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Thinking Long Term About Insurance

Posted on Jan 22, 2013 by Ailee Slater ()

In 1903, the life expectancy of the average man in the United States was 50; for a woman, 55. Fast forward one hundred years to 2013 - now, most of us are expected to live until 80, and plenty of people remain happy and healthy into their 90s. As medical technology advances, we will surely continue to live longer and longer lives, but with this increase in life expectancy comes one major concern - how can the United States manage the health care costs of a rapidly aging population? When people age, their health needs tend to change as well.

Chronic conditions such as diabetes or arthritis may worsen, complicating the care of everyday maladies. With changes in hormones, organs and the immune system may come more susceptibility to disease, and the need to seek medical care more often. Much, much later in life, having a support system of family or caretakers becomes important. Health insurance companies have certainly taken notice of life expectancy trends in the United States, as well as the fact that baby boomers are just now reaching retirement age and beginning to think about their medical future. That may explain why long-term care health insurance has become one of the fastest-growing types of insurance available today. Whereas most health insurance covers people who get sick, long-term insurance covers individuals who need regular help performing the tasks of everyday life - getting dressed, taking a bath, and so on.

Long-term insurance may cover a stay in a skilled nursing facility, or possibly a private nurse to offer care in a patient's own home. Some insurance policies offer this long-term care indefinitely, whereas others are purchased with a limit, such as three years, on how long the coverage will last. Long-term care health insurance is usually purchased in a person's mid-50s or early 60s. According to the American Association for Long-Term Care Insurance, about a quarter of long-term care customers will access their insurance benefits once in their 70s, while more than half will not need to seek insurance benefits until after turning 80. The American Association for Long-Term Care Insurance also points out that the number of long-term care insurance customers are growing - the Association estimates that in 2011, long-term care insurers around the nation paid $6.6 billion to 200,000 claimants, which was an 8 percent increase in activity from the previous year. But, doesn't Medicare already cover the health care needs for seniors in the United States? Actually, no; at least, not entirely. Medicare does not cover long-term or indefinite stays in a hospital or other care facility.

Because Medicare is mainly meant to insure against short stays and limited recovery times in a hospital, it is not a viable option for older people seeking round-the-clock medical or daily living assistance. Although Medicare does cover some stays at skilled nursing facilities, coverage is usually limited to 100 days, which is usually insufficient for an older person in need of assisted living care. As for other public insurance options, Medicaid (the federal insurance program for children, adults and seniors living on a low income) does offer some long term care options, however these vary depending on the state in which the patient resides. Medicaid coverage of course does not apply to anyone with a good amount of their own financial assets, and furthermore Medicaid may deny long-term care given within a patient's home rather than a hospital. In fact, the American Association for Long-Term Care has even reported a deficit in Medicaid payments to patients at skilled nursing facilities; it was calculated that Medicaid owed more than $7 billion just last year. With these holes in public insurance options, it is clear why some people have turned to private, long-term care insurance.

An insurance policy dedicated to the needs of later-in-life care will of course be of interest to younger seniors thinking about the future; especially after seeing older friends and parents go through the stages of health care in their later years. However, there have been a few problems in the long-term care insurance industry. A few years ago, the John Hancock Life Insurance Company asked state regulators to allow rate increases of up to 40 percent on non-federal insurance policies. An increase like that would have made a long-term insurance policy suddenly unaffordable to consumers already paying premiums. Consumers unable to afford the new insurance rates would have had to drop their coverage, losing the benefits they were already well on their way to accruing.

Other insurance companies have asked for similar allowances to increase their rates on long-term insurance, because the fact is that providing long-term insurance is not always profitable. With the very low interest rates across the nation, insurers fear that their investments of consumers' money now will not gain enough interest to cover the cost of care later on. Although low interest rates are great for first-time home buyers, those rates have the detrimental effect of scaring insurance companies into raising premiums, or even leaving the industry altogether. More problems have occurred in terms of long-term insurers being accused of refusing to pay out claims in full, or wrongfully denying coverage.

Some states have even adopted new regulations in order to protect long-term insurance consumers. Oregon, for example, has initiated a new appeals process to better decide whether or not a long-term insurance claim has been wrongly denied. The Oregon Insurance Division has said that there were approximately 100 complaints about long-term insurance in 2011. Long-term insurance can be a great asset when used correctly, and so Kaiser Permanente along with other health care organizations have published tips to help people who are looking to buy this type of coverage.

Among the advice offered to long-term insurance customers: calculate your net worth, and keep in mind that anyone with a net worth under $300,000 may be better off using Medicaid; decide on a long-term insurance plan carefully, as it is difficult to  change later without losing the benefits already accrued by paying into the policy for so many years; and, read the policy carefully and pay attention to information about which nursing facilities are covered, how inflation will affect the policy, and whether or not there is a requirement of hospitalization in order to receive benefits.

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