Rutgers New Jersey Agricultural Experiment Station [Later Life Farming]

Module 7b: Health Insurance and Long-Term Care

Adequate insurance in retirement for health and long-term care expenses can help make your savings last. A 2008 study conducted by the Charles Schwab Corporation found that retirees' biggest worry about retirement security was non-covered medical expenses, followed by lack of savings and fear of outliving savings. Retired farm families, especially, need to plan for health care coverage in retirement because you are often totally "on your own" without any financial support from an employer. In addition, like all older Americans, farmers need to consider how to cover potentially large long-term care (LTC) expenses and whether LTC insurance is a wise buy.

Many people make health and long-term care insurance decisions in their 50s and 60s. The availability and cost of health insurance is a key factor when retiring prior to eligibility for Medicare. Medicare covers people age 65 and over and those under 65 with specific disabilities or permanent kidney failure. Many beneficiaries also purchase supplemental (Medigap) policies to pay expenses that Medicare doesn't cover. Medicare coverage consists of four distinct components:

  • Part A covers inpatient hospital services. It is premium-free for most Medicare beneficiaries because it is paid for by payroll/self-employment taxes collected from those currently working.
  • Part B includes physician services, outpatient health care, home health services, preventative screening exams, physical therapy, laboratory tests, X-rays, mental health services, and durable medical equipment. A monthly premium, which is adjusted annually for inflation, is charged based on a participant's modified adjusted gross income.
  • Part C (Medicare Advantage) provides hospital and medical coverage in a managed care plan format (e.g., health maintenance organizations and preferred provider organizations).
  • Part D is a voluntary outpatient prescription drug benefit offered by private insurance plans that meet Medicare standards. Beneficiaries pay a monthly premium, a yearly deductible, and part of the cost of prescriptions (i.e., co-payments). Part D options include stand-alone prescription drug plans and drug coverage available through Medicare Advantage plans.

With longer average life expectancies, the cost of long-term care is a major financial risk. The term "long-term care" refers to a wide range of services including assistance at home with daily activities to care in a nursing home. The risk of long-term care can be dealt with in three ways: retain it (self-insuring if you have a high net worth), avoid it (trying to stay healthy but, unfortunately, there are no guarantees that this will preclude needing care in the future), or transfer it (i.e., paying an insurance company to handle the risk). The best time to buy a policy is generally age 55 to 60. If you wait too long, premiums increase significantly and/or you could become uninsurable through some type of medical diagnosis. Premiums are lower in your 40s or early 50s but you could be paying them for a long time before coverage is needed.

Nearly half of all Americans will need long-term care at some point in their life. Those most at risk are single, female, have no available support system living within 25 miles, and have had frequent falls and bone fractures, serious heart or lung problems, or a stroke. Key features in the selection of a long-term care policy include the amount of daily coverage, the length of coverage (e.g., 3 years versus lifetime benefits), the types of benefits (e.g., home health care), and the elimination (waiting) period. Also, the method of making inflation adjustments and the number of activities of living (ADLs) that cannot be performed in order to qualify for benefits.

Long-Term Care Insurance Policy Comparison Worksheet

Use the worksheet below to list the cost and features of three different long-term care (LTC) insurance policies. Then compare the three providers to determine the best policy for you.

LTC Policy Feature

LTC Policy Provider #1

LTC Policy Provider #2

LTC Policy Provider #3

Services covered (e.g., home care, adult day care, custodial care, etc.)

 

 

 

Amount of daily benefit

 

 

 

Length of coverage

 

 

 

Elimination period

 

 

 

Inflation adjustment

 

 

 

Requirement for coverage (e.g., number of ADLs)

 

 

 

 

Additional features (e.g., premium waiver after 90 days of coverage)

 

 

 

Annual/monthly cost

 

 

 

For information and assistance with pricing Medicare supplement and LTC insurance policies, contact an independent insurance agent or a large carrier like Blue Cross/Blue Shield. Another helpful resource is the State Health Insurance Assistance Program or SHIP office. SHIP offices are available nationwide. Practice "The Rule of Three" by comparing at least three insurance policies with identical features (e.g., 3-year LTC insurance policies with a $180 daily benefit, 5% compound inflation rider, and 90-day elimination period). Also look for providers with high marks (A--, A-, or A) for financial stability from insurance company rating services such as A.M. Best (www.ambest.com) or Standard and Poor's Insurance Rating Service (www.standardandpoors.com).

Online Resources

Useful Links

-----