Inflation Protection in Long Term Care Insurance

The only way to protect yourself from such skyrocketing costs is to make sure your long-term care policy has good inflation protection built into it. Note the emphasis on good inflation protection—it comes in several different forms, and some are better than others.

• Added coverage purchase. This type of provision permits you to purchase added coverage every few years with higher benefits. The problem is that the added coverage will also come with new premiums—based on your increased age plus any other rate increases—that you may not be able to afford. You may find yourself with benefits too low to be useful and no way to buy added coverage, which means you may wind up dropping the insurance just as you reach an age when you might need coverage.

• Simple automatic increase. Many policies offer benefits which increase by a fixed percentage—usually 5%—or by each year’s national cost-of-living increase. However, these policies always use the original benefit amount to calculate the percentage increase. These policies are better than the added coverage purchase option because your benefits go up automatically without requiring higher premiums.

• Compounded automatic increase. These policies automatically increase benefit amounts each year by a set percentage or by the cost-of-living increase. These policies compound theincreases each year rather than always using the original benefit amount as a base figure. Over ten to 20 years, this compounding might increase your benefits substantially. Of course, because automatic compounded inflation protection is so much better for the insured, the premiums for such coverage are usually considerably higher from the beginning.

• Time limited protection. Most policies put a time limit on the yearly inflation benefit increase. The limit is usually ten to 25 years from the date the policy begins, or when the insured reaches a certain age, usually 80 or 85. If you buy the policy when you are in your 50s or 60s, make sure you get the longest possible period of inflation protection.

Good inflation protection may raise the initial cost of a policy by 25% to 50%. But without good inflation protection, the lower premiums may be a total waste of money.

Seek long-term home care insurance

If you seek long-term home care insurance, try to get the widest variety of coverage possible.

There are a number of conditions and restrictions of which you should be aware:

• A few policies cover skilled nursing care and physical therapy in the home but not custodial care. Such coverage is far too limited, and you should reject it.

• Most home care policies cover skilled nursing care, other professional medical services, and nonmedical personal care, provided by a licensed home care agency. Personal care includes help with the activities of daily living (ADLs), such as eating, bathing, dressing, using the toilet, and moving around. It may also cover what are sometimes called “instrumental” ADLs, such as monitoring medications, going outside, light shopping, helping with meals and clean-up, laundry, and household telephone calls and paperwork.

• A few policies also provide limited coverage of some homemaker services—such as regular housecleaning, grocery shopping, and meal preparation—if an agency home health aide also does other personal assistance duties.

• Good policies cover care provided not only in the home, but also in licensed community care facilities such as adult day care centers.

• Good home care policies also provide for respite care and hospice care

The Performance of Long-Term Care Insurance

The relatively slight chance that an elder will need three or more years of nursing facility care means that the insurance industry has not had to pay out on its policies to nearly the extent that it suggested when they were sold. And when the policies’ conditions, exclusions, and benefit limits are figured in, the performance of these policies—at least in the decade of the 1990s, for which complete statistics are available—has been quite poor.

• About 50% of all policies lapsed before any benefits were paid; people were unable or unwilling to continue paying their premiums.

• Of those people who bought the insurance and later entered a nursing facility, about half never collected a dollar from their LTC policies.

• No benefits were ever paid to the many who bought nursing facility coverage but instead received home care or entered a residential facility, not covered by the insurance.

• When benefits were paid, they were far below the actual cost of care.

• For many of the longest-term residents, benefits were used up before the nursing facility stay ended.

In all of these situations, the LTC insurance failed to live up to its promise to help people avoid using up their savings, or relying on Medicaid, to pay for long-term care. In other words, it was a lousy investment.

Assess Medical Needs for long-term care

Because a specific physical or mental condition often leads to the need for long-term care, one of the first things you should do is get professional advice both about the need for immediate care and about likely changes in the condition over time. Talk with your primary care physician first; he or she may refer you to a geriatric specialist for further consultation.

An additional resource to help you assess medical and personal care needs is a geriatric screening program. Local hospitals have them, as do community and county health centers. If you have trouble finding a geriatric screening program, check with your county social service agency or local or Area Agency on Aging, or call the senior referral number in the white pages of the phone book.

Some important things to consider when assessing an older person’s need for medical care are:

• Specific medical requirements. The doctor or other health screening personnel can discuss the elder’s specific medical needs (such as monitoring and administering drugs or providing physical therapy), explain how they can be met, and let you know who can do it. The doctor or health care worker can also discuss the level of ongoing care that would be required to deliver those medical services: Family members supplemented by occasional visits from home care aides, a more sophisticated home care program, or various levels of residential nursing facility care, for example.

• Changes in care over time. The doctor or other health care worker can also discuss the medical prognosis—that is, what the future is likely to hold: Whether to anticipate a short or long recovery period, whether a condition is likely to stabilize over a long period, or whether it will become worse over a short or long period. Knowing of likely developments in the medical condition will help you plan the right level of care and allow for these changes.

• Mental impairment. A thorough geriatric screening and evaluation are particularly important when the elder seems to have a mental impairment. An older person’s physical problems may become much more difficult to manage because of added symptoms of forgetfulness, disorientation, or general listlessness.