This article written by Tom Russell was published in the June 2015 edition of Payson Roundup’s Senior Living. Health insurance can be a complex issue, and this article helps you see the bigger picture:
Completing the Health Insurance Equation
By Tom Russell
Does enrollment in Medicare, an under 65 Affordable Care Act plan, or employer group health insurance, complete the health insurance equation? No. How can we strengthen our health insurance coverage, and plug potential costly gaps?
Ongoing Extended Care
Does Medicare cover extended, chronic care? No. On page 63 of the government’s “Medicare and You” Handbook we read, “At least 70% of people over 65 will need long-term care services and support at some point. Medicare and most health insurance plans, including Medicare Supplement Insurance (Medigap) policies, do not pay for this type of care, sometimes called “custodial care.”
Medicare pays for limited days of “Skilled Care” (medical level and rehabilitative care) – not custodial care for assistance with activities of daily living. Do under 65 employer based health insurance policies or Affordable Care Act plans cover long-term care? No.
When we consider extended care insurance, many options exist. We can start by obtaining a “recovery care” policy insuring for up to one year of care. One does not have to immediately access his or her checking account or home equity to pay for nursing home or home health care. The cost of the care is high – up to $6000 per month, or more.
New options now exist with “living benefit” life insurance policies that provide chronic care options. The face amount of the policy can tapped for these costs. The amount of the life insurance NOT used for care is then paid to the estate on death. This addresses one of the objections to traditional long-term care insurance – What if I don’t need it? Perhaps the cash value in an older policy can be transferred to obtain one of these new policies, sometimes without additional cash outlays. People live longer today, and life insurance is more affordable than it used to be.
Existing annuities (or CDs) can be transferred into a new type of annuity policy that can triple the amount of money available for long-term care. If care is needed, one spends through the original deposit first. If the cost of care continues, the insurance then kicks in. If care is never needed (or money from the original deposit is left over), the original annuity deposit (plus interest) is paid to one’s heirs. When someone has considered traditional LTC insurance and decided to self-insure, this annuity/LTC option is definitely worth consideration. New laws allow the tax free transfer from existing annuities into one of these annuity/LTC combo policies.
Yet, traditional premium based long-term care policies have benefits not available in most life insurance/LTC combo or annuity policies, including more options to tax deduct the premium. They usually have more liberal definitions of “assistance” making it easier to qualify for benefit payments. For example, traditional ongoing premium based LTC policies usually have a “standby” definition of needing assistance, rather than a chronic “hands on” definition. To trigger benefits, someone needs be standing by within arms length, not placing their hands on you to help you in the bathtub, for example. Big difference!
And remember, extended care LTC insurance can likely not be acquired if you have a new significant diagnosis. It must be obtained when you’re relatively healthy and can qualify for coverage. Hopefully we never need it, but we can never acquire long-term care insurance when and if we need it. Educating ourselves on this type of insurance deserves to be a major part of our retirement and lifestyle planning. An experienced agent can prove invaluable, and help paint the big picture of all the different options.
Critical Illness Insurance
Policies exist that will pay a lump sum on the diagnosis of a critical illness. They compliment, but are never intended to replace a traditional healthcare plan. Critical Illness policies have improved over the years. It used to be that invasive cancer was the only illness covered. Newer policies have expanded to also cover heart attack and stroke. Insurance companies offer plans with lump sum payments of $10,000 to $100,000.
If Medicare or an under 65 Affordable Care Act health plan covers these big three conditions (which they are likely to do), why consider adding this additional protection? Because of potentially high out of pocket expenses from deductibles and co-insurances, as well as travel and lodging expenses. Out of pocket expenses might also include lost time at work or in one’s business. Perhaps most importantly, Critical Illness policies can help pay for natural and holistic treatment options that may not be covered by traditional health insurance. To have extra liquidity if a big diagnosis hits can ease much stress.
Critical Illness policies can help strengthen anyone’s health insurance, but if there’s a family history of cancer, heart attack or stroke, they should be at the top of one’s insurance priority list. However, only a few of the policies on the market will not cut the benefit when one reaches 65. Read the fine print carefully.
Disability Income Protection
In our working years, our greatest asset is our ability to earn a living. The number one cause of home foreclosures in the United States is not death or bankruptcy, but disability.
Professionals like architects, doctors and attorneys are usually receptive to owning this type of insurance. They don’t leave college before someone speaks to the class about the importance of acquiring disability income protection. However, all occupational classes can benefit, and excellent Blue Collar policies exist.
A disability policy pays a monthly income. The insured can choose the length of time the policy will pay benefits, the amount of the monthly benefit, and how long of a waiting period before the monthly checks start. Insurance companies will usually refuse to insure anyone for more than 60% of their income. They do not want to make it too attractive to go on claim.
It’s also important that the Disability Income policy have what’s called an “own occupation” definition of disability, stating that benefits are payable if one cannot perform the material duties of his or her occupation. Many policies are more restrictive, requiring that you be unable to do any type of work. Needless to say, the “own occupation” definition is essential language in any policy under consideration.
Medicare and under 65 Affordable Care Act plans cover accidents, of course, but often a deductible must first be met. Policies exist that will pay in the event of an accident, to help cover the deductible and co-insurance cost. These policies can be especially appropriate for families with minor children, especially when insured under a high deductible plan. When young children or teenagers are not covered on the primary policy, the author believes a Critical Illness or Long-term Care policy can be a much better use of premium dollars.
Be careful about “common carrier” accident plans. Often sold through financial institutions and membership organizations, the policy pays if you are injured in a PUBLIC bus, airplane, etc. The odds of this happening are very low, and “common carrier accident insurance” is one of the most overpriced and profitable type of insurance sold. People often think they have an accident policy, but closer inspection uncovers this restrictive language.
Health Savings Accounts (HSA)
How would you like to have a tax deductible, tax free account to pay for out of pocket medical expenses? If you’re under 65 and not on Medicare, and have an HSA eligible plan, you can opt to open one. Wells Fargo, Vanguard, Desert Schools Credit Union, and many other financial institutions offer them. Money placed into the account is tax deductible, and what you do not spend each year rolls over to the following year where a new contribution can be made in the amount you choose – up to $3350 for individuals and $6650 for families – plus an additional $1000 if one is over 55.
You can pay dental expenses from this account, as well as prescriptions, glasses, doctor visits, labs and tests, and much more, including long-term care insurance premiums! When compared to the cost of a traditional co-pay plan, a lower cost high deductible plan combined with a Health Savings account can make a lot of sense. High deductible HSA qualified health plans are alive and well under the new Affordable Care Act. Be sure your policy is HSA qualified and in place before you open the account.
Insurance is one of the least exciting topics on earth. It’s dry and often cumbersome; however, it’s well worth our time and energy to understand our health insurance gaps, and the supplemental options that may exist to fill them. Go slow and understand the fine print, since a word or two here or there in the policy definitions, can make a huge difference at claim time.
Tom Russell is an independent health and life insurance broker, serving the Rim Country for 22 years. www.TomRUSSELLinsurance.com (928) 474.1233