Medicare, Private Health Insurance No Help with Long-Term Care

Posted August 2, 2013 in Elder Law Your Money & The Law by

Woman with a walker being assisted by nurses aide


We all like to believe that we will be healthy and independent up until the day we die. The reality is quite different. Although Americans are living longer than ever before, these extra years are bringing with them significant health problems.

At some point, 70 percent of those over age 65 will require some help with the essential activities of daily living. These include dressing, bathing, eating, toileting, continence, transferring (getting in and out of bed or a chair) and walking. Help with these activities can go far towards keeping us independent.

Such care can be provided in your own home, in assisted living or in a nursing home.

Many consumers assume – incorrectly – that such “long-term” care with the activities of daily living will be paid for by their health insurance, by Medicare or by Medicaid. Often, it won’t. It will be paid for out of your own pocket (or your children’s) or, if you have one, by a long-term care insurance policy.


Health insurance, Medicare and Medicaid

Private health insurance policies provide coverage for health care and hospitalization, but not for assistance with “activities of daily care.” Medicare, the government health insurance program for the elderly, covers 100 days of rehabilitation but not assistance with the “activities of daily life.”

Elderly and disabled people with low incomes may rely on Medicaid, the government health insurance program for the poor – but only after they’ve impoverished themselves by spending down virtually all of their assets. Plus, long-term benefits are usually available only in a nursing home setting.

People with a lot of money can pay the cost of long-term care out of pocket. People with very little money are eligible for Medicaid. The vast majority of people in the middle need to plan ahead.


Long-Term Care Insurance

To fill this gap, insurers offer long-term care insurance policies, which pay for help with daily activities and care. These policies kick in when a policyholder needs help with two or more of these activities. Premium amount is determined by three factors: the daily benefit amount that will be paid out, the length of coverage and the level of inflation protection built into the policy.

Long-term care policies are expensive, however, and getting even more expensive. A 55-year-old single adult can expect to pay $2,065 a year for $162,000 in benefits with three percent compound inflation protection. The older you are when you take out the policy, the higher the premiums.

Five of the 10 largest sellers of long-term care insurance have sharply reduced or discontinued sales since 2010. The rest are sharply raising rates. To maintain their policies at a price they can afford, many people are negotiating with their providers to decrease benefit amounts, length of coverage and inflation protections.


Will the Affordable Care Act Make a Difference?

Affordable long-term care was supposed to be part of the Affordable Care Act, but it proved to be too expensive. Instead, Congress appointed a commission to come up with ideas that could become law within the next five years.


Alternatives to Long-Term Care Policies

The past few years have seen the emergence of “hybrid” products – life insurance policies with long-term care riders. These policies allow a payout for heirs if a person does not use up the long-term care benefit.  So, unlike with traditional long-term care policies, there is some value to the policy even if you don’t use it.

On the down side, benefits are often less generous than those in traditional policies. Also, consumers must write one big check up front to obtain the coverage, rather than paying an annual premium.

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