Long-Term Care Needs Attention

Published February 1, 2003

Most Americans would be caught completely unprepared if they or a loved one were faced with a medical crisis that required long-term care. One out of five Americans over the age of 50 is at risk of needing long-term care in the next 12 months.

Many people have never considered their options for financing long-term care needs or the government benefits available for long-term care. When a medical catastrophe occurs, the majority of Americans are forced to self-pay for their care or rely on Medicaid to foot the bill.

Many people underestimate the cost of long-term care and do not plan adequately for the future. The cost of a year’s stay in a nursing home ranges from $40,000 to $80,000, and the average stay is two-and-a-half years. Contrary to common belief, most long-term care expenses are not covered by Medicare or most employer-sponsored plans.

Medicare covers only skilled nursing care, under certain conditions, and part-time home health care. Medicaid will cover long-term care only after a person “spends down” his or her assets to qualify. Since a large share of long-term care costs is paid for by the individual or his family, without other planning, families are at risk of losing their hard-earned assets in order to provide for a loved one’s long-term care needs.

Insure for the Future

One of the best ways Americans can prepare for future long-term care is through the purchase of private long-term care insurance. Such insurance offers Americans financial security as they age, as well as the ability to choose the type of care that best suits their needs.

Many types of long-term care insurance policies are available, offering a wide range of benefits for a wide range of premium prices. Depending on the policy, long-term care insurance can be used not only to finance nursing home care, but also to pay for assisted living facilities, home-based care, and other services. Premiums vary based on age, health status, and the benefits covered.

The good news is that the American public is becoming more aware of the risks associated with long-term care costs, and there has been a steady increase in sales of long-term care insurance. Improved products and the shift in public policy towards greater reliance on private dollars to finance long-term care have contributed to increasing interest in private insurance policies.

Despite these positive trends, fewer than 15 percent of all individuals over 65 and fewer than 5 percent of those under 65 have these important policies. Public policy and private efforts should be strengthened to encourage more Americans to buy private long-term care insurance.

Long-term care insurance offers benefits not only for policyholders themselves. The more people covered by long-term care policies, the lower public spending on long-term care will be in the future. Private insurance benefits will pay for long-term care instead of public dollars through the Medicaid program. Since Medicaid is one of the fastest-growing items in state budgets, it is not surprising that as many as 35 state legislatures have approved tax incentives for long-term care insurance.

In 1996, with passage of the Health Insurance Portability and Accountability Act (HIPAA), the federal government took a first step towards providing Americans with an incentive to purchase long-term care insurance by making a portion of the premium tax-deductible for individuals who buy tax-qualified plans. There also has been bipartisan support in Congress over the past few years for other long-term care measures, including an above-the-line tax deduction for insurance premiums and allowing long-term care insurance to be included in Section 125 cafeteria plans.

Long-term care insurance has benefits for consumers, their families, and state and federal governments. State legislatures and the federal government should allow the long-term care market to be vibrant and innovative. The public sector needs to continue to educate and provide incentives to consumers so they will plan appropriately for their retirement and their future long-term care needs.

Kevin Corcoran is executive vice president of the National Association of Health Underwriters.

For more information …

The National Association of Health Underwriters represents more than 18,000 professional health insurance agents and brokers who provide insurance for millions of Americans. NAHU is headquartered in Arlington, Virginia. For more information, please call Kelly Loussedes at 703/276-3835 or email [email protected], or visit the group’s Web site at http://www.nahu.org.