Conversations on Care: Long Term Care Insurance

On a recent episode of Conversations on Care, Open Arms Solutions founder Julie Kollada spoke with Brian Gordon, president of MAGA Long Term Care Planning, about what long term care insurance is and how it works. Here’s what Brian shared:

What is long term care planning?

Long term care planning is a big picture consideration—it’s thinking about the consequences of if something happens to us later in life, how we’d be cared for, and how we’d pay for it. There are a lot of different ways to pay for and plan for long term care. The default is self-funding (which is different from self-insuring) but not many of us have the kind of money an insurance company has to back us up if something happens. Families need to know which accounts to tap into first. Often, family members of those who require long term care don’t want to spend the money for care, so it’s important to set expectations ahead of time by:

1. Having a discussion with your family about what to do in the event that you require long term care
2. Discussing how to pay for the care—will you private pay, rely on Medicaid (which, in Illinois, typically only covers in-facility care, not in-home care), or use long term care insurance to push the financial risk to an insurance company?

Long term care insurance is not meant to cover 100% of the care costs. Rather, it’s meant to give family members some financial benefits that enable them to make good decisions on the parent’s behalf. Some parents have several kids with plenty of money to be able to pay for care, but they may not trust the kids to do the right thing. So, they buy the insurance to ensure that their plan is executed properly and they get the care they need.

Financial advisors, CPAs, and other centers of influence should be having conversations with their clients about long term care insurance because most people can’t afford to spend $75,000-$200,000 per year on care at the end of their lives.

In the early days of Open Arms Solutions when Julie met with potential clients in their homes, people were often shocked to receive a quote for in-home care services. Many would say, “Wait, I thought Medicare would pay for that.” It’s a very common misconception that Medicare will cover the cost of caregivers coming into the home to help support daily living activities. In fact, Medicare does not cover that—it’s an out-of-pocket, private pay expense unless families don’t have the resources at all, in which case Medicaid may offer a small amount of support.

This type of information isn’t taught in school, and most people find out when it’s too late that Medicare, Medicare supplements, and health insurance are designed only for short term recovery care, not for long term care.

What is long term care insurance?

Long term care insurance policies are designed to help people pay for the cost of their in-home healthcare, their assisted living costs, and, if necessary, their skilled nursing facility costs. The benefits of these policies are activated when someone is severely cognitively impaired or they need to have help with two or more out of the six aspects of daily living, which are:

• Bathing
• Dressing
• Transferring (getting in and out of bed or a chair)
• Eating
• Toileting
• Maintaining continence

Additionally, the problem must be expected to last 90 days or longer. More short term problems are generally covered by health insurance, Medicare, or Medicare supplements.

Long term care insurance allows for a qualified licensed home healthcare agency to take care of your family member and provides access to geriatric care management services. A geriatric care manager can function as a quarterback to arrange care, serving as boots on the ground for family members who don’t live near their parents.

There are three types of long term care insurance plans:

1. Short term care policy – This option offers coverage for about a year.
2. Traditional (standalone) long term care policy – This option functions similar to vehicle and home insurance in that if we don’t use it, it means nothing bad happened to us at the end of our life. It is a less expensive option, providing single-purpose coverage for long term care expenses. The premium can go up over time depending on your specific plan, so you may need to budget for rate increases.
3. Hybrid long term care policy – This type of policy combines life insurance with long term care riders or annuity with long term care riders. Many people like hybrid plans because they offer a fixed premium and you won’t have to worry about rate increases down the road. Even if you don’t use the long term care part of the plan, there’s still a benefit going out to the family, so these plans have more expensive premiums.

You don’t know what you don’t know, so get quotes for traditional and hybrid plans when you are shopping for long term care insurance. Additionally, be sure to consider these factors:

• Some policies have different lengths of coverage periods, from 2 years to unlimited length.
• You can choose your monthly benefit amount, which usually ranges from $2,000-$10,000 or beyond per month. Consider the cost of care in your area and choose a benefit amount that will take a bite out of the care costs and leave an amount leftover that you can reasonably cover with your own money. In the Chicago area, most people choose $4,000-$9,000 in monthly benefits.
• Most plans have a 90- or 100-day elimination period, which is synonymous with a deductible. Sometimes the elimination period can be six months or a year, but Brian recommends sticking to a 90-day period because it’s more manageable.
• You can usually purchase 3-5% compounding inflation protection if you wish to.
• Most plans cover in-home care and nursing facility care, and all are portable, which means they follow you even if you move out of state.

How do policies get triggered?

There are two ways that long term care insurance can be triggered, which means the benefits will begin:

• Severe cognitive impairment where the person could be a danger to themselves or others, which usually involves physical or other problems as well.
• Needing help with two or more out of the six activities of daily living listed above—if you wait until after you can’t do at least four of those things, it’s too late to buy insurance

A primary care physician would typically initiate the trigger by documenting the cognitive impairment or the need for assistance with daily living activities.

How far in advance can you get the insurance triggered?

If you start to see your health failing or if you are beginning to fall more frequently, call up your insurance company immediately to get the ball rolling on triggering your benefits. Additionally, if you are going in for surgery, it’s a good idea to let your insurance company know ahead of time just in case. Try to get ahead of it as quickly as possible. Family members can help monitor for triggering events as well.

When should you start to look into getting long term care coverage?

The right time to look into getting long term care coverage is not so much a matter of age as it is a matter of where you are financially. Some people who have experienced long term care issues with their aging parents and who are in a good place financially will buy it in their late 30s or early 40s—this is not typical, but it’s smart to be prepared. Ensure that your life is in order when you start to shop by having limited debt, paying off your credit card and student loans, and having everything else in order. By age 50-55, it’s definitely time to start having those conversations with your financial advisor or insurance agent.

How do I qualify for long term care insurance coverage?

Long term care insurance is fully underwritten, which means the insurance company will look into your health, review any medications that you take, investigate your family’s health history, and so forth. Even if you have one immediate family member with a cognitive impairment, it can be difficult to qualify for coverage. Insurance companies may also conduct face-to-face interviews and obtain medical records from your doctors. People with mild conditions like hypertension, high cholesterol, and controlled diabetes are insurable, but you need to share your health information up front when you apply for insurance to avoid problems later on.

The better health you’re in, the more likely you are to be able to get a policy. It’s a balancing act of applying early enough that you will be able to get coverage versus the long term cost of paying premiums. With some traditional policies, you do need to budget for rate increases over time. Hybrid policies are guaranteed premiums that won’t change.

You can also opt for a 10-pay plan, in which you pay a higher premium amount for 10 years, but after that you no longer make any more premium payments. You do have to budget for rate increases over the 10 years. A good goal is to get the premium paid off during your retirement years. Always look at both types of policies to see what’s the best fit for you.

If you have questions about in-home care, contact Open Arms Solutions. For more information about long term care insurance, contact MAGA Long Term Care Planning.