Long Term Care – The Case to Have It

According to the Centers for Medicare & Medicaid Services (CSM), every day in America, nearly 10,000 people turn age 65.  And despite a recent decline—with drug overdoses, suicides and COVID sadly contributing—our current life expectancy remains historically high at approximately 77.8 years of age (75.1 for males, 80.5 for females).

In other words, we’re still living longer than ever before.  Unfortunately, as many of us have come to know, aging often comes with burdensome costs. While studies show that social interaction—not to mention nutrition and exercise—play vital roles in aging successfully, what do we do when the process doesn’t go as we’d hoped or planned?

What happens when our parents can’t take care of themselves, or moreover when we can’t care of ourselves either?  

For those who’ve dealt with the declining health of a spouse, sibling, mom, or dad, the reality is all too real. This is where long-term care comes to the forefront.

By definition, the need for long-term care is triggered when someone is unable to perform two of the six ‘activities of daily living: bathing, toileting, eating, dressing, transferring, and continence. When that happens, what happens next?

First off, some statistics and parameters: 

• If you turned age 65 today, you have at least a 50% chance of needing long-term care, and at least a 70% chance of needing some sort of long-term care service.
• The average long-term care stay is anywhere from one to three years.
• 20% of those turning 65 will need care for longer than five years.
• About 35% of people who reach age 65 are expected to enter a nursing home at least once in their lifetime.
• By 2019, according to the American Council on Aging, the average cost had risen to $247 per day or $7,512 per month.
• Lastly, and contrary to what some still believe, Medicare does NOT pay for long-term care. The only exception is if you have come out of the hospital and are placed in a skilled nursing facility, for which Medicare will pay for no more than 100 days (about three and a half months).

Hardly a flattering picture to say the least.  So, what care do you get? It depends on your needs and means.  

Private pay facilities, such as skilled nursing (I.e., nursing homes) or assisted living centers, are paid almost entirely by patients and families and are considered the highest level and quality of long-term care. To qualify, facilities will usually assess your ability to pay, not to mention the status of one’s health.

Supportive living centers do much the same but will eventually accept Medicaid for payment once someone has spent down the entirety of their assets. And though not at the level of private pay facilities, many supporting living centers will accept Medicaid right away should someone have little to no assets available.

Home health care is yet another option, where either a family member or home health professional provides care. While family care does not necessarily come at a financial cost (short of someone having to quit work to care for a loved one), professional home care, while less than a nursing home, can still be expensive over the long haul.

So how does one pay? Drain your savings, invade your retirement accounts or deplete your 401k? Is there a less burdening option? 

If designed properly, and purchased timely, this is where long-term care insurance can be your best remedy.

Long-term care (LTC) policies have gone through many iterations over the years. Historically, they were marketed and designed no differently than a typical auto, home or term life insurance plan: you paid your premium, and if you ever needed coverage, the policy would pay a monthly benefit-usually only for nursing homes or assisted living facilities. If never utilized, you merely paid for the peace of mind, but not much else.

Over time, demographics and economics forced change. Those old LTC plans, some of which guaranteed lifetime payouts, began paying out, and quite handsomely, even with a surge in aging population (see our story lead) as well as (recession-induced) low-interest rates. The result?  The sale and service of LTC made it more and more unprofitable for the insurance industry. While the old, styled plans are still around, the benefits are not as strong, and premiums are no longer guaranteed.

Hence, and for a variety of actuarial reasons, the LTC market has overwhelmingly moved to permanent life insurance-based programs.

Here, LTC plans now come in two profiles:

1. Hybrid Plans:  These are long-term care benefit-driven—with benefit periods ranging anywhere from two to seven years along with annually increasing inflation protection. They also include a death benefit equal to premiums paid, as well as a surrender value, also equal to premiums paid. For those seeking the maximum LTC protection possible, as well as guaranteeing their money back, hybrids are a very sound option.
2. Life with LTC Rider:  Slightly more simplified in nature, a Life with LTC rider plan says this: You pay premiums every year, either for life or to age 65, or even paid up in ten to twenty years (depending on how much total premium you wish to pay).

Then, if you ever need long-term care, you simply “borrow” anywhere from two to four percent of your death benefit monthly, either until you no longer need care, or until your entire death benefit has been exhausted. Typically, if you take the maximum monthly benefit available, the LTC benefit lasts for just over two years.

Now, why would someone take only a two-year benefit on a Life with Rider policy as opposed to getting so much more (two to seven years) with a hybrid plan?  

1. When comparing the two, while hybrid plans provide a much larger bucket of total lifetime benefits, they start out at a much lower monthly benefit.
2. As the average LTC stay is anywhere from one to three years, many see the advantage of a life with rider plan given the significantly higher amount of initial monthly benefit those plans provide.

One other point on long-term-plans that’s crucial:  

Whatever your consideration, be sure your plan is an “indemnity” plan, which will pay you, the insured, no matter what type of care you incur, be it nursing home, assisted living, or even home health care provided by a family member.

This as opposed to “reimbursement” plans, which will ONLY reimburse you the cost of a professional health care provider, and not for family care.

Now the million-dollar question: when should you or anyone consider buying long-term care?

As you might imagine, it is cheaper when you are young and in good health. That said, what if you are in your 30’s 40’s or 50’s and long-term care simply is not on your brain, nor do you think you will ever really need it? Well, given these statistics, and the new types of policies available, your loyal typist will always argue in favor of obtaining long-term care coverage sooner rather than later, especially when you consider 45% of those needing long-term care are UNDER the age of 65.

Several carriers that provide the policies described above, also offer term insurance that allows you to convert to a life with rider plan with NO medical questions asked all the way to age 65. So, if you are young, have a family, and need additional life insurance, to begin with, consider a sizable amount of term life coverage that you can convert later to permanent coverage with long-term care. This way, you are taking care of yourself and your family both now and in the long run.

As the saying goes: do something today, that one day your future self will thank you for. Contact one of our employee benefit experts to inquire and see if long-term care makes sense for your employee population.