Alternatives to Long-Term Care Insurance

The cost of long-term care continues to climb much faster than the general rate of inflation. Although the primary defense against this astronomical expense has traditionally been long-term care insurance, the cost of this type of coverage has also increased disproportionately, and a growing number of insurers have discontinued their offerings in this area because of the high rate of claims.

Many consumers are actively seeking alternatives to this form of protection in an effort to cut their costs while maintaining a plan to deal with this contingency if it occurs. (For more, see: Types of Long-Term Care Coverage.)

On the Financial Side

Traditional long-term care policies are gradually starting to fall out of favor in the marketplace, due in part to their cost, as well as the fact that they are designed to be use-it-or-lose-it products. If the policy owner ends up not needing managed care, there is no refund for the thousands of dollars of premiums that were paid into them. These policies are rapidly being supplanted by term and permanent life insurance policies that have accelerated benefit riders attached to them that can be used to pay for critical, chronic or terminal illness or long-term care expenses specifically. These vehicles resolve this dilemma for policy holders and provide other forms of protection and savings as well.

There are also annuities available from commercial insurers that will automatically pay out a larger monthly benefit to those who need care. Some contracts merely double or triple the amount that the annuitant can access in the contract each month while others pay an additional tax-free benefit from the insurer. The underwriting for these contracts is usually more forgiving than with insurance policies and the insured also has greater freedom in how the money can be used. Furthermore, if care is not needed, the insured gets to keep and use all of the money in the contract for other purposes. However, there is usually a fairly high minimum initial purchase amount, such as $50,000, and the rates that they pay are usually fairly low. Other sources of funding can include a loan from a qualified plan or cashing in other investments such as shares of stock.

Of course, those who do not have the money to buy these products – or who are medically uninsurable – can still opt for the Medicaid spend-down process. However, this entails many rules, some of which vary from one state to another. The applicant will also typically have little choice regarding the location and level of care that is provided. (For more, see: Why Is Healthcare So Expensive in the U.S.?)

Alternatives to Conventional Care

Those who do not have substantial liquid assets to draw upon and are not insurable still have some options. The Class Act is one of the provisions of Obamacare that allows taxpayers age 18 and over to buy long-term care insurance even if they already have significant health problems. Both employers and employees must sign up for this program and applicants must have worked for at least 5 years prior in order to be eligible.

Home healthcare is another option that many families choose in lieu of paying for professional care. Of course, families have taken in older relatives and cared for them since the dawn of civilization, but modern medical science has made this a different proposition than in the past. Relatives may now need specialized training in order to provide more sophisticated types of care for seniors, and the cost to the caregiver and/or a spouse can be considerably higher than the mere expenses associated with getting a room or two ready for the recipient.

Many caregivers end up forfeiting a substantial amount of money from lost earnings and salaries in order to provide care at home. This economic effect should be carefully taken into consideration before this choice is made. Some remuneration may be available through the Cash and Counseling Program offered by Medicaid in about 30 states, which pays family caregivers a limited wage for their services. (For related reading, see: A Quick Guide to Medicaid and Nursing Home Rules.

The Veteran’s Administration also provides some forms of care for military veterans. The Aid and Attendance program can pay about $1,100 to $2,100 a month to eligible single and married veterans, their spouses and surviving spouses. The veteran’s single or joint income must fall below a certain threshold in order to qualify.

The Bottom Line

The long-term care insurance market faces an uncertain future. It is impossible for most carriers to offer competitively priced coverage for an event that statistically has at least a 50% chance of occurrence. However, there are still options available both for those who have some financial assets and those who do not. For more information on what you can do to defray long-term care expenses, visit the Medicaid website or consult your financial advisor. (For more, see: Considerations for Long-term Care Coverage)