Long Term Care Insurance: A Choice You Can Afford

Long Term Care Insurance: A Choice You Can Afford

The high cost of long-term care services has many people worried, with good reason. Longer life spans coupled with a steady increase in the elderly population as baby boomers age mean a dramatic rise in the numbers of Americans who will need long-term care. Baby boomers must recognize that a solid retirement plan should include a way to pay for the long-term care they may need as they age.

Many Americans are struggling to pay for long-term care services out of personal savings. This will become more of a problem in the future as long-term care costs, including nursing home stays and home care, continue to rise. For example, one year in a nursing home currently costs about $40,000. When today's 45-year-olds reach age 85, one year of nursing home care will cost $244,000. It is unrealistic to expect most Americans to be able to save the amount of money that would be necessary to cover these costs, especially at the same time they are trying to pay for a home, save for their children's education, and accumulate assets for retirement.

Many others believe incorrectly that they will be able to rely on Medicare or Medicaid to pay for their long-term care needs, but neither program was designed for that purpose. Medicare pays only for short-term recovery stays after hospitalization. Medicaid is a program for low-income Americans, and beneficiaries must deplete most of their assets and meet a strict income test before they can qualify for long-term care services. In addition, as baby boomers age, the elderly population is expected to increase by more than 100 percent, from 35 million to more than 70 million. Medicaid will be unable to support that growth.

Private long-term care insurance is one important part of the solution to this looming crisis. It enables you to pay for services without depleting your own retirement assets and income, or your family's savings. It offers you and your family the dignity of choice--providing for services in a variety of settings, unlike Medicaid which pays primarily for nursing home costs. Equally important, long-term care insurance helps ensure that you will be able to maintain personal and financial independence throughout your life.

Long-term care insurance is an affordable way to protect against the risk of losing your savings to pay for long-term care services. The younger you are when you purchase long-term care insurance, the less expensive the premiums. Once you have purchased a policy, the premiums cannot be increased because you grow older. Let's look at a few examples. A 45-year-old today would pay:

· About $420 per year for a policy with a two-year benefit period ($32 per month, about the cost of taking your family to a movie).

· About $730 per year for a policy with a five-year benefit period ($56 per month).

The long-term savings are tremendous. The 45-year-old buying a two-year policy will have paid a total of $16,800 by age 85, far less than the nearly one-half million dollars just two years of long-term care services will cost in 40 years.

Even a 60-year-old buying a policy would save money on long-term care expenditures. At approximately $890 annually for a two-year policy, today's 60-year-old will have paid $22,250 by age 85--far less than the $235,000 two years of long-term care services will cost in 25 years. Clearly, purchasing private long-term care insurance can save you money and protect your retirement savings at the same time.

Today's private long-term care insurance policies are designed to promote independence and provide choice. They cover a wide variety of services, ranging from personal assistance with activities of daily living--such as bathing, eating and dressing--to 24-hour skilled nursing assistance. Unlike government programs, which pay primarily for nursing home stays, private insurance also covers a variety of other options, including assisted living, home care, adult day care, and respite care. This flexibility allows you to retain the dignity of choice in your retirement years.

All long-term care insurance policies must meet the consumer protection standards set by the state in which they are sold. In addition, to qualify for federal tax deductions, long-term care policies purchased today must meet numerous consumer protection standards set by the federal government and outlined in the Health Insurance Portability and Accountability Act of 1996 (HIPAA). For example, qualified policies:

· May not limit or exclude coverage for certain illnesses, such as Alzheimer's disease.

· Cannot increase premiums due to advancing age.

· Cannot be canceled because of advancing age or deteriorating health. n Must offer a nonforfeiture benefit--if purchased, this benefit ensures that, if you cancel your policy or let it lapse, some portion of your benefits will still be available for a certain period of time.

· Must offer an inflation protection benefit--if purchased, this benefit ensures that your benefits will keep pace with inflation, a particularly important feature for those who plan for the future by purchasing a policy at a younger age.

In addition, states oversee and regulate the solvency and financial stability of insurance companies and help ensure that the resources to pay future policyholders' benefits will be there.

We all want to remain financially independent throughout our lifetime, not relying on family or government welfare for assistance. But without proper planning, the cost of long-term care services can easily wipe out an average person's savings. Government programs such as Medicaid force you to deplete most of your assets and meet a strict income test before you can receive benefits. Many families, particularly women, are concerned about the financial and emotional strain unanticipated caregiving can create. But private long-term care insurance can ease those worries, offering you and your family protection today and retirement security for the future. Purchasing private insurance gives you a variety of service options and allows you to preserve the retirement assets you have worked so hard to save, either for yourself, or for your spouse or children.

Studies indicate that the rising number of people who are likely to need long-term care services, combined with the higher cost for those services, will lead to a quadrupling of expenditures for nursing home care alone by 2030. This will further burden an already strained Medicaid program. Current Medicaid spending cannot continue as baby boomers grow older unless state and federal lawmakers increase taxes, which is unlikely. As a result, legislators will be forced to limit Medicaid long-term care expenditures, either by reducing benefit levels or restricting eligibility requirements. This could seriously threaten the safety net for low-income individuals with no other alternatives.

Fortunately, bipartisan legislation to encourage Americans to plan ahead for their long-term care needs has been introduced in both houses of Congress. Sens. Charles Grassley (R-Iowa) and Bob Graham (D-Fla.) sponsored the Long-Term Care Affordability and Availability Act of 1999 (S. 35), which would provide individuals with an above-the-line federal income tax deduction for the premiums they pay to purchase long-term care insurance. Reps. Nancy Johnson (R-Conn.) and Karen Thurman (D-Fla.) sponsored similar legislation, the Long-Term Care and Retirement Security Act of 1999 (H.R. 2102), in the House of Representatives.

In addition, Congress passed federal legislation in 1996 which allows qualified long-term care insurance premiums to be considered part of your medical expense deduction from your taxable income. The amount of the deduction varies according to your age. The law also states that insurance benefits from qualified long-term care policies are not taxable as long as they do not exceed certain limits. Most long-term care policies purchased before 1997 are considered qualified for federal tax purposes. If you purchased a policy more recently, ask your insurance company if yours is a qualified policy. At the state level, 18 states have established some type of state tax incentive (deduction or credit) for long-term care insurance premiums.

Widespread purchase of private long-term care insurance can help ease the severe financial strain on programs such as Medicaid and ensure that federal and state taxpayers do not end up bearing the nation's escalating long-term care costs. But private insurance can do more--it provides middle-income families with independence and choice. Low-income Americans, who cannot afford private insurance, need government assistance to pay for their long-term care needs. However, long-term care insurance is an affordable option for many individuals and families. It provides financial independence and the freedom to choose the most appropriate type of long-term care services. Private insurance is a major component of the long-term care solution for our nation.