Long Term Care
Long term care may be needed as a result of aging or stem from a critical illness or injury. A LTC policy provides the cash needed to pay for in-home care and related services. These services might be delivered in-home or in a medical facility. The importance of this product is going to grow, especially as the baby boomers age.
New circumstances, new products
The political and social trends that support LTC insurance are apparent to everyone reading the newspaper. Nearly all cash-strapped governments are cutting bank on health care spending. Some are subsidizing certain health services (including LTC) on a descending scale based on income, while others are stopping specific health care services altogether.
Another less noticeable trend is that people are living longer, causing the elderly segment of the population to expand. Consider the demographics- according to Stats Canada, on average men will live to age 80 while women will live to age 85. By the year 2006, Ontario and Quebec will each have over 100,000 people in this age group, which six out of the remaining provinces will have at least 50,000.
As these two trends continue and converge, an enormous amount of pressure will be placed on Canada's health care system. In Canada, the average stay in a long-term care home is 2.8 years. If you want to stay at home, 24hr nursing care can cost up to $130,000 per year (after tax dollars, I might add). Try factoring that into your retirement plan and you may see that will be extremely difficult to do.
Even if you could see into the future it would be difficult to plan for such a tremendous cash requirement. Yet, if it happened to you, you would have few choices- either you would pay the costs (possibly gutting a life-time of financial plan) or you would go without the type of care you would ideally need or prefer.
I must stress that LTC insurance is not only a concern for the elderly. Like critical illness, serious accidents can leave people in need of continual care. People have had to quit their jobs so they could provide in-home care to a child, sibling, parent or spouse. Such a debilitating condition can cause unquantifiable emotional suffering and can financially debilitate a family. LTC insurance, life living benefit coverage, can help families though tremendously difficult times.
Young people today should consider their future health care needs. Our current health care system is taking more and more away. As one would expect, these cuts come in less critical segments of the system. We hope these cuts will never affect vital areas of the system however, I think some trends emerge.
In 10 years you'll still have access to an emergency room. What you will not have is adequate home care. In 10 years you'll probably still be able to have surgery done (although the line will be longer) but what you won't have is the same level of care after the fact. Today, in larger metropolitan areas, the wait for a nursing home is six to nine months. What will it be in 10 years? 15 years? 20 years? What will it be like when baby boomers begin to age and move into the system in greater numbers?
Long-term care-the solution
Is there a solution? Can the potentially enormous costs of long-term care be surmounted? While you can't prevent the effects of aging you can plan ahead. While you can't bank on avoiding disability and the need for home care, you can set a program in place which provides for those possibilities. However, you need to do it today.
The solution is a LTC policy. This is not a long term disability plan which only covers the policyholder if he/she becomes disabled. A LTC policy covers the policyholder's extended health care costs if he/she can't perform the actives of daily living (ADL). The plan will pay out as long as the person cannot perform two ADLs: eating, bathing, dressing, toilet use, transferring positions (in/out of bed or chairs)
As you can see, ADLs apply to practically anyone of any age. If you can't perform them, then you are probably in need of long-term care of some kind.
Unlike living benefit coverage, LTC insurance pays out even if a disability results from old age. There is no requirement that the disability stem from a critical illness. Funds paid out of a LTC policy are tax-free and cover the need for in-home care by home care workers, visiting nurses, therapists, and adult day care. They also cover respite care used to relive relatives or friends who might be providing home care to the insured. While LTC policies can be purchased up to age 80, they provide coverage regardless of what age the insured attains.
Some people may not see the need to buy a policy that will provide the funds needed for long-term care. "Why can't a relative care for me?" you might ask. There are several problems with that view.
Firstly, you are assuming that you will have a relative who is willing and able to carry out such a task. Secondly, even if such a relative is close by, there is a built-in assumption that the required level of care will be low. The reality could be that you may require continuous, somewhat complicated care. How many people can simply quit their jobs to take care of a relative? LTC polices cover health care situations that may befall any of us. Situations which could destroy en a well thought out financial plan.
Anatomy of a long-term care situation
Long-term care is required when an individual can no longer person at least two of the five ADL (eating, bathing, dressing, toilet use, transferring positions (in/out of bed or chairs). This may be as the result of any number of conditions including Alzheimer's. Parkinson's, arthritis, emphysema, stroke, MS, muscular dystrophy, ALS, accident or simply the aging process, below is an example of the cost of long term care required five days per week for 5 1/2 years in your home:
A. First 6 months: Residential Care Aid (RCA) for 4 hrs/day
RCA=4(hrs) x5(days) x $23/hr=$460 x 26 weeks= $119,630
B. Next two years: RCA for 8 hrs/day and Licensed Practical Nurse (LPN) for 1 visit/week
RCA=8(hrs) x 5(days) x $23/hr=$920/week x 104 weeks= $95,680
LPN=1(visit) x $30/visit=$30/week x 104 weeks= $3,120
C. Next three years: RCA for 12 hrs/day and LPN for 2 visits/week
RCA=12(hrs) x5(days) x $23=$1,380/week x 156 weeks= $215,280
LPN=2(visits) x $30/visit=$60/week x 156 weeks= $9,360
Total cost of 5 1/2 years of long term care= $335,400
If for any reason during the above mentioned period you are required or it becomes necessary to move into a private long term care facility with 24 hour care provided, the average cost was between $4000 and $8000 per month, depending on availability.