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Don't count on Medicare for long-term care costs

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by John T. Piatchek

for the Business Journal

There is an old saying, people spend their health to acquire wealth and later spend their wealth to regain their health.

That warning lies at the heart of why demand for long-term care insurance has been climbing so steadily.

A 1997 survey conducted jointly on behalf of the National Council On the Aging and John Hancock, reported that 69 percent of Americans are worried about how they will finance long-term care for themselves and their spouses, compared to 56 percent who say they are worried about paying for retirement.

There is good reason, as nursing home costs now average $30,000 to $40,000 annually. We are living longer, but we are likely to find that longer lives can be very costly.

Misunderstanding what's there. There are those who are mistakenly expecting that a governmental support system is in place to support their long-term care needs.

Many people feel their nursing home needs will be covered by Medicare or Medicaid. But government support is focused on a very narrow definition of long-term care, for which very few will qualify.

Currently Medicare pays for long term care in a nursing home only if the nursing home care follows at least a three-day hospital stay, only if the nursing facility qualifies as a participating facility, only if continuous skilled care is provided to the individual and only if the care is directed at the patient's improving.

These conditions are met by very few people. Those who need nursing home care generally do not enter directly from a hospital stay, and many nursing homes do not qualify as participating facilities. Medicare coverage pays in full for 20 days and only a small portion for another 80. When the patient reaches this point, governmental support stops.

Medicaid is the next safety net, but it was designed for those with extremely limited private means.

For most Americans, private funding is and will be the only option.

Understanding the need. Long-term care supports people with a prolonged illness, disability or cognitive disorder with services that help them function in spite of their physical and mental limitations. They are not designed to treat medical problems, but to provide assistance with the activities of daily living.

These services are generally divided by the term skilled care, which involves residence in a nursing home with medical care being provided by skilled medical personnel, and personal care, which provides assistance for daily activities such as bathing, eating, dressing, continence and the like.

What is the optimum coverage? There are policies that cover only nursing home care, those that cover home care and those that cover both.

Some policies include services provided by adult day-care centers and other community facilities.

What triggers the benefits? Over the years, the insurance industry and regulatory agencies have developed criteria in the form of ADLs, which stands for activities of daily living.

Six ADLs are most commonly used bathing, continence, dressing, eating, toileting and transferring. When the required number cannot be performed, the benefit period begins.

What is the deductible or waiting period? Deductibles are structured as waiting periods with a range between zero and 365 days. Once a person enters a nursing home, the waiting period begins.

What are other common plan features? Among the most common policy features, almost all policies are guaranteed renewable.

Some are noncancelable. The waiver of premium feature stipulates that once you are in a nursing home and benefit payments begin, your premium payments stop.

For those purchasing coverage far in advance of the expected need, the inflation protection becomes an important feature.

What are the underwriting requirements? Underwriting at the time of application is clearly more favorable than underwriting at the time of claim or need, so this policy feature should be clearly understood.

Underwriting data may require a detailed medical questionnaire and or an attending physician's statement.

As Americans live longer, it is as if their children and grandchildren are watching the trailer for what the movie of their own late life experience could be. Many of them have taken on much or even all of the cost burden. This lesson should not be lost.

A support industry has risen to make sure both the facilities and the money will be there. The only trap is waiting.

(John Piatchek, CLU, ChFC, CFBS, is a principal with Partners Financial in Springfield.)

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