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Benefits Bob

Preparing for Nursing Care Costs

November 09, 1998|BOB ROSENBLATT

"We on both sides of our family have seen thousands of dollars go out for home care and nursing homes," a worried reader says in an e-mail. "Last week I met with an insurance agent to discuss nursing care insurance for me and my husband, and it's an expense which I am not so sure we want to face every month before retirement (we are 60), and even so when we are on Social Security with a lesser income."

For the perplexed reader and others puzzled by the dilemma, here is the lowdown. First, realize that buying this insurance is not primarily a health issue. Rather, it is a challenge for people with some significant life savings they want to protect, money they want to leave to a spouse or children. And the insurance also offers a source of help to those who want to live at home as long as possible.

Let's dispel some myths. Medicare covers people older than 65 and the disabled of all ages, but it pays for a nursing home only for those who are recovering from some ailment or operation and need skilled care. And it will pay for just 100 days. Medicare doesn't pay for the nightmare known as custodial care, when your body or mind have betrayed you and you can no longer live at home.

Through Medi-Cal, the government will help pay for custodial care, but only after you have impoverished yourself. You have to wipe out all your financial assets--stocks, bonds, money market funds, certificates of deposit and savings accounts--and then the Medi-Cal program will pay for a nursing home.

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If you are married and have less than $80,000 in assets, you don't need the long-term care insurance to protect your financial assets. If one spouse goes into a nursing facility, federal law guarantees the spouse remaining at home can keep about $80,000 in assets and an income of $1,500 a month. (The value of the house, a car and furniture don't count.) The spouse at home, who is usually the wife, can retain the $80,000, and her husband in the nursing home will have his bills paid by Medi-Cal.

For the wealthy, let's say a couple with more than $800,000 in stocks, bonds and cash, the insurance isn't necessary either. This family can make enough money from their investments to pay for a nursing home for one spouse, and with money from pensions and Social Security, have enough to maintain the other person at home.

For income protection purposes, the prime candidates to buy insurance, therefore, are people with assets between $80,000 and $800,000 who want to preserve an estate.

In addition to preserving life savings, buyers also want to safeguard their independence. Remember, neither Medicare nor Medi-Cal will pay for home care, when someone comes to help you with such chores as bathing and dressing. But a good long-term care policy will provide this protection.

If you are shopping for a policy, make sure you get one with flexibility. The best policies are comprehensive ones and provide a pot of money. The cash they give you can be spent in three ways: for home care; for the monthly payments in an "assisted living" apartment, which typically offers communal dining and staff available to help with taking medication and provide assistance in bathing and dressing; and for a nursing home if you need custodial care.

The cost of long-term care coverage rises dramatically with age. A comprehensive policy is $900 a year at age 55, rising to $1,200 at 60, to $2,500 at 70, and $3,800 at 75.

The typical buyer these days is about 68. Don't think seriously about getting it at a much younger age. Most people who buy it don't use it until they reach the late 70s or early 80s. The only people who should get it younger are those in a very limited group: They have a health condition that would prevent them from qualifying for a policy, but coverage is offered to them on a group basis at work.

When you pick a policy, take the longest waiting period you can. This is called an elimination period, the same as a deductible with auto insurance. Get a policy under which you pay the first 90 or 100 days; that will keep down the cost.

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Be sure the policy has an inflation rider. A policy that looks good at age 60, because it pays $120 a day, is much less financially appealing at age 85, when you are going to use it. Get a policy with a 5% annual inflation adjustment in the price. The average cost of a day in a California nursing home rose from $42 in 1980, or about $15,000 a year, to $130 a day, or about $47,000, this year.

Eligibility for collecting benefits is typically linked to six basic activities of daily living, known as ADLs: feeding yourself, getting dressed, getting into and out of bed, a chair or a wheelchair, bathing yourself, getting on and off a toilet by yourself, and continence (the ability to control your bladder and bowels).

The better policies will require only two ADLs to qualify for nursing-home and assisted-living benefits. (All policies sold in California use two ADLs as a standard for home-care benefits.)

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