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Editor's Note: A version of this blog post recently ran in our monthly column in the Concord Journal.
Care for aging relatives can be expensive, however your family chooses to cover it. Whether it is an assisted living facility, home care, or living with family, many financial and personal trade-offs are required – often over a period of many years. As we discuss this with families, the value of long-term care insurance (LTC) becomes clear.
Long term policies can be purchased at any point, but as you would expect, cost and rates of declined service increase dramatically with age. If you are still in your fifties, you should seriously consider purchasing it. This is not, however, a commercial for new purchasers; we will focus this post on what you need to know if a loved one already has the policy, how to understand what it covers, and how to calculate its benefits.
The first important point is the difference between services covered by health insurance and Medicare on the one hand, and LTC policies on the other. Imagine that an elder returns home following knee surgery. Medicare will cover the basic post-operative clinical needs – wound care, administration of meds, etc. Private medical insurance may well cover additional medical services associated with your recovery – supplemental physical therapy, for example. But if your loved one cannot get out of bed to go to the bathroom or make a meal, neither policy will cover those needs. That is where an LTC policy comes in. It typically covers non-medical care associated with inability to manage independently with Activities of Daily Living (ADLs).
When you receive care, you can pay the invoice and then submit the claim yourself for reimbursement. This, however, puts the paperwork burden on the family. Most families prefer to have the provider handle the claims, which requires Assignment of Benefits. In order for the Long Term Care insurance to pay a care provider, you must sign an Assignment of Benefits and have that Assignment approved by your Long Term Care insurance company. At that point, billing headaches belong to the provider. Typically, the provider will need to submit its license, intake assessment, and care plan to the company, along with all invoices with care dates and visit notes, in order to be reimbursed.
In many cases, the family must pay out of pocket for a time, called the elimination period, before the benefits kick in. Policies typically have elimination periods between 0 and 180 days. If you have a lower elimination period, you can start to collect sooner, but you will have to pay more for the policy, so you need to consider the likelihood that you will need care and be able to afford the cost for a period of time. Most often, you have to have the same level of care during the elimination period that you have after the policy begins to pay, unless there is a documented change in your status. For instance, you rarely can pay out of pocket for 4 hours per day during the elimination period and expect the insurance to pay for 24 hours once the elimination period has been satisfied.
This represents the maximum amount the policy will pay per day. Usually it starts around $50 daily and can go to $300 or so. If you need care beyond the daily cap, you will be out of pocket for that amount. However, a higher daily benefit means a more expensive premium. A lower daily cap still offsets the cost of several hours of care and can ease the impact of the bills, if they come.
Some policies have an inflation rider so the benefit rises each year. A 5% increase in benefit amount on a $100 per day policy would essentially double to $200 per day after 14 years of owning the policy. The younger you are when you purchase the policy, the more important the inflation factor is.
This tells you how long the policy will pay. Until recently, some were unlimited, and your loved one’s policy may include that provision. As people began living much longer, however, companies stopped that provision and many even exited LTC altogether. Benefit periods may be as little as a year, so check this carefully.
Some Long Term Care policies have two tiers of care, and the Maximum Daily Benefit applies only to a skilled facility such as a Nursing Home. The Home Care benefit may be smaller. If this provision is in your policy, be sure you base your calculations on the appropriate tier before engaging care.
Depending upon your bent, considering all these factors may be difficult. If so, consider getting advice from someone you trust because the difference in outcomes can be significant.