Gaurav Bhola, MSM, Managing Editor
What is the purpose of Insurance? Most people will answer, in case something happens I can have peace of mind. Well, the real purpose of insurance is to transfer the risk to the insurance company. The risks are as various as needs of insurance. Everyone likes to have the protection insurance provides but no one likes to pay for it. I belong to this group as well. But, as a former financial advisor I have seen the benefits of insurance. I have seen many instances in which if people didn’t have insurance benefits, they would have been financially overwhelmed.
What is long-term care
Insurance is an integral part of life be it health insurance, life insurance, property insurance, casualty insurance, or other; it protects you, your loved ones, your property, and your financial resources. A critical part at a certain stage of life may require long-term care insurance. Long term care can be generally defined as care provided by a party for the benefit of one who is unable to care for oneself. More specifically, the care benefits people who are unable to perform certain Activities of Daily Living (ADL's) or who need supervision due to severe cognitive impairment such as Alzheimer's Disease. Normally, a policy pays benefits when you can't do either two or three of the ADLs. The most commonly used ADLs are:
- transferring (getting in and out of bed)
- toileting (moving on and off the toilet)
One common misconception is that the care is provided in a nursing home only; but care can also be provided at home or at an assisted care facility.
Chances of needing it
One can never forecast when the need will appear. It can happen in an instant or progressively as the person's health deteriorates. Some reasons for receiving long term care include:
- protracted illness
- unremitting disease
- injuries sustained due to an accident
- cognitive impairment (ex: Alzheimer's Disease) which reduces a person's ability to think or reason
As Americans live longer, the odds of getting ill or being involved in an accident increase; unlike our predecessors it’s not uncommon to hear someone live till ninety or one hundred years of age. Also, the baby boomers will be retiring by the millions; nearly 78 million Americans in next couple of years. According to the Labor Department, by year 2014 the group will represent more than one-fifth of the U.S. population, up from 15.6 percent in 2004. They will need more health care and social services. he army of retirees will strain the system leading to the crash of Medicare trust fund by year 2019, according to the Social Security Administration. The boomers want an active lifestyle retirement, thus increasing susceptibility to accident, injury, or illness. Furthermore, the changing family structure of increasing divorce rates and two working parent families, it becomes more unlikely that someone will have the time and caregiving skill sets to give their parents the care they deserve.
“I don’t need it; I’m covered by the Government”
Do you believe Social Security will be there in its current form ten or twenty years from now? No, most of us don’t. So what makes people think that the government will be there for us when it comes to long-term care? One simply has to ask some seniors currently on Medicaid/Medicare, the type of service they are receiving. The answers don’t paint a pretty picture. Ever since the passage of the Health Insurance Portability and Accountability Act (HIPAA) in 1996, the onus is on you for your own long term care.
Long term care services aren't adequately covered by most types of insurance or governmental programs including Medicare and Medicaid:
- majority of major medical insurance plans do not cover long term care
- Medicaid pays only for nursing home care after you have spent nearly all of your assets
- Medicare generally covers some nursing home care for a limited time
- disability insurance pays for lost income not long-term care services
Many people today have no idea what supportive and assisted living services cost. Nationally, the average annual cost in 2007 for a private room in a nursing home (single occupant) is $74,806.
The average costs in the United States (in 2007) are:
- $180.78/day/day for a semi-private room in a nursing home
- $204.95/day for a private room in a nursing home
- $2,714/month for care in an Assisted Living Facility (for a one-bedroom unit)
- $32.37/hour for a Home Health Aide
- $17/hour for a Homemaker services
Source: Genworth Financial 2007 Cost of Care Survey
Majority of Americans are not planning for possible long term care needs. About fifty percent of Americans incorrectly believe that Medicare or their private health insurance will subsidize their long term care needs. The fact is they generally don’t. The message is clear; you cannot afford not to have long-term care insurance.