Long-Term Care Considerations

By now you might have heard that version 2.0 of the Federal Long-Term Care Insurance Program is being rolled out. Or maybe you didn't even know there was a version 1.0. This week we'll review the reasons why it is smart to consider a long-term care policy as part of your overall retirement and financial planning.

What Is Long-Term Care?

Long-term care generally is described as custodial or personal care, such as:

• Full-time care needed because of a devastating illness or disease.
• The help someone who is paralyzed needs with dressing and bathing.
• Supervision for someone who is confused by progressive dementia.

Long-term care is often:

• Provided by unskilled people such as a spouse, son, daughter or even a neighbor.
• Stressful and strenuous on the people who provide it, especially if they don't have any respite from 24-7 caregiving.
• Received at home, but could eventually require moving into a nursing home or assisted living facility.
• Needed at any age, depending on life's circumstances.

What Is Long-Term Care Insurance?

Long-term care insurance provides a resource to pay for extended care. Depending on the policy, the benefit might provide payment for care received at home and from a nonskilled provider such as a family member. The policy could provide for further care received in a facility as well. Depending on the policy, it might provide enough money to pay for the full cost of care for an unlimited period of time, or might provide enough to cover a portion of the cost for a defined time period.

Just like any other type of insurance, long-term care insurance varies in price. The cost goes up with age at purchase, value of daily benefit and length of coverage. If someone already is receiving care or will clearly need care in the near future, this type of insurance might not be available.

Why do many people view long-term care insurance as necessary? Here are a few reasons:

• The cost of long-term care can be catastrophic, especially if it's in a nursing home.
• It can mean they don't have to deplete their savings and spend their retirement benefits on long-term care.
• They don't want to burden family members with the responsibility of 24-7 care.
• They don't want to have to move into the basement of a son's or daughter's home -- no matter how nicely it's been remodeled.
• They want to be able to receive care at home instead of being forced to sell their home and move to an assisted living facility.

Myths and Misunderstandings

Here are some common misperceptions about long-term care insurance:

I have Medicare and the Federal Employees Health Benefits Program. That's enough insurance. Go back and review the definition of long-term care. It's personal and custodial -- not medical. Medicare and FEHBP will pay only for very limited nursing home and home health care while you are recovering from an illness or accident. Long-term care insurance generally picks up where health insurance and Medicare leave off.

I will give away my assets and income so I can qualify for Medicaid. Medicaid is health insurance for the poor, and does pay for a nursing home care. Some people figure all you need to do is make yourself appear poor, apply for Medicaid and your stay in a nursing home will be covered. But the federal government allows the states that administer Medicaid to look back five years to see if you've given away assets and money. If so, you will be disqualified for benefits for a period of time equal to the value of the assets you've given away.

And remember, Medicaid mainly provides for nursing home care. That's care of last resort. For most people who need personal care, the ideal setting is at home, and the second choice is assisted living.

My chances of needing long-term care are slim. We all hope we'll never need such care. I certainly pray I never get my money's worth out of my long-term care policy. But according to the National Family Caregiver's Alliance, more than 10 million people received long-term care in 2002. By 2050, this number is likely to double. And according to a 2004 study by the National Alliance for Caregiving and AARP, funded by the MetLife Foundation, more than 44 million Americans spend time caring for someone who needs assistance at home.

My spouse, child, sister, brother or neighbor will take care of me. This may well be true. The typical caregiver is a family member and provides care for the individual at home. But don't you want them to receive some compensation for the loss of wages and benefits that could result from having to take care of you? I can save the money to pay for my care if I need it. Here are some national average costs from a 2008 survey by the John Hancock Life Insurance Co. on long-term care:

• $19 per hour for a home health aide
• $62 per day for care in an adult day care center
• $2,962 per month for an assisted living facility
• $183 per day for a semi-private room in a nursing home
• $204 per day for a private room in a nursing home

Key Questions

If I've convinced you that you should consider a long-term care insurance policy, the next question is, what policy is best for you? Here are some key questions you should consider:

• How much can you afford to pay?
• How important is it to receive care in your home?
• Do you have family members who might be available to provide some of your care?
• Where will you live? The cost of care varies from state to state.
• Do you know what a partnership plan is?
• Are you willing to spend your own assets on long-term care if needed? How much can you afford?

Several groups of people are eligible to apply for coverage under the Federal Long-Term Care Insurance Program. This includes federal employees and annuitants, along with members and retired members of the uniformed services and qualified relatives.

If you're eligible for the federal plan, begin your search by looking at what is available and the key differences between the federal plan and one you might be able to purchase privately.

Next week, I'll provide more details about the new version of the federal plan.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Monday mornings at 10 a.m. ET on federalnewsradio.com or on WFED AM 1500 in the Washington metro area.