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Long-term care is a general term that includes a wide range of services that address the health, medical, personal care, and social needs of people with chronic or prolonged illnesses, disabilities, and cognitive disorders, such as Alzheimer’s disease. These services are typically required by the elderly, but may also be used by disabled people of any age. Types of long-term care include:
Long-term care insurance is not a good buy for everyone. If you have significant assets you wish to protect and income that will allow you to pay premiums without financial difficulty, long-term care insurance may be right for you. However, if you have a limited income or have trouble stretching your income to meet financial obligations, such as paying for rent, utilities, food, or medicine, you should not buy a policy. People with very limited income and assets may qualify for Medicaid’s Long-Term Care Services Program. The decision to purchase long-term care insurance will depend on your health, age, overall retirement objectives, and your income. you should discuss this purchase with a family member or financial advisor. Use the “Shopper’s Guide to Long-term Care Insurance” which includes a policy comparison worksheet, available to you from DMAB (800) 336-9500 or call DMAB for information on Medicaid.
Like most insurance policies, the details of services covered and benefits paid will vary from policy to policy. However, state law requires that certain provisions be included in all long-term care insurance policies. Some of these provisions are:
Other long-term care benefits do vary widely by policy. For example some policies:
Under the Health Insurance Portability and Accountability Act of 1996, long-term care insurance policies that meet certain requirements become eligible for federal income tax advantages. These policies became known as Qualified Long-Term Care Insurance policies. Policies purchased through the end of 1996 were “grandfathered” under this new law which meant they automatically qualified for tax-favored treatment. Policies purchased after 1996 must be clearly identified as qualified Long-Term Care Insurance policies having met the requirements to be considered tax qualified. Consumers who have purchased a Qualified Long-Term Care Insurance Policy may deduct premiums as a medical expense for payments made in 1999, when they file their income tax return in 2000. It is recommended you contact your personal tax advisor for complete details before filing your return.
The option to purchase inflation protection of at least 5% compounded annually. This feature will increase the benefits of your policy over time. Therefore, the younger you are when you buy a policy, the more important it is for you to consider adding inflation protection. Keep in mind the cost of this additional benefit could add significantly to your premiums. If you decline to purchase inflation protection, you will be asked to sign a statement rejecting the coverage. Be sure you understand what you are signing.
Third party notification. To avoid a lapse of the policy for non-payment of premiums, companies must offer to notify a person you designate of the impending lapse.
The Option to purchase a nonforfeiture benefit which will allow you to receive some value for the money you’ve paid into the policy should you have to drop your coverage. A nonforfeiture benefit can add roughly 10% to 100% to a policy’s cost. If you decline to purchase this benefit you will be asked to sign a statement rejecting the offer. If you reject the offer, the company is required to provide a “contingent benefit upon lapse.” This benefit will take effect when your premiums increase to a certain level (based on a table of increases). You will then be offered the opportunity to accept: 1) a reduction in the benefits provided by the current policy so that premium costs stay the same; or 2) a conversion of the policy to paid-up status with a shorter benefit period. You may also choose to keep your policy and continue to pay the higher premium.
Nationally, more than half of all nursing home expenses are paid out-of-pocket by individuals and their families. Less than half are paid by state Medicaid programs.
Medicaid, however, does not pay until the person has “spent-down” his/her money on medical expenses. Medicaid will pay for a person who has less than $1,230 in monthly income and less than $2,000 in countable resources.
A small percentage is paid by Medicare. Medicare will pay for a limited number of days of nursing home residents who require and are placed in Skilled Nursing Facilities. Neither Medicare, Medicare supplement insurance, nor the health insurance provided by employers will pay for most long-term care expenses.
Long-term care can be expensive, depending on the amount and the type of care needed and on the setting in which it is provided. LongTermCare.gov provides a chart that compares costs for various long-term care options.
A Shopper’s Guide to Long-Term Care Insurance
PDF from the National Association of Insurance Commissioners.
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