(Administration on Aging) Just as there are many kinds of long-term care services and supports, so is there a wide range of costs for them. And while some people may qualify for a public program to help pay for these expenses, most people use a variety of options, including long-term care insurance, personal income and savings, life insurance, annuities and reverse mortgages to ensure they can pay for the care they require. As our population ages, new financial products are offering yet more options.
Costs of Care
Some average costs for long-term care in the United States (in 2010) were:
- $205 per day or $6,235 per month for a semi-private room in a nursing home
- $229 per day or $6,965 per month for a private room in a nursing home
- $3,293 per month for care in an assisted living facility (for a one-bedroom unit)
- $21 per hour for a home health aide
- $19 per hour for homemaker services
- $67 per day for services in an adult day health care center
The cost of long-term care depends on the type and duration of care you need, the provider you use, and where you live. Costs can be affected by certain factors, such as:
- Time of day. Home health and home care services, provided in two-to-four-hour blocks of time referred to as “visits,” are generally more expensive in the evening, on weekends, and on holidays
- Extra charges for services provided beyond the basic room, food and housekeeping charges at facilities, although some may have “all inclusive” fees.
- Variable rates in some community programs, such as adult day service, are provided at a per-day rate, but can be more based on extra events and activities
What is Covered by Health & Disability Insurance?
Many people believe that the medical insurance they currently have will pay for all or much of their long-term care. In general, health insurance covers only very limited and specific types of long-term care, and disability policies don’t cover any at all.
Most forms of insurance, such as the private health insurance or HMO you may have on your own or through your employer, follow the same general rules as Medicarewith regard to paying for long-term care services. If they do cover long-term care services, it is typically only for skilled, short-term, medically necessary care.
- Like Medicare, the skilled nursing stay must follow arecent hospitalization for the same or related condition and is limited to 100 days
- Coverage of home care is also limited to medically necessary skilled care
- Most forms of private insurance do not cover custodial or personal care services at all
- Your plan may help you pay for some of thecopayments or deductibles that Medicare imposes. For example, your plan may help cover the $137.50 per day for Medicare covered nursing home care for days 21 through 100
- Cover Medicare copayments and deductibles
- Enhance your hospital and doctor coverage, but does not extend to long-term care coverage
- Cover the daily Medicare copayment of $148.00 per day for days 21 through 100 for the small portion of nursing home stays that qualify for Medicare coverage
- Medigap insurance is not intended to meet long-term care needs and provides no coverage for the vast majority of long-term care expenses like care in a nursing home, vision or dental care, hearing aids, eyeglasses, or private-duty nursing.
Disability insurance is intended to replace some of a working person’s income when a disability prevents them from working. It does not:
- Cover medical care or long-term care services
- Provide benefits once you are over age 65—when you are most likely to need long-term care services
Coverage Limits Chart
The below chart shows the most common types of insurance and the very limited long-term care coverage they provide.
Coverage Limits of Long-term care Offered by Health Insurance
|Long-term care Service||Medicare||Medigap Insurance||Private Health Insurance|
|Overview||Limited coverage for nursing home care following a hospital stay and home health if you require a nurse or other skilled provider||Insurance purchased to cover Medicare cost sharing||Varies, but generally only covers services for a short time following a hospital stay, surgery or while recovering from an injury|
|Nursing home care||Pays in full for days 1–20 if you are in a Skilled Nursing Facility following a recent 3-day hospital stayIf your need for skilled carecontinues, may pay for the difference between the total daily cost and your copayment of $137.50 per day for days 21-100. After day 100 does not pay||May cover the $137.50 per day copayment if your nursing home stay meets all other Medicare requirements||Varies, but limited|
|Assisted living facility (and similar facility options)||Does not pay||Does not pay||Does not pay|
|Continuing Care retirement community||Does not pay||Does not pay||Does not pay|
|Adult day services||Not covered||Not covered||Not covered|
|Home health and personal care||Limited to reasonable, necessary part-time or intermittent skilled nursing care and home health aide services, some therapies if a doctor orders them, and a Medicare-certified home health agency provides them.Does not pay for on-going personal care or only help with Activities of Daily Living (also called “custodial care”)||Not covered under current policies. Some policies sold prior to 2009 offered an at-home recovery benefit that pays up to $1,600 per year for short-term at-home assistance with activities of daily living (bathing, dressing, personal hygiene, etc.) for those recovering from an illness, injury, or surgery||Varies, but limited|
What is Long-term Care Insurance?
Unlike traditional health insurance, long-term care insurance is designed to cover long-term services and supports, including personal and custodial care in a variety of settings such as your home, a community organization, or other facility.
Long-term care insurance policies reimburse policyholders a daily amount (up to a pre-selected limit) for services to assist them with activities of daily living such as bathing, dressing, or eating. You can select a range of care options and benefits that allow you to get the services you need, where you need them.
The cost of your long-term care policy is based on:
- How old you are when you buy the policy
- The maximum amount that a policy will pay per day
- The maximum number of days (years) that a policy will pay
- The maximum amount per day times the number of days determines the lifetime maximum amount that the policy will pay.
- Any optional benefits you choose, such as benefits that increase with inflation
If you are in poor health or already receiving long-term care services, you may not qualify for long-term care insurance as most individual policies require medical underwriting. In some cases, you may be able to buy a limited amount of coverage, or coverage at a higher “non-standard” rate. Some group policies do not require underwriting.
Good to Know
Many long-term care insurance policies have limits on how long or how much they will pay. Some policies will pay the costs of your long-term care for two to five years, while other insurance companies offer policies that will pay your long-term care costs for as long as you live—no matter how much it costs. But there are very few that have no such limits.
Before you buy a policy, be aware that the insurance company may raise the premium on your policy. It is a good idea to request information on the company’s premium rate history.
Using Life Insurance to Pay for Long-term Care
You can use your life insurance policy to help pay for long-term care services through the following options:
- Combination (Life/Long-Term Care) Products
- Accelerated Death Benefits (ADBs)
- Life settlements
- Viatical settlements
Many consumers are reluctant to buy long-term care insurance because they fear that their investment will be wasted if they do not use it. Some insurance companies have attempted to solve this problem by combining life insurance with long-term care insurance. The idea is that policy benefits will always be paid, in one form or another. These products are relatively new and the features are changing as the product evolves. The amount of the long-term care benefit if often expressed in terms of a percentage of the life insurance benefit.
Accelerated Death Benefits (ADBs)
A feature included in some life insurance policies that allows you to receive a tax-free advance on your life insurance death benefit while you are still alive. Sometimes you must pay an extra premium to add this feature to your life insurance policy. Sometimes the insurance company includes it in the policy for little or no cost.
There are different types of ADBs each of which serves a different purpose. Depending on the type of policy you have, you may be able to receive a cash advance on your life insurance policy’s death benefit if:
- You are terminally ill
- You have a life-threatening diagnosis, such as AIDS
- You need long-term care services for an extended amount of time
- You are permanently confined to a nursing home and incapable of performing Activities of Daily Living (ADL), such as bathing or dressing
The amount of money you receive from these types of policies varies, but typically the accelerated benefit payment amount is capped at 50 percent of the death benefit. Some policies, however, allow you to use the full amount of the death benefit.
For ADB policies that cover long-term care services, the monthly benefit you can use for nursing home care is typically equal to two percent of the life insurance policy’s face value. The amount available for home care (if it is included in the policy) is typically half that amount.
For example, if your life insurance policy’s face value is $200,000, then the monthly payout available to you for care in a nursing home would be $4,000, but only $2,000 for home care. Some policies may pay the same monthly amount for care, regardless of where you receive the care.
When you receive payments from an ADB policy while you are alive, the amount you receive is subtracted from the amount that will be paid to your beneficiaries when you die.
Key things to consider before taking advantage of an ADB policy include:
- If your life insurance policy includes an ADB feature, you may be able to use your life insurance policy to help cover long-term care services. Depending on the policy amount, there may be little or no health screenings required. So if you have a health condition that might exclude you from long-term care insuranceeligibility, you can still obtain a long-term care insurance policy through the ADB feature on a life insurance policy.
- ADB policy payouts for long-term care services are often more limited than the benefits you could receive from a typical long-term care insurance policy.
- The face value of your life insurance policy may not be enough to allow ADB payments that are enough to cover your long-term care services needs. The benefit payments may be too low and the duration may be too short to cover your long-term care services expenses.
- ADB riders on life insurance policies may not offer inflation protection. If the policy does not include inflation protection, the ADB payment may not be sufficient to cover your future long-term care service costs.
- If you want to leave an inheritance, you should consider whether using your life insurance death benefit to pay for long-term care services is the right option. If you use the ADB feature for long-term care services, there may be little or no death benefitremaining for your survivors.
- Using the ADB option may affect your eligibility forMedicaid. Check with your state Medicaid agency for more information.
These plans allow you to sell your life insurance policy for its present value to raise cash for any reason. This option is usually only available to women age 74 and older and to men age 70 and older. You may choose to use the proceeds to pay for long-term care services.
Key things to consider before moving forward with a life settlement:
- If you sell your life insurance policy, there may be little or no death benefit left for your heirs when you die
- The process does not require any health screens; you may be in good or poor health
- The proceeds of the sale may be taxed
These plans allow you to sell your life insurance policy to a third party and use the money you receive to pay for long-term care. A viatical settlement is like a life settlement, but it is only possible if you are terminally ill. During the settlement process, a viatical company pays you a percentage of the death benefit on your life insurance policy, which is based on your life expectancy. The viatical company then owns the policy and is its beneficiary. The viatical company also takes over payment of premiums on the policy. As a result, you get money to pay for care, and the viatical company receives the full death benefit after you die.
Unlike the life settlement, money you receive from a viatical settlement is tax-free, if you have a life expectancy of two years or less or are chronically ill and the viatical company is licensed in the states in which it does business.
Key things to consider before using a viatical settlement:
- You can only use the viatical settlement if you are terminally ill and have a life expectancy of two years or less
- If you use the viatical settlement option, you do not have to satisfy the health requirements for long-term care insurance
- If you use the viatical settlement option, your life insurance policy will not pay a death benefit to your heirs
- Viatical companies approve less than 50 percent of applicants
The amount that you receive in cash from a viatical settlement is a percent of the death benefit on your life insurance policy. The chart below lists guidelines from the National Association of Insurance Commissioners (NAIC), for how that percent varies based on your life expectancy.
NAIC Guidelines for Viatical Payments
|Life Expectancy||Benefit (%)|
|Over 24 months||50|
If you have enough income and savings, you will need to pay for long-term care services on your own, from your incomes, savings, and possibly the equity in your home. In this section we will explore a few of the growing number of ways you can pay for your long-term care privately. These methods include:
Click on a link for more information.
Administration on Aging