What daily rate to choose when buying Long Term Care Insurance

Today’s blog post continues the series about buying long term care insurance as a strategy for planning ahead for long term care.  My post of May 22, 2014 discussed whether to buy long term care insurance at all.  My post of May 29, 2014 suggested looking for a stable, proven insurer.  My post of June 5, 2014 described how to identify a proven, stable Long Term Care insurance company.  My post of June 12, 2014 discussed the importance of protection against inflation. My post of June 19, 2014 suggested planning to use insurance to pay for four or five years of long term care.  The introductory post in the series on planning ahead for long term care costs appeared on May 15, 2014.

Now that we’ve made our guess as to how long our long term care will last, we must predict how much each day will cost.  (Insurers use a daily rate because assisted living facilities and skilled nursing facilities charge by the day.  Some home care providers charge by the day as well, but most charge by the hour.)

Short answer:  If you expect to live out your retirement in Ohio, get a daily rate (in today’s dollars) of at least $200, BUT $250 would be better.  (I use Ohio because that’s where I help seniors who need long term care.)

Why buy insurance that would pay out $200 per day?

First, I suggest that you buy long term care insurance to cover your costs for nursing home care (i.e., in a skilled nursing facility.)  Usually, long term care insurance policies are not limited to nursing home costs.  Many or even most policies cover long term care costs provided at the insured’s home or at an assisted living facility in addition to paying nursing home costs.  In short, most insurers pay for your long term care no matter where you are receiving that care.

I use nursing home costs and time in a nursing home as comparative measures for long term care insurance because nursing home costs are the highest of the usual long term care costs.  If you’re going to buy insurance to guard against long term care costs, you should get enough insurance to guard against the financial worst case scenario, the nursing home.

Second, I suggest a $200 daily rate because that is approximately the Ohio Medicaid rate today (i.e., the amount of money that Ohio’s Medicaid agency, the Ohio Department of Job and Family Services, reimburses a nursing home for the care provided to a Medicaid-covered resident.)  Because $200 is the Medicaid rate, very few or no nursing homes have a private pay rate any lower than that.  Consequently, that Medicaid rate is the bare minimum that I can suggest when purchasing a long term care policy.

Why buy a policy with a $250 daily rate?

First, as I mentioned above, the lowest daily rate that you’re likely to find among any Ohio nursing homes is $200.  You’re more likely to find daily rates for private pay (i.e., for residents not covered by Medicaid) a bit higher than the Medicaid rate.  (Private individuals don’t have the bargaining power that the state and federal governments have.)  While you are using your long term care policy, the nursing home will expect you to pay the private pay rate.  You should buy insurance to cover that rate.

Second, the current five-year look-back period can be made longer by Congress at any time.  (Remember, you’re not expecting to make a claim against your long term care insurance until years from now.)  Getting a daily rate above the absolute minimum can help you get through a longer look-back period that may be in place in the future.

Why buy a daily rate for nursing home care when my policy will also cover in-home care and assisted living care, which are less expensive than nursing home care?

You don’t know what the future holds.  You could need nursing home care quite suddenly, or you could stay at home or in an assisted living facility for a long time before needing full skilled nursing care.  Without an accurate crystal ball, you just don’t know what your needs will actually be.

Remember, though, that long term care insurance is meant to protect your life savings against the risk of long term care costs.  In addition, the cost that you’re trying to insure against is reasonably predictable because we can easily approximate the private pay rate for a nursing home.  If you don’t buy enough insurance to cover this predictable cost, you’re not really protecting yourself or your life savings.

 

For more information, visit Jim’s website.

Jim Koewler’s mission is
“Protecting Seniors and People with Special Needs.”

For help with long term care or with planning for someone with special needs,
call Jim, or contact him through his website.

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