Recently, Fidelity, the mutual fund giant began surveying insurance providers asking how much long-term care insurance you might need to calculate into a retirement strategy, often referred to as a plan. In truth though, it is only a strategy that if followed over the course of a great many years, develops into what looks to be a well thought-out plan. Plans seem so inflexible. (I travel deeply into this jungle in the tenth chapter of the book Retirement Planning for the Utterly Confused.)
Mark Meiners, director of the Center for Health Policy, Research and Ethics in the College of Nursing and Health Science at George Mason University says “Unfortunately, many Americans falsely believe that their long-term care costs will be covered by Medicaid, but this is true only after they’ve spent themselves into impoverishment.”
As I write in the book, “I can tell you two things for sure. Social Security and Medicare will not pay for your long-term care.
“Most insurance companies use a fairly straightforward criterion when making the decision to pay the insured for their claim. The insurer will require a certified and licensed health provider do a determination of “chronically ill”.
“What is chronically ill you ask? Generally this refers to someone who is incapable of performing at least two daily activities of living such as feeding themselves, bathing and toiletry activities or someone who requires substantial supervision. This is often referred to as an ADL or Activity of Daily Living.
“Sounds simple enough but insurance companies rarely have fixed guidelines when it comes to triggering the policy. Policies can be written to cover a variety of care situations and you must determine this at the time of policy execution. Problem is how do you know what you will need. Will your policy need to cover a nursing home stay, of which a portion of the total is reimbursed over a preset time period?”
That said, I think everyone considering this kind of a policy read the book, I will take what Fidelity has suggested and see if it passes muster.
Fidelity recommends that folks considering a long-term care policy narrow the search to six categories, each with its own characteristics.
1) A policy premium that fits comfortably within a family’s financial means.
At first glance this sounds like a relatively easy target but the main problem with retirement and the saving for it, those premiums can eat up a good deal of potential retirement cash. Finding the right balance between saving and tossing the cash to an insurance policy, that is cheaper the earlier you buy it, can be so difficult to determine that most folks who may need it will pass on the chance.
Fidelity writes that, “Investors should carefully forecast their ability to pay the premiums year after year.” I think is both bold and wrongheaded by a mutual fund company to refer to insurance as investment. Insurance is not a liquid asset.
Bottom line: Figure about $200 a month if you are fifty years old, in good health and have prioritized all of your other insurance products based on risk. A 65-year-old might pay as much as $350.
2) Backing by a carrier with a strong track record of paying claims.
I have argued this topic over the past months with numerous people in the field. Fidelity offers this piece of advice: “The ability to receive policy benefits depends on the integrity of the company and its history of financial strength.” This is huge unknown since so few are actually in the position to pay out on claims. Once the baby Boomers retire en masse, it will be difficult to switch policies if your insurer turns out to be financially unable to handle a sudden increase in claimants. Like all insurance products, the gamble is on both ends, with the insurer and the policyholder.
3) Comprehensive coverage that covers in-home as well as facilities-based care.
Fidelity found that families want “flexibility in terms of the services they opt for when facing a long term care challenge.” Remember, this kind of flexibility will cost you extra. Few folks calculate in the inflation factor and/or whether the facility will keep you. Most folks would rather stay at home.
4) A benefit period of at least 2, but no more than 4 years, for each person.
Most people split the difference.
The numbers Fidelity analyzed are not so bad in terms of how they were gathered. But consider this. Most disability policies run for five years. The data they collected “on over 6 million long-term care insurance policies sold between 1984 and 2004, found that 75 percent of all individuals would not have exhausted benefits lasting 2 years. A 4-year benefit period would have been adequate 90 percent of the time.”
Sometimes, companies will separate the policy into nursing home or in-home care coverage but the lifetime benefit is easily calculated by multiplying the benefit times the policy coverage period.
Like many policies that have a wide swath of unknown territory to deal with, such as LTC policies, there is generally a waiting period before the policy kicks in. Because Medicare covers the first one hundred days, many LTC policies do not begin before 90 days. You can request a shorter waiting period but the monthly premium is often prohibitively higher.
5) Five percent guaranteed annual benefit increase except for buyers older than age 75.
Fidelity seems to have little faith in the Federal Reserve’s ability to use monetary policy to keep inflation in check. The 5% mark is well about what the nation’s top bankers deem suitable. Inflation protection usually comes via a rider on the policy. Three percent is usually the norm with the costs of this add-on rising with each percentage point in protection.
6) For joint policies, a “shared coverage” provision that enables each insured person to tap the other’s benefits if necessary.
This may be one extra cost too many.
Now consider the following. You put $180 away in a portfolio with a modest long-term return of 9% and save it for 20 years, taxed at 10% and with inflation calculated at 3%, you would have amassed $56,447. The policy paying $300 would cover only $129,600 in total lifetime cost, which, if you suspect you will be in relatively good health, will leave paying for a policy that may have been just as well been paid for in cash.
If you need cold hard facts... You will need $100,000 in savings at retirement for both you and your spouse to cover health care and insurance. From that point, you should calculate your retirement savings.
I would pass on the LTC if you were planning on leaving nothing to your heirs (but you still need to save much than you are now unless you want to spend those golden years with your kids). But if your heirs are concerned about you spending down their inheritance, ask them to chip in on an LTC policy and then it might be worth the costs.
Showing posts with label Medicaid. Show all posts
Showing posts with label Medicaid. Show all posts
Friday, June 27, 2008
Monday, November 5, 2007
Questions: 11-18: Retirement Planning and Long Term Care: Eighteen Questions
Many policies have their own set of requirements. It is important to know when and how these criteria will be enforced. I’m skeptical of many of these qualifications. Policies issued now may have a wholly new set of hoops to jump through when the actual time you make a claim comes around. But asking the question now and including your agents (signed answers) can be helpful when you do make a claim twenty years from now.
11. Ask your agent if this policy requires the following questions to be asked if you put a claim in for nursing home care:
* An assessment of activities of daily living?
* An assessment of cognitive impairment?
* Physician certification of need?
* A prior hospital stay?
Other?
How will your potential policy cover the need for home health care:
* An assessment of activities of daily living?
* An assessment of cognitive impairment?
* Physician certification of need?
* A prior hospital stay?
* Other?
12. Surprisingly, or maybe not, insurance companies may have a small loophole built into the policy that you may not be aware of when doing your comparisons. For instance, does this policy require a prior nursing home stay for home health care coverage?
* Yes
* No
13. Once the policy is written and signed, it cannot be changed. The language is set in stone so to speak. This also should apply to the cancellation policy. If you are on good terms with the insurer, your policy should be guaranteed renewable. It may be, but ask anyway. Is the policy guaranteed renewable?
* Yes
* No
14. We have discussed some of the optimum years for getting these policies. Do it before your birthday and if possible, do it during your fifties or earlier. Here is an example of several policy quotes I received from the Federal Long term Insurance Program.
Because I am not eligible (I am not, as the site says, a Federal family), I used their calculator to determine several options. All of the policy quotes I received were based on three years of coverage, a ninety day waiting period, a daily benefit of $100, $200, and $300, comprehensive coverage (which includes both nursing and home care) and inflation protection. Here is what I found out based on my age (49 at the time of this writing), one year later, and if I had applied ten years later.
On the $100 benefit at age 49, I would pay $60.01 a month and receive a lifetime benefit of $109,500, at a daily benefit of $200, my premium and my maximum benefit would increase by twice; at a $300 daily benefit, I would pay $180.
Waiting a year until after my fiftieth birthday, I would be making slightly higher premium payments of about $4 – 8 a month. But if I waited until I was 59 to purchase the policy, the policy premium on a $100 daily benefit would increase to $89.47, at $200, it would double and if I wanted a $300 day benefit coverage, my monthly outlay would be over $265.
Ask your insurer for their insurable age ranges. It is important to understand what kind of insurance pool you are jumping into. If there is a cut-off date, this might be prove to be beneficial in terms of what kind of people are participating. If they offer a lengthy cut-off date, they may be filling the coffers with policies, many of which they will paying out on soon.
What is the age range for enrollment?
15. It is possible that your policy will no longer require you to pay the premium once the policy is activated. Find out if there is there a waiver-of-premium provision and how long must you be confined before the waiver begins?
For nursing home care
For home health care
16. The inflation portion of the policy is important and may cost you extra. Does the policy offer an inflation adjustment feature as a regular part of the policy or as a rider? And if they do:
What is the rate of increase? $ _________
How often is it applied? $ _________
For how long?
Is there an additional cost? $ _________
17. Policies can offer discounts depending on how you pay your premiums. Often, there is as much as nine percent discount if you pay the premium in full on an annual basis. Be sure to ask if you can receive any additional discounts if the money is electronically transferred. Once all of these things are asked of the insurance company, don’t expect a clear-cut view of all of the costs. But you will be able to get a general idea of what the policy will cost you and whether you can afford it.
What does the policy cost?
Per year $ _________
With inflation feature: $ _________
Without inflation feature: $ _________
(get it regardless of the cost savings that might be shown)
Per month $ _________
With inflation feature: $ _________
Without inflation feature: $ _________
18. Most policies come with a period of cancellation. You may have second thoughts. You may find, if you read further in the book, that there may be another option available for those who are diligent enough to pursue the alternative. Ask your agent if there is there a 30-day free look?
* Yes
* No
11. Ask your agent if this policy requires the following questions to be asked if you put a claim in for nursing home care:
* An assessment of activities of daily living?
* An assessment of cognitive impairment?
* Physician certification of need?
* A prior hospital stay?
Other?
How will your potential policy cover the need for home health care:
* An assessment of activities of daily living?
* An assessment of cognitive impairment?
* Physician certification of need?
* A prior hospital stay?
* Other?
12. Surprisingly, or maybe not, insurance companies may have a small loophole built into the policy that you may not be aware of when doing your comparisons. For instance, does this policy require a prior nursing home stay for home health care coverage?
* Yes
* No
13. Once the policy is written and signed, it cannot be changed. The language is set in stone so to speak. This also should apply to the cancellation policy. If you are on good terms with the insurer, your policy should be guaranteed renewable. It may be, but ask anyway. Is the policy guaranteed renewable?
* Yes
* No
14. We have discussed some of the optimum years for getting these policies. Do it before your birthday and if possible, do it during your fifties or earlier. Here is an example of several policy quotes I received from the Federal Long term Insurance Program.
Because I am not eligible (I am not, as the site says, a Federal family), I used their calculator to determine several options. All of the policy quotes I received were based on three years of coverage, a ninety day waiting period, a daily benefit of $100, $200, and $300, comprehensive coverage (which includes both nursing and home care) and inflation protection. Here is what I found out based on my age (49 at the time of this writing), one year later, and if I had applied ten years later.
On the $100 benefit at age 49, I would pay $60.01 a month and receive a lifetime benefit of $109,500, at a daily benefit of $200, my premium and my maximum benefit would increase by twice; at a $300 daily benefit, I would pay $180.
Waiting a year until after my fiftieth birthday, I would be making slightly higher premium payments of about $4 – 8 a month. But if I waited until I was 59 to purchase the policy, the policy premium on a $100 daily benefit would increase to $89.47, at $200, it would double and if I wanted a $300 day benefit coverage, my monthly outlay would be over $265.
Ask your insurer for their insurable age ranges. It is important to understand what kind of insurance pool you are jumping into. If there is a cut-off date, this might be prove to be beneficial in terms of what kind of people are participating. If they offer a lengthy cut-off date, they may be filling the coffers with policies, many of which they will paying out on soon.
What is the age range for enrollment?
15. It is possible that your policy will no longer require you to pay the premium once the policy is activated. Find out if there is there a waiver-of-premium provision and how long must you be confined before the waiver begins?
For nursing home care
For home health care
16. The inflation portion of the policy is important and may cost you extra. Does the policy offer an inflation adjustment feature as a regular part of the policy or as a rider? And if they do:
What is the rate of increase? $ _________
How often is it applied? $ _________
For how long?
Is there an additional cost? $ _________
17. Policies can offer discounts depending on how you pay your premiums. Often, there is as much as nine percent discount if you pay the premium in full on an annual basis. Be sure to ask if you can receive any additional discounts if the money is electronically transferred. Once all of these things are asked of the insurance company, don’t expect a clear-cut view of all of the costs. But you will be able to get a general idea of what the policy will cost you and whether you can afford it.
What does the policy cost?
Per year $ _________
With inflation feature: $ _________
Without inflation feature: $ _________
(get it regardless of the cost savings that might be shown)
Per month $ _________
With inflation feature: $ _________
Without inflation feature: $ _________
18. Most policies come with a period of cancellation. You may have second thoughts. You may find, if you read further in the book, that there may be another option available for those who are diligent enough to pursue the alternative. Ask your agent if there is there a 30-day free look?
* Yes
* No
Questions: 4-10: Retirement Planning and Long Term Care: Eighteen Questions
As we continue our discussion about LTC coverage and what it covers, comparisons become more difficult. The next six questions will help you compare the types of coverage available
Compare how long your policy will cover the following:
A stay in a nursing home
If you need care at home
4. To determine what you maximum lifetime benefit is, simply multiply your daily benefit times the number of days you are covered. For instance, in the chart below, a policy with a daily benefit of $100 payable for three years will pay out $109,500 in benefits ($100 x 3years=$109,500 – this lifetime benefit is not reflective of inflation increases). Once again, the length of time you choose for your policy and the waiting period have an effect on your maximum lifetime benefit.
What does your policy offer?
For nursing home care $ _________
For home health care $ _________
5. Does the policy have a maximum length of coverage for each period
of confinement?
For nursing home care
For home health care
6. Like many policies that have a wide swath of unknown territory to deal with, such as LTC policies, there is generally a waiting period before the policy kicks in. Because Medicare covers the first one hundred days, many LTC policies do not begin before 90 days. You can request a shorter waiting period but the monthly premium is often prohibitively higher. Ask your agent how long you must wait before a preexisting condition is covered?
7. How long must I wait before benefits begin?
For nursing home care
For home health care
8. In almost all standard policies, Alzheimer's disease and other organic mental and nervous disorders are not covered. That’s not to say you cannot get these coverages added. One of the most difficult aspects of comparing any type of insurance is gathering all of the information about what you require and allowing each policy to stand side-by-side.
Some policies have ingredients that met most but not all of your requirements while some are basic shells that can be added to based on your needs. The later types of policy type additions are called riders. Riders, in insurance parlance, add benefits at an additional cost. Among the most important aspect in an LTC policy is coverage for home health care.
When comparing policies, this should be a standard item unless of course, you live in an area where home health care may not be readily available. In such instances, a home health care option would be the standard by which to judge policies. It can be added later if your circumstances change.
Some policies will offer non-forfeiture benefits – decline them. This type of benefit is costly and unnecessary. It is offered as a rider and will be sold as something that should have been included in the policy. The non-forfeiture rider usually pays some or all of your benefits even if you no longer make premium payments. A certain amount of time must have elapsed first.
Another type of non-forfeiture rider is disguised as a return of premium. This allows you to cancel your policy and receive some of your premium payments back. Disregard such a rider or offers to add it after you have had the policy for a number of years. Often this seems enticing when estate planning is taken into consideration. You may reason that your heirs would get a return on your policy if you never used it or canceled it after a certain amount of time. The unfortunate aspect of this rider is the temptation to cancel the policy at exactly the time in your life when you are most likely to use it.
The last and probably the best rider accounts for inflation. Because the value of today’s dollars will be vastly different than dollars calculated in the future, getting some sort of inflation protection is always a good option. Try to choose an option where this protection is imbedded in the policy. If not, add it.
The question here should be, does your policy cover things like Alzheimer’s or other organic mental diseases?
* Yes
* No
9. Does your policy include inflation protection?
* Yes
* No
10. When you do your side-by-side comparison, have you included all of the possible riders and their cost to the policy?
* Yes
* No
Compare how long your policy will cover the following:
A stay in a nursing home
If you need care at home
4. To determine what you maximum lifetime benefit is, simply multiply your daily benefit times the number of days you are covered. For instance, in the chart below, a policy with a daily benefit of $100 payable for three years will pay out $109,500 in benefits ($100 x 3years=$109,500 – this lifetime benefit is not reflective of inflation increases). Once again, the length of time you choose for your policy and the waiting period have an effect on your maximum lifetime benefit.
What does your policy offer?
For nursing home care $ _________
For home health care $ _________
5. Does the policy have a maximum length of coverage for each period
of confinement?
For nursing home care
For home health care
6. Like many policies that have a wide swath of unknown territory to deal with, such as LTC policies, there is generally a waiting period before the policy kicks in. Because Medicare covers the first one hundred days, many LTC policies do not begin before 90 days. You can request a shorter waiting period but the monthly premium is often prohibitively higher. Ask your agent how long you must wait before a preexisting condition is covered?
7. How long must I wait before benefits begin?
For nursing home care
For home health care
8. In almost all standard policies, Alzheimer's disease and other organic mental and nervous disorders are not covered. That’s not to say you cannot get these coverages added. One of the most difficult aspects of comparing any type of insurance is gathering all of the information about what you require and allowing each policy to stand side-by-side.
Some policies have ingredients that met most but not all of your requirements while some are basic shells that can be added to based on your needs. The later types of policy type additions are called riders. Riders, in insurance parlance, add benefits at an additional cost. Among the most important aspect in an LTC policy is coverage for home health care.
When comparing policies, this should be a standard item unless of course, you live in an area where home health care may not be readily available. In such instances, a home health care option would be the standard by which to judge policies. It can be added later if your circumstances change.
Some policies will offer non-forfeiture benefits – decline them. This type of benefit is costly and unnecessary. It is offered as a rider and will be sold as something that should have been included in the policy. The non-forfeiture rider usually pays some or all of your benefits even if you no longer make premium payments. A certain amount of time must have elapsed first.
Another type of non-forfeiture rider is disguised as a return of premium. This allows you to cancel your policy and receive some of your premium payments back. Disregard such a rider or offers to add it after you have had the policy for a number of years. Often this seems enticing when estate planning is taken into consideration. You may reason that your heirs would get a return on your policy if you never used it or canceled it after a certain amount of time. The unfortunate aspect of this rider is the temptation to cancel the policy at exactly the time in your life when you are most likely to use it.
The last and probably the best rider accounts for inflation. Because the value of today’s dollars will be vastly different than dollars calculated in the future, getting some sort of inflation protection is always a good option. Try to choose an option where this protection is imbedded in the policy. If not, add it.
The question here should be, does your policy cover things like Alzheimer’s or other organic mental diseases?
* Yes
* No
9. Does your policy include inflation protection?
* Yes
* No
10. When you do your side-by-side comparison, have you included all of the possible riders and their cost to the policy?
* Yes
* No
Retirement Planning and Long Term Care: Eighteen Questions
As we continue to look at the possibility that retirement may not be what we envision, the conversation takes a turn to caring for that unforeseen need. Over the next three posted offerings, we will look at some important question to ask your potential insurer before you sign yourself or a loved one up for a long-term care policy of LTC.
Please note that I do discuss, at length in the book, what Medicare and Medicaid will and will not pay for and what kind of assets (or lack thereof) those programs will allow. That said, Short-term care as spelled out by Medicare requires that the following conditions must be met:
The search for LTC policies can be long and confusing. I’ve put together a small checklist of things to ask your potential agent or the one you already have. LTC policies should be compared against each other with a minimum of three side-by-side evaluations.
Here are the first of eighteen questions on the subject of Long-Term care Insurance. Additional information can be found in the book and at BlueCollarDollar.com
1. Does your policy cover the following:
* Nursing home care
* Home health care
* Adult day care
* Alternate care
* Respite care
* Other
2. Each policy differs on a pay per day basis that can make it difficult to choose. Primarily we are concerning ourselves with nursing home care. There may be other opportunities to finance some aspects of in-home care that we have yet to discuss or have only briefly touched upon (HSAs).
The policy should clearly state how much each item is paid for and whether these numbers are indexed for inflation. For the inflation number, a modest percentage of inflationary risk would be 3% year-over-year. That is however not guaranteed so, in a worst-case scenario, expect inflation to be higher, not lower twenty-years or more from now.
How much does you potential insurer pay for the following services:
For nursing home care? $ _________
For home health care? $ _________
For adult day care? $ _________
For alternate care? $ _________
For respite care? $ _________
Other? $ _________
3. How long the benefits last is an important question indeed. Medicare, as we discussed earlier, does not pay for long-term care expenses. It does cover some limited convalescent skilled nursing care and some limited home health care under restrictive, short-term conditions (see the previous chapter). One hundred days is considered the limit for this social insurance program.
The Long Term Care Insurance industry breaks down the level of care into three distinct categories. So in fact, does Medicare.
It covers only skilled nursing care. This leaves those in need of coverage for intermediate or custodial care at risk to pay out-of-pocket. This is also the most financially draining aspect of recovery for the family members, many of whom must take time off from work to take care of the recuperative patient who may not be able to complete many daily activities or ADLs.
Although there is no limit to the amount of one hundred day stays you may have at a skilled nursing facility, you must meet the criteria set forth by the Health Care and Financial Administration or HCFA, now known by its fuzzier name, The Centers for Medicare and Medicaid Services or CMS. In the fine print, you will find the exclusion of Alzheimer's or Parkinson's and the fact that Medicare, HMO's, Major Medical and Medigap insurance policies do not pay for long-term nursing home care stays.
Generally, these LTC policies last for three years. Keep in mind the “look back” period and see if your policy offering jived with the new rules of five years.
Please note that I do discuss, at length in the book, what Medicare and Medicaid will and will not pay for and what kind of assets (or lack thereof) those programs will allow. That said, Short-term care as spelled out by Medicare requires that the following conditions must be met:
- You must have been in a hospital for at least three days immediately prior to entering the nursing facility. Because the onset of most Alzheimer's and Parkinson's cases takes time to manifest themselves and generally are done without the involvement of a hospital stay, they are excluded from Medicare coverage.
You must go into the facility for the same condition for which you were previously hospitalized, and it must be within thirty days of discharge.
You must be getting better each day. Once you level off, Medicare stops paying.
The search for LTC policies can be long and confusing. I’ve put together a small checklist of things to ask your potential agent or the one you already have. LTC policies should be compared against each other with a minimum of three side-by-side evaluations.
Here are the first of eighteen questions on the subject of Long-Term care Insurance. Additional information can be found in the book and at BlueCollarDollar.com
1. Does your policy cover the following:
* Nursing home care
* Home health care
* Adult day care
* Alternate care
* Respite care
* Other
2. Each policy differs on a pay per day basis that can make it difficult to choose. Primarily we are concerning ourselves with nursing home care. There may be other opportunities to finance some aspects of in-home care that we have yet to discuss or have only briefly touched upon (HSAs).
The policy should clearly state how much each item is paid for and whether these numbers are indexed for inflation. For the inflation number, a modest percentage of inflationary risk would be 3% year-over-year. That is however not guaranteed so, in a worst-case scenario, expect inflation to be higher, not lower twenty-years or more from now.
How much does you potential insurer pay for the following services:
For nursing home care? $ _________
For home health care? $ _________
For adult day care? $ _________
For alternate care? $ _________
For respite care? $ _________
Other? $ _________
3. How long the benefits last is an important question indeed. Medicare, as we discussed earlier, does not pay for long-term care expenses. It does cover some limited convalescent skilled nursing care and some limited home health care under restrictive, short-term conditions (see the previous chapter). One hundred days is considered the limit for this social insurance program.
The Long Term Care Insurance industry breaks down the level of care into three distinct categories. So in fact, does Medicare.
It covers only skilled nursing care. This leaves those in need of coverage for intermediate or custodial care at risk to pay out-of-pocket. This is also the most financially draining aspect of recovery for the family members, many of whom must take time off from work to take care of the recuperative patient who may not be able to complete many daily activities or ADLs.
Although there is no limit to the amount of one hundred day stays you may have at a skilled nursing facility, you must meet the criteria set forth by the Health Care and Financial Administration or HCFA, now known by its fuzzier name, The Centers for Medicare and Medicaid Services or CMS. In the fine print, you will find the exclusion of Alzheimer's or Parkinson's and the fact that Medicare, HMO's, Major Medical and Medigap insurance policies do not pay for long-term nursing home care stays.
Generally, these LTC policies last for three years. Keep in mind the “look back” period and see if your policy offering jived with the new rules of five years.
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