Long Term Care Insurance
Almost half of us will need long-term care, and health insurance doesn't cover it.
How would you pay for long-term care if you needed it? When baby boomers were asked this in a study commissioned by CareQuest, which helps employers set up long-term care packages, only 5% said they would rely on long-term-care insurance. Most said they expected life, health or disability insurance or government programs to cover the costs.
If that's what you're counting on, think again:
- Almost half the population will need long-term care at some point.
- The average annual cost for a private room at a nursing home is $74,095, according to MetLife Mature Market Institute.
- The average hourly cost of a health aide who gives in-home care is $19. It's double that for a licensed nurse. If you needed round-the-clock care from a nurse, you would have to pay more than $300,000 a year.
- You can't get long-term care insurance once you have a problem that requires long-term care.
How to shop for a policy
Buy sooner rather than later. The younger and healthier you are when you get a policy, the cheaper your premiums will be. A 55-year-old would pay $911 a year for a policy that pays $100 a day for three years of assistance, according to a study by the American Council of Life Insurers. A 65-year-old would pay more than double that for the same coverage. If your health is less than perfect, finding coverage can be difficult but is not impossible.
Stick with major issuers. You're buying this protection for the long term, so make sure you find a company that's going to be there a long time.
Don't skimp on coverage. Most people who have long-term-care coverage wish they had bought more, according to a recent study by LifePlans. Consider at least a three-year benefit period, which would cover the average nursing home stay. Also, a short "elimination period" (basically a deductible -- see below), even though it will increase premiums, could save you out-of-pocket costs in the long run. And look for a policy that covers care in as many situations as possible: at home, in an assisted living facility, in a nursing home.
Help taxpayers gain control of health care costs.
Used to be, the only way for the average American to avoid taxes was to earn money in cash and stuff it in a mattress for safekeeping. Now, in what has been called “the most sweeping and beneficial changes in half a century”, the federal government has come up with a completely legal method of tax avoidance that even earns interest. It’s called an HSA or health savings account.
HSAs are special accounts owned by individuals that allow tax-advantaged contributions to pay for current and future medical expenses. They were created as part of the 2003 Medicare Prescription Drug, Improvement, and Modernization Act.
HSAs may be even better than an IRA from a tax perspective, since neither contributions nor withdrawals are taxed. Similar to IRAs, HSAs are owned by individuals and they are portable. Contributions to the accounts may by made by individuals and/or employers.
Out-of-pocket costs for deductibles, prescription drugs and even many over-the-counter medicines can be paid for using the funds in the HSA. The premise is that individuals managing their own care will make better decisions and shop around for the best value.
Individuals can get a health savings account through a financial institution such as a bank or credit union or sign up via their employer. Its companion, a high deductible health plan (HDHP), has to already exist to open the HSA. A qualified HDHP must have an annual deductible of at least $1050 for self-only coverage or $2100 for family coverage.