LongTermCare.docx
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LongTermCare.docx
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LongTermCare
LONGTERMCAREINSURANCE
AshleyHastings
CreightonUniversity
Finance340
November16,2001
ExecutiveSummary
Duetothelargeagingpopulation,peoplearestartingtoconcernthemselveswiththeirLongTermCareneeds.Individualsarerealizingthatthecostsforextendedhealthcareareincreasingandmostindividualsarenotadequatelypreparedforthehighcosts.Whilesomeindividualsmayrelyonpersonalinvestments,governmentassistance,orfamilyassistance,LongTermCareInsuranceisactuallythemostcosteffectiveandefficientwaytopayforcareneeds.Duetothis,manyemployersarenowofferingLongTermCareInsuranceintheirbenefitsplansonanemployee-pay-basis.Forthoseemployerswhodooffertheinsurance,therearecertainissuesthattheymustbeawareofinordertomaximizethevalueoftheinsurancetoemployees.
InordertounderstandLongTermCareInsurance,individualsmustfirstunderstandwhatLongTermCareis.TheymustunderstandhowLongTermCareisdefinedandhowmuchitcosts.TheymustthenunderstandallofthedifferentoptionsaLongTermCareInsuranceplanhas,inordertodesignaplanthatfitsindividualneeds.Individualsmustbeawareofwhichoptionsraiseorlowerannualpremiums,andhowmuchcoveragetheycanaffordeveryyear.
Inadditiontoprovidingcosteffectiveinsurance,LongTermCareInsurancealsogivesbenefitsemployerswhentheyincludethisinsuranceintheirbenefitspackages.Employersareabletopreventlowemployeeproductivityduetoemployeescaringforfamilymembersandemployersaregiventaxincentivesbythegovernmenttoofferthisinsurance.Furthermore,LongTermCareInsurancecancostvirtuallynothingfortheemployersiftheyoffertheinsuranceonanemployee-paybasis.
IfemployersdochoosetoofferLongTermCareInsurancetotheiremployees,therearesomekeyissuestheymustbeawareof.Employersmusttakecarewhenchoosinganinsurerandwhendecidingwhichemployeesaremostlikelytopurchasetheinsurance.Anemployerneedstolookattheirworkforcemake-upinordertodecidewhowouldbenefitfromtheinsuranceandwhenemployeeswouldbemostlikelytopurchaseit.
Overall,individualsneedtorealizethattheirLongTermCareneedswillbeveryexpensiveandthatinsuranceisprobablythebestwaytofinancetheircare.Individualsmustconsideralloftheirneedswhenpurchasinginsuranceandemployersneedtoconsiderthebenefitsofofferingthisinsurancetotheiremployees.
TableofContents
ExecutiveSummary
Introduction…………………………………………………………1
ExplanationofLongTermCareInsurance…………………………1
GovernmentAssistance……………………………………………...1
FamilyAssistance…………………………………………………...2
WhatisLongTermCareInsurance…………………………………2
CostofLongTermCareInsurance…………………………………3
ExplanationofhowEmployeescanBenefitetc.……………………4
EmployeeProductivity………………………………………………4
TaxIncentives……………………………………………………….5
CosttoEmployers…………………………………………………...5
ExplanationofKeyIssuesEmployersShouldetc.………………….5
ChoosinganInsurer…………………………………………………6
EmployeeswhoareMostLikelytoBuyLTCInsurance……………6
WhenShouldEmployeesPurchaseLTCInsurance?
………………..6
Conclusions…………………………………………………………..7
Glossary………………………………………………………………8
References……………………………………………………………9
Introduction
Asourcountry'spopulationbecomesolderandolder,morepeopleareaskinghowwewillcarefortheelderly.SocialSecurityisnotconsideredareliablesourceandtherearenumerousproblemswithMedicareandMedicaid.Privateinvestmentswillpayforcareaslongasindividualshaveenoughsavedup,whichmeansthatthosewhohavenotsavedwillnothaveenoughmoneytopayforcarewhentheyareolder.Duetotheseissues,moreandmorepeoplearebeginningtopurchaseLongTermCareInsurance,whichisstartingtobeofferedforpurchasethroughemployers.However,therearecertainissuesthatneedtobeunderstoodbeforeemployerssellLongTermCareinsurancetoemployees.Overall,LongTermCareinsuranceisastrongsolutiontotheproblemofcaringforourelderlyinahighqualityandcostefficientmanner.ThispaperwillexplainwhatLongTermCareis,howemployerscanbenefitfromofferingLongTermCareInsurance,andcertainissuesthatemployersshouldbeawareof.
ExplanationofLongTermCareInsurance
Thesedays,long-termmedicalcareiscostingmorethanpeoplearepreparedfor,andthecostsarerising.Forinstance,theannualcostfora“stayinanursinghomewas$38,000in1995,andthisincreasedto$44,500in1998.”(Warshawsky,2000,p.2).By2003,“thenationalaverageforoneyearinanursinghomeisprojectedtobe$53,600($147aday)andby2020theannualcostcouldbe$106,000($290aday)”(Brookfield,2001,p.4).Unfortunately,mostpeopledonotrealizehowexpensivelongtermcareisandthustheydonotadequatelyprepareforthecosts.OneHarvardUniversitystudyfoundthat“69%ofsinglepeopleand34%ofmarriedcoupleswouldexhausttheirassetsafter13weeksinanursinghome.”(LongTermCareWiz)Theaveragestayinannursinghomeis2.4years.Thus,mostindividualswillnothaveenoughinpersonalinvestmentstocovertheexpensesoflongtermcare,meaningtheymustfindsomeotherwaytofinancetheircare.
GovernmentAssistance
Onewaythatindividualscanpayforlong-termcareisthroughgovernmentassistance,suchasMedicareandMedicaid.Medicaidisassistancethatpaysfor“almost50%ofaggregatenursinghomeexpenses,andalmost15%ofhomehealthcareexpenses”(Warshawsky,2000,p.3).However,inorderforindividualstoqualifyforMedicaid,theymust“alreadybepoorormustliterallyimpoverishthemselvestomeettheminimumrequirements”(Gordon,2001,p.4).ThegovernmentalsosuppliesMedicare,butdependingontheMedicareplan,anindividualwillhavetopay“$99perdayafterthefirst20daysofskilledcareconfinement”or“20%oftheapprovedamountfordurablemedicalequipment”(Gordon,2001,p.4).Inotherwords,“inaggregate,Medicarepaysforabout12%ofnursinghomecostsexpenses”(Warshawsky,2000,p.3).ThemainproblemwithqualifyingforMedicarelongtermcarebenefitsisthatanindividual“mustbehospitalizedforatleast3days,enteraMedicareapprovednursingfacility,beinMedicareapprovedbedswithintheapprovedfacility,andbereceivingskilledcareonadailybasis"(Gordon,2001,p.4).Thismeansthatthoseindividualswhoreceivehomecare,orarenotinaMedicareapprovednursingfacility,cannotreceiveMedicarebenefitsforlongtermcare.
FamilyAssistance
Manypeopleassumetheirfamilieswilltakecareofthemandwillnotputtheminanursinghome.Formanyoftheelderly,theideaoflivinginanursinghomeisnotlookeduponfondlyasanoptionforcare.Unfortunately,mostfamiliesdonothavethemeansortheskillsnecessarytotakecareofanelderlypersonintheirhome.Also,sincemanyindividualsarenotpreparedforthehighcostsofcare,individualsmaybeforcedintoanursinghomefacilityinordertopayfortheirneededcare.Thus,individualswhodonotwanttorelyongovernmentassistanceortheirfamily'sincomemustprovidesomeotherformofpaymentinordertocovertheirhealthcarecosts.
WhatisLongTermCareInsurance
LongTermCareInsurance(LTC)isusedtoindemnifythoseindividualswhoareunabletocareforthemselves,duetoold-age,injury,orchronicillnesses.(Warshawsky,2000,p.1).Byage65,“awomanhasaoneoutoftwochanceofspendingsometimeinanursinghome.Amanhasaoneoutofthreechance”(LongTermCareWiz)AlthoughmostpeopleassociateLTCinsurancewithonlytheaged,thereare"fivemillionworkingageadultsand400,000children"whoneedassistancewiththeactivitiesofdailyliving(Gordon,2001,p.6).Theseactivitiesinclude"bathing,dressing,eating,toileting,transferring,andcontinence",andonceanindividualillustratesaneedforassistancewithanytwooftheseactivities,oracognitiveimpairment,heorsheiseligibletoreceivelongtermcareinsurancebenefits.(Gordon,2001,p.6).Thetypesofcarethatlongtermcareinsurancecoversare"assistancewiththeactivitiesofdailyliving,homecare,24-hourskilledcare,intermediate,andcustodialcare"(Gordon,2001,p.1).Mostplansalsopayfor"alternativecarefacilitiessuchasassistedliving,andforhospicecare"(Gordon,2001,p.3).Therearepoliciesthatare"nursinghomeonlypoliciesandothersthatonlycoverhomehealthcare,butmostpoliciescoverboth"(Warshawsky,2000,p.6).Eachpolicywilllayouthowmuchitwillpayfor,dependingonthelevelofcareneeded.(Warshawsky,2000,p.6).Inaddition,eachplanisdesignedtofitindividualwantsandbudgets,thuseachapplicantcanpickexactlyhowmuchandwhattypeofcoverageheorshewants.
OnceanindividualhasdecidedtopurchaseLTCinsurance,heorshemustdecidethestructureoftheplanandbenefits.
∙Dailybenefitlevel:
Individualsmustfirstchoosehowmuchofadailybenefitheorshewantstoreceive.Aninsuredcanchoose,"arangeofmaximumdailybenefitsthatmaybeavailabletopayfornursinghomecare"(Warshawsky,2000,p.6).Somepoliciesallowforbenefitstobepaidonaweeklyormonthlybasisalso.
∙Durationofthedailybenefits:
Anindividualmustdecidehowlongheorshewantsthedailybenefitstolast.Forexample,"anindividualchoosinga$100dailybenefitintendedtolastatleast5yearswillactuallyhaveatotalbenefitmaximum,orduration,equaling$182,500($100x365days/yrx5years).Ifbenefitsarepaidoutatalowerratethanexpected,thenthetotalbenefitsunderthepolicymaylastlongerthanexpected"(Warshawsky,2000,p.6).
∙Protec
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