Who needs Long Term Care Insurance?

Unlike the other types of insurance normally carried by individuals, Long Term Care Insurance isn't just for emergencies.  Through most of human history, 10% of the population lived past 65.  Today, 85% of Americans will celebrate their 65th birthday thanks to improved standards of living and medical care.  With aging comes the need for additional care.  According to one survey the odds of needing some form of long term care at 65 are 1 in 4 (25%); at 75: 1 in 3 (33%); at 85: 1 in 2 (50%).   

The cost of receiving care varies by individual and by care providers.  A son or daughter able to take care of an aging parent was the historical model for receiving care and diminishes the hit to the pocket book.  If a child isn't able to provide care or the demands of care increase beyond the informal caregiver's capacity, professional staff needs to be utilized.  The average assisted living community today costs $40,000 per year and a nursing home averages $60,000 per year.  Like the rest of the health care industry, these prices are growing in faster than inflation, averaging over 5% year currently.

Paying for care

Since health insurance does not cover long term care, an individual has 4 choices in paying for care:

  • Personal Assets
  • Medicare
  • Medicaid
  • Long Term Care Insurance (Private Pay)

Personal assets and care provided by family members was the historical model of care.  As people are living longer and more families have both spouses working, this model is quickly becoming impractical.  With average costs of care between $50,000 to $100,000 per year, a couple needs to have significant assets reserved for care beyond typical retirement planning.  In addition, care needed by one partner can have a significant impact on the quality of life for the surviving spouse.

Medicare is what most Americans assume will provide care.  In addition to the current crisis around the fiscal fitness of the United States' system, Medicare also has some dramatic limitations.  First, it only covers care in a nursing home and requires a prior hospital stay of 3 days and admittance to a nursing home that accepts Medicare within 30 days for same medical condition.  Medicare pays for 100% of costs for the first 20 days, up to $101.50 for the next 80 days and then nothing.  At this point, individuals must begin paying out of personal savings.

Medicaid is designed to provide care for the poor, not the average American.  Unfortunately for many couples, an extended stay in a nursing home by one partner can quickly diminish the couple's savings resulting in reduced quality of life for the non-nursing home spouse and while providing limited care options for the other.

Long Term Care Insurance, or private pay insurance, fills the gap.  The most simplified Long Term Care insurance model is a daily dollar value covered by the insurance after a deductible in the form of a waiting period is paid.  Long Term Care insurance typically can cover home care, assisted living or nursing home care.  Other options include an inflation adjustment to match the rising cost of care and reductions in premium after a certain period. 

In many states long term care insurance premiums are tax deductible.  In addition, members of partnerships can fully write off the cost of long term care insurance as a partnership expense.  Consult your long term care insurance professional for more details.