Americans are living longer and staying healthier as their years advance. Many seniors stay active and live independently well into their eighties, enjoying life and the freedom to do as they wish. These seniors have no need for assisted living or nursing home care until their end-of-life stage arrives. Much of this is attributed to an excellent domestic health care system that maintained them during adulthood.
The United States is a world leader in health care, especially for seniors. Statistics show that the US spends 18 percent of gross domestic product (GDP) in supporting the health care system with much of the expenditure going towards senior needs. In fact, over five percent of the US economy is spent on people over the age of 65. This is expected to double by the year 2030 and triple by 2050 due to shifting demographics.
There is a tremendous cost needed to support this system, especially in supporting the health of aged folk requiring nursing home care. Money comes from federal and state taxes, pension contributions and personal savings but all of this is still not sufficient to fund this massive industry. The rest of the money comes from private health care insurance.
American health care funding and administration are divided into four main parts.
- Medicare — the federal health insurance for seniors above 65
- Medicaid — the state and federal combined program for low-income earners
- Veterans Administration — for armed forces veterans regardless of age
- Private Health Insurance — where premiums are paid personally
These programs cover the day-to-day health care costs of their clients but as citizens age, many require more extensive attention including additional daily care and extensive around-the-clock attention.
Models of extended health care include:
- Assisted Living — which is long-term help with daily activities but live independently
- Nursing Homes — that provide constant care for the aged and disabled
- End-of-Life or Hospice Care — for the terminally ill with under 6 months left
- Partnership for Long-Term Care (PLTC) — a blend of private and Medicaid coverage
- Program for All-Inclusive Care for the Elderly (PACE) — integration of Medicare and Medicaid
Health Care Insurance Structure
The overall insurance industry operates much the same for health care provision as it does for peril insurance like fire, loss of equipment and vehicle accidents. It’s a business of risk management.
Central is the protection against financial loss whether that means a house burning down, a car being wrecked or a person’s health failing to the point where they’re no longer able to care for themselves. This includes the inability for family members assisting them and needing to rely on extensive and expensive care in a nursing home.
There are a few terms to know in understanding how basic insurance operates.
- Insurance Policy is the legal contract between the provider and recipient
- Insurer is the insurance company, provider, or carrier
- Policyholder is the recipient who benefits from the insurance
- Coverage is the amount and terms under which the provider will pay
- Premium is the monthly amount charged to provide the coverage
- Claim is the value declared by the recipient for payout
- Indemnify is the amount and terms of payout
- Settlement is the amount of money to be paid by the insurance company
- Adjuster is the person who processes the claim and determines settlement
3 Types of Insurances Policies
It’s also important to know the three types of insurance policies. This will help you and your family make a more informed decision and understand your own obligations when it comes to making claims. Here are the three types or structures of insurance policies:
- Reimbursement policy — where the recipient pays first and is later compensated or reimbursed by the provider
- Pay-on-Benefit policy — where the insurance provider pays an agreed-upon one-time lump-sum payment
- Indemnification policy — where the insurance company agrees to pay ongoing support money
Medical insurance, particularly coverage designed for nursing home support, is normally paid on an indemnification basis and would be set “in perpetuity” for as long as the care is required.
Costs of Nursing Home Insurance Coverage
The health care industry often uses the term “activities of daily living” or ADL. This is a generalization of how a person is able to care, whether by themselves or in an assisted living situation like a nursing home. Insurance to cover people needing care for ADL is expensive but it can be affordable if planned for early and carefully.
This is also called Long-Term Care Insurance and is designed to cover care for housing, meals, hygiene issues, quality of life activities, medical attention, and pharmaceutical care. The average cost of American long-term care for a private room in a nursing home is approximately $250 per day or $91,250 per year. This is far beyond the means of the average person and their family.
Comparatively, an insurance policy to cover nursing home care would average approximately $1,500 per year if purchased by a healthy individual before they reached 55 years old. That equates to $125 per month and is manageable for most people. A general rule is that if the premium exceeds 10% of monthly income, it’s too expensive.
Naturally, the cost of an insurance policy to cover nursing home care rapidly increases if the policyholder were to buy in advance years or in declining health. There comes a point where a person is too old and too frail for an insurance provider to absorb the risk.
Purchasing Long-Term Health Insurance
Recognize that insurance is a product like other commodities and there can be a huge difference in coverage, premiums, terms and conditions between insurance providers. It really pays to learn about the health care insurance industry and what’s actually provided before purchasing a policy.
Here are a few key points to consider when buying nursing home care insurance.
- A reputable company — make sure the company is viable and will be in business when the time comes to collect
- Know what is covered and just as importantly, what isn’t
- The definition of ADL is clearly set out
- That pre-existing disabilities aren’t a cause for cancellation once the policy is set
- That unnecessary benefits are not included
- That the premiums are inflation-proof
- If premiums need to be continually paid when benefits are received
- If after-death benefits are included
Remember the “buyer beware” caution. Long-term health care insurance policies for nursing home care contain fine print. In order to protect yourself against unknown or unforeseen outcomes, it’s vital to ask lots of questions, do your research and become familiar with the insurance industry.
In the end, awareness and vigilance can protect you and your family members from unfortunate circumstances that require costly investments in time and money.