FAQ: Long-Term Care Insurance
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What Is Long-Term Care?
Long-term care helps someone with a continuing physical illness, disability or cognitive impairment deal with the activities of everyday life. Someone with a physical illness or disability may need hands-on help, while someone with a cognitive impairment may need supervision, protection or verbal reminders to do everyday activities. Long-term care may include help with activities of daily living, home health care, respite care, adult day care, nursing home care, and care in an assisted living facility.
How Much Does Long-Term Care Cost?
The cost depends on the amount and type of care that is required. The following is a list of average costs for nursing home care in the DC metropolitan area. Keep in mind that the rates may vary significantly among long-term care facilities.
|Virginia||$128 per day||$46,720 per year|
|Maryland||$150 per day||$54,750 per year|
|D.C.||$192 per day||$70,080 per year|
Does Medicare or Medicaid Cover Long-Term Care Costs?
Medicare: Medicare's skilled nursing facility (SNF) benefit does not cover long-term custodial care in a nursing home. The SNF benefit only covers you if a medical professional says you need daily skilled care after you have been in the hospital for at least three days, and you are receiving that care in a Medicare-certified SNF. Medicare will pay for the first twenty (20) days in a SNF. Thereafter, Medicare will co-pay for the next eighty (80) days only if you require skilled nursing services. You will be required to co-pay $119.00 per day (2006 rate). In addition, Medicare does not cover any costs for care in assisted living facilities.
Medicare does not cover homemaker services, and only covers personal care from home health aides if you are homebound and are also getting skilled care such as nursing or therapy. You can only receive a limited amount of personal care per week.
Medicare Supplement Insurance: This is private insurance that helps pay for some of the gaps in Medicare coverage. No long-term custodial care costs are covered.
Medicaid: Public benefits, known as Medicaid, will only pay for long-term custodial care when you meet federal and state guidelines for income and resources, although some income and resources can be protected for a spouse who remains at home.
Should You Buy Long-Term Care Insurance?
It has been estimated that 80% of people over age 65 will require either nursing facility services or home or community services during their lifetime. It is important to consider your own situation in order to determine whether purchasing long-term care insurance is the right decision for you.
You should NOT buy long-term care insurance if:
- You can't afford the premiums
- You have limited assets
- Your only source of income is a Social Security benefit or Supplemental Security Income (SSI)
- You often have trouble paying for utilities, food, medicine or other important needs
You should consider buying long-term care insurance if:
- You have significant assets and income
- You want to protect some of your assets and income
- You want to pay for your own care
- You want to stay independent of the support of others
What Are the Tax Consequences of Long-Term Care Insurance?
First and foremost, long-term care insurance benefits are generally not taxable.
Second, if you have a federally-qualified long-term care insurance policy, you can deduct the cost of your premiums. In order to be federally-qualified, the policy must have been sold after January 1, 1997, must be labeled as tax-qualified, must be guaranteed renewable, must include a number of consumer protection provisions, must cover only qualified long-term care services and cannot have a cash surrender value.
If you itemize your deductions, and the premiums exceed 7.5% of your adjusted gross income, you can deduct part of the cost of the premiums. For 2006, the maximum deduction is as follows:
Age At the Close of the Taxable Year
40 or less
More than 40, but not more than 50
More than 50, but not more than 60
More than 60, but not more than 70
More than 70
What Should You Consider When Deciding on a Long-Term Care Insurance Policy?
How Are Benefits Paid?
Either by each expense or by a set dollar amount.
What Services Are Covered?
Policies vary and may cover nursing home care, home health care, personal care in your home, services in assisted-living facilities, services in adult day care centers and/or services in other community facilities.
Where Are Services Covered?
Insurance policies cover different types of facilities. If your facility is not covered, the insurance company can refuse to pay for eligible services.
What Is Not Covered (exclusions and limitations)?
Most policies usually do not pay benefits for a mental or nervous disorder or disease, other than Alzheimer's or other dementia; alcohol or drug addiction; illness or injury caused by an act of war; treatment the government has provided in a government facility or already paid for; or attempted suicide or intentionally self-inflicted injuries.
How Much Coverage You Will Have?
A policy may have a maximum benefit limit or a daily/monthly benefit limit.
When Are You Eligible for Benefits (benefit triggers)?
Some policies use more than one way to decide when to pay benefits, while some states require certain benefit triggers. Benefit triggers may include:
- The inability to do activities of daily living such as bathing, continence, dressing, eating, toileting and transferring (most common benefit trigger).
- Cognitive impairment/mental incapacity
- Doctor certification of medical necessity
- Prior hospitalization. Most companies no longer sell policies that require a hospital stay, although Medicare requires a three-day hospital stay to be eligible for Medicare payment of skilled nursing facility benefits.
When Do Benefits Start?
Most policies have a waiting period, or elimination period, of 0, 20, 30, 60, 90 or 100 days before benefits start.
What Happens When Long-Term Care Costs Rise (inflation protection)?
You can usually buy inflation protection either by automatically increasing your benefits each year, or by choosing to increase your benefits periodically, such as every three years.
What Happens If You Can't Afford the Premiums Anymore?
If you have a nonforfeiture benefit in your policy, you will receive some value for the money you've paid into the policy.
What does long-term care insurance cost?
The average annual premium is around $2,000. The premium will be lower if you're younger and higher if you're older.
Certain benefits will add to the premium amount. For instance, you will pay more if you have a large daily benefit, a longer maximum benefit period, or a home health care benefit. Inflation protection can add 25% to 40% to the premium and nonforfeiture benefits can add 10% to 100% to the premium