Once you know the cost of care, you’ll need to decide how to pay for it. There are many sources of care financing, both private and public. Private resources include out-of-pocket payments, insurance and donated care (care provided by family or friends). Public sources include Medicare and Medicaid. Because everyone’s situation is different, people pay for care in different ways. Some people use a combination of payment sources. In 2004, the estimated percentage shares of spending on long term care for the elderly were 36% donated care, 22% Medicaid, 21% out-of-pocket, 16% Medicare, 3% insurance and 2% other.
Personal resources include your or your loved one’s savings, investments and assets. These resources are used to pay expenses out of pocket.
Long Term Care Insurance
As with other forms of insurance, long term care insurance allows a person to pay a known, affordable premium cost to protect against the risk of much larger care expenses. Long term insurance is designed to meet long term care needs that may include a variety of medical, personal, or social care services.
Long term insurance offers many benefits. Private policies offer better control, stability, security and independence during one’s later years. Public options, such as Medicaid, can greatly impact a person’s ability to bequeath personal property to heirs or to self-select a care setting. Long term insurance helps you avoid these limitations.
Needs, Benefits and Costs
Whether or not you should purchase long term care insurance, and how much coverage you need, depends upon a number of factors. Gender, age, health status, life expectancy, family situation, income and assets, and retirement goals can all impact your long term care insurance decision. Sometimes, long term insurance is not the best option. If you are or your loved one is on Medicaid, dependent upon social security as a sole source of income, or otherwise limited, long term care insurance is not the right fit for your situation.
Long term insurance benefits and costs vary widely. Benefit amounts can range from $50 to $450 or more per day, and cover a specific number of days, months or years. The cost of long term insurance is based on a person’s age at the time the policy is purchased, plus choice of benefits. Premium costs typically stay the same as you age, though they may increase as a result of policy-wide increases. The younger you are, the less expensive your premium will be. At age 50, a typical policy may cost $800 per year. At age 65, the cost of the same policy could double. Some companies may not sell a policy to a person over age 85 or may limit coverage. Long term care policies include a deductible or elimination period, the length of time you must receive care before your policy will pay benefits.
Long Term Care (LTC) Partnership Program
Many states have a Long Term Care (LTC) Partnership Program. The LTC partnership program allows individuals to purchase long term insurance to protect assets that they would otherwise need to spend down to qualify for Medicaid coverage.
To find out if your state offers long term care partnership insurance, visit the Long Term Care Partnership State Tracking Map or consult your state insurance department.
Federal Long Term Care Insurance Program (FLTCIP)
The Federal Long Term Care Insurance Program (FLTCIP) provides long term care insurance to Federal and U.S. Postal Service employees and annuitants, active and retired members of the uniformed services and qualified relatives. Learn more about the Federal Long Term Care Insurance Program (FLTCIP).
Some long term care insurance policies offer tax advantages. Check with your tax advisor to find out more about tax-qualified policies.
Shopping for long term care insurance coverage
Buying a long term care insurance policy is an important decision. Make sure that you buy from a licensed, reliable company. The National Association of Insurance Commissioners (NAIC) provides guides to help you understand and purchase long term care insurance:
As you research long term care insurance options, keep in mind:
- Covered services and exclusions
- Daily benefit amount (DBA)
- Benefit period
- Deductible or elimination period
- Premium costs and increases
- Payment options
- Tax qualifications
Care Conversations with insurance agents and financial planners will help you locate the long term care insurance option that best meets your needs. Contact your state insurance commissioner’s office for a list of companies authorized to sell long-term care insurance in your state.