Long Term Care Insurance - Essay Example

? LONG TERM CARE INSURANCE [Health Sciences and Medicine] OF THE COLLEGE Introduction The percentage of the populace made up of aged persons in the United States is anticipated to increase from 13 to 20 percent in the next few decades. The number of Americans aged 65 years and above will rise by 35% to 71 million, by 2030, encompassing of 20% of the US population. The repercussions of ageing population across US and other countries on health care expenditures is overwhelming since the elderly persons use health care services at a greater rate than the younger population. The expense of providing healthcare services is spraining government and family budgets, as costs soar due to rising pharmaceutical drug prices, provider services and inflation. Apart from ageing population, factors such as higher incidence rate of chronic diseases, rise of long term care diseases such as Alzheimer’s and Parkinson’s, also add to the strain on long term care demand. Long-term care involves a wide range of services for people who require caregiving support on a routine basis owing to chronic illness or physical or mental disabilities. Contrasting other health services, long-term care is not usually planned to treat an illness or condition. Although it can involve skilled caregiving by professional nurses, it largely consists of assistance with fundamental activities of daily living (such as bathing, eating, dressing, and using the toilet) and with activities obligatory for independent living (such as shopping, cooking, and housework). Since 2004, long term care overheads have increased 4.7%-6.6% per year resulting in an overall rise of 31-47%, based upon the type of care. Long-term care costs hence signify one of the greatest uninsured financial risks facing the aged and most vulnerable population in the United States. In 2004, long term care expenses represented 8.5% of the overall healthcare expenditure amounting to $135 billion and 1.2% of GDP. This write-up focuses its attention towards hedging that financial risk with the use of long-term care insurance. It describes the definition and importance of long-term care insurance, customer profiles and behaviors of long-term care insurance and its precedence in the United States with respect to other countries. What is Long Term Care Insurance? Why is it so important? Long-term care insurance is an insurance product that underwrites individuals requiring long-term care due to old age, injury or chronic illness. Even though most people consider long-term care insurance with only elderly care, there are over five million working age adults and 400,000 children that require perennial support with the daily living activities cleaning, dressing, eating, moving, and continence, and if the patient requires a need for such assistance with any of the above routine activities, or a cognitive mutilation, he or she is entitled to obtain long term care insurance benefits. The kinds of care that long-term care insurance incorporates are support with the tasks of daily living, home nursing, 24-hour skilled attention, and transitional and supervisory care (Consilium, 2011). Most insurance plans also reimburse expenses for alternative care conveniences such as assisted living, and for hospital care. There are guidelines that are for nursing homes, home care and inpatient hospital care. The long-term care insurance policy lays out how much it will re-compensate depending on the level of care required. Furthermore, each insurance plan is devised to fit discrete needs and finances, thus each individual can choose exactly how much and what type of coverage he or she wants. Upon the selection of Long-term care insurance plan, the insurance holder decides upon the plan structure and benefits that he or she wants to receive. These benefits include: Daily benefit level: The insurance holder has the liberty of selecting the daily benefit he or she wants to receive from a range of daily benefits available to pay for nursing home care. These benefits can also be provided on a weekly or monthly basis. Duration of the daily benefits: Insurance holders can also choose the duration or the longevity of the daily benefits, such as, a patient choosing a $120 daily benefit planned to last at least 6 years will have a total benefit for $262, 800 ($120 x 365 days/yr x 6 years). In case the benefits are reimbursed at a lower rate than anticipated, then the total paybacks under the policy would last longer than projected. Protection from inflation: When duration is selected, it is built upon how much care costs at the present day, so that appropriate action must be taken in order to defend the policyholder from inflation. This could be worked through either an "automatic annual inflation benefit or through a periodic inflation option that provides the individual an option to acquire more insurance without having to prove good health. Waiting period: The insured needs to select the duration of waiting period prior to the actual repayments of the plan. This waiting period is based upon the premium price, with a higher premium resulting in a lower waiting time. A waiting period can exist somewhere from zero days to 365 days. Policyholders are required to interpret how long they would be able to pay for care, in the case of an occasion that they would require healthcare services while the waiting period is in effect. Non-forfeiture: This characteristic of the insurance policy is meant to defend the insured in the case of a premium payment break. This benefit assures that there are “some continued, limited benefits paid in the event that the policy lapses” This benefit may be added to a plan at an extra cost. Thus, an individual must reflect upon all of these features of an LTC insurance plan so as to create an insurance strategy that fits he or she best. Why do or don’t people buy Long Term Care Insurance? In the USA, in trade for an yearly compensation of about $2100 to $2500 per year (2008), a single 60-years-old might normally gain an individual LTC insurance policy that would reimburse to $150 a day for protected services comprising caregiving home services, assisted living amenities, home-care assistances and adult day care for a maximum duration of three years. Assistances would usually start to be paid 90days once an insured individual qualifies for LTC. Furthermore, the procedure would usually provide for inflation security, such that the maximum daily sum would be increased by 5% compounded yearly. A study arranged for the America’s Health Insurance Plans offers substantiation on some socio-demographic descriptions of people who bought LTC insurance in 2005. Over 60% of policyholders were between 55 and 70 years of age, more than 55% were female and about 60% were college graduates. In excess of 70% were married, with reported income above $50000 a year and overall liquid assets of $100000 (LTCS, 2011). In 2005, 90% of the individual LTC insurance purchased offered coverage for institutional and home services. The average daily benefit sum was marginally greater for nursing-home care ($142) than home care ($135) and the average policy duration was roughly five years. Normal waiting intervals prior to receiving benefits was 80 days and about 75% of plans bought had inflation protection (Colombo et al., 2011). The typical yearly premium of individual LTC insurance policies was just above $1900 per year indicating about 7% of the average revenue of the ageing population age 65 and over. Nearly 30% of the LTC insurance market in the US consists of group insurance policies. The average American is aggressively self-governing, and envisaging a point in their future where their freedom is compromised is a foremost concern for a vast majority of population when they start forecasting for their long-term care risk.  Most people will have worked 30 plus years before they retire, and in the process have worked hard to collect formidable savings.  The possibility of eluding their independence as a result of requiring long-term care at home or in a nursing home is one of the key driving forces in taking the stages to use long-term care insurance as a financial planning tool.  By doing so, it will safeguard future risks as the elderly maintain their independence throughout their retirement years. The last chief driving factor in the rise of long-term care insurance market is the feeling of not being a burden on kids and family.  With the rise in nuclear and geographically dispersed families, parents do not feel right in obliging their kids for long-term care and do not want to pose as liabilities on their children’s lives. Additionally, the last thing in the world a parent wants to be, is a load on their children and have to tell their off springs that they did not prepare themselves for the future. By merely forecasting ahead once can safeguard risks and be in control of your independence. Despite an absolute need of long-term care insurance, there still exist doubts and a clear non-market for the products. Certain individuals would never require Long-Term Care.  A report (Federal Citizen Information Center, 2004) specifies that people over 65 years old face at least a 40% probability of one day requiring nursing home care.  Around 10% would reside in nursing homes for 5 years or more. Since the American population is ageing, it is noticed that the age group over 85 years is the fastest-growing segment of the population due to advances in medical technologies. Hence, the odds of arriving into a nursing home facility and residing for longer periods grow with age.  Moreover, numbers indicate that at any given time, 22% of 85 years old and older population is already residing in nursing homes around the country. As females normally survive men by about five years, they face a 50% greater possibility than their male counterparts of registering into a nursing home after age 65 (Brown, 2008).  Though aged people are more likely to require Long-Term Care, the demand for Long-Term Care can arise at any age.  The U.S. Government Accounting Office estimates that 40% of the 13 million people receiving Long-Term Care services are between the ages of 18 and 64. What are the characteristics of people who purchase Long Term Care Insurance? There's an supposition amongst younger generation, particularly those in their 20s, that goes along the lines of it being pointless for them to ever need long-term medical services. In their times of good health, it becomes alluring to believe that good health conditions would last ever after. As a result, the young population overlooks the long-term health services. Another 'needless expense,' it's condemned in an effort to save income and check overall spending. It's a relatively short-term mindset, and one that presents numerous long-term challenges. Health insurance is a vital service, and it's one that produced short-term results and visibility. At the next end of the scale entirely is long term care insurance – a form of advanced health and personal care that's never seen until the later years of your life, and as a result is passed over more than anything. Compare the Long Term Care Insurance market in the US with those in other countries. In OECD countries where private LTC insurance is traded, the market is commonly small. As shown in Figure 1, Colombo et al. (2011) private insurance provisions play the principal role in the United States and Japan financing about 5 to 7% of total LTC expenses; but they generally account for less than 2% of total LTC spending. Normally, private LTC insurance arrangements develop around a country’s public LTC structure, either to balance available public coverage, or deliver benefits where there is no public LTC coverage. For instance, in Germany, private LTC insurance provides alternative cover to individuals who opt out of the public LTC insurance. In the United States, most of the purchasers of private LTC insurance are not eligible for Medicaid, which is targeted to the poor. Private LTC insurance can also offer complementary coverage for the portion of the LTC cost not covered under universal public plans, such as in France, Belgium, Japan and Germany. Figure 1. Share of Total LTC Spending Evidence on the proportion of the population covered by private coverage preparations is limited; peer-reviewed literature describes United States and France as two of the leading markets in terms of the population coverage. In the United States, about 5% of the population aged 40 and over holds a LTC insurance policy. In France, in 2010 about 15% of the population aged 40 and over, held a LTC insurance policy (Colombo et al., 2011). References Brown, J. R. (2008, October 6). The Private Market for Long-Term Care Insurance in the U.S.: A Review of the Evidence . Retrieved August 2, 2011, from MIT: http://econ-www.mit.edu/files/3281 Colombo, F. et al. (2011), Private Long-term Care Insurance: A Niche or a “Big Tent”? In Help Wanted? Providing and Paying for Long Term Care (pp 247-261), OECD Health Policy Studies, OECD Publishing. Consilium. (2011). Long Term Insurance. Retrieved August 2, 2011, from Consilium Wealth Management: http://www.consiliumwm.com/wp-content/uploads/2011/01/LTC-Insurance.pdf Federal Citizen Information Center (FCIC). (2004). Guide to Long-Term Care (LTC) Insurance. (AMERICA'S HEALTH INSURANCE PLANS) Retrieved August 01, 2011, from http://www.pueblo.gsa.gov/cic_text/health/ltc/guide.htm LTCS. (2011). Main Reasons Why People Buy Long-Term Care Insurance. Retrieved August 2, 2011, from Long Term Care Services: http://www.ltcsva.com/resources/199-main-reasons-why-people-buy-ltci.html Read More