 1997, federal legislation
provides some tax advantages for long-term
care insurance. Part of the premiums are
now deductible as a medical expense. This
applies to both existing and new policies
("qualified" long-term care insurance
contracts) that meet the federal standards.)
The National
Association of Insurance Commissioners (NAIC)
produces a "Shopper's Guide to Long-Term
Care Insurance." This can be obtained,
at no cost, from your State Insurance Department.
The Health Insurance Association of America
(HIAA) also publishes a booklet, "The
Consumer's Guide to Long-Term Care Insurance,"
which provides basic information on long-term
care. Since several companies offer long-term
care insurance, with a variety of coverages
and options available, it is important to
carefully research the subject and make
an informed decision. Long-term care insurance
may not be for everybody, so if you are
considering a policy, read it carefully.
Ask for an outline of coverage that describes
policy features. If you have questions,
ask them. With the help of an informed agent,
you will be able to make an educated decision.
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