The Limits of Home Care
-Reprinted from Broker World / June 1999
Today long-term care plays out in generally three venues - the nursing
home, the assisted living facility, and the home.
It is the home setting that has attracted so much more attention in recent years. This is the result of limits in facility space and the obvious emotional component for those in need of care to receive it in familiar surroundings. Those of us in the long-term care business are keenly aware of this option’s appeal and the fact isn’t lost on the companies designing and marketing long term care contracts. Seminar speakers and other luminaries in the area of extended care coverage frequently proselytize the virtues of home care. This option, when emphasized, enhances the marketing of the long-term care contract, It is pointed out routinely that older and infirm individuals do not want to leave their homes for a facility. This is no doubt true. The experts almost always promote selling a long-term care contract with a 100 percent home care option, when there is a choice. This promotion has much to do with meeting the emotional desire of the client, thus making this product more palatable for purchase. It has become an insurance industry mantra that the home care benefit can actually keep one out of a long-term care facility. The problem with this logic is it often wrong if applied as a general rule.
At best, home care is an adjunct to an already existing family caregiving network. Network means more than one individual providing the care. Since the average purchase age of a long-term care contract is 64, it is likely that a well spouse will be the sole caregiver for a disabled spouse. Often the express reason for purchasing these contracts is not to be a burden either to on the kids or the spouse. Unfortunately there exists a dissonance between the stated desire and the actual reality if the individual needs care and desires it at home. The 100 percent home care option is a plan choice that best meets the needs of working age adults who become disabled. It allows this group of individuals to stay at home and maintain contact with their growing children. In addition, it can provide approximately eight hours of release for a well spouse to meet other obligations that may include work.
For the older, retired individual or couple the 100 percent home care option may be inappropriate, as well as a misapplication of premium dollars. If full access to the daily benefit is promoted to provide eight hours or more of care at home, the plan may have the very opposite effect than intended. Instead of assisting a well spouse it may actually be a burden.
Older disabled individuals needing eight hours of care or supervision rarely need less than 24. By providing the option of eight hours of home care, the well spouse is encouraged to make an effort to keep the disabled spouse under his/her direct charge for the remainder of the hours left in a day. A good example of this burden is sleep time, which does not render a guarantee of respite in that continence and toileting requirements know no set hours.
In addition, aid in
this activity presents a special challenge for the older caregiver, especially
as that caregiver ages. For younger, more vigorous caregivers, assisting a mate
to the bathroom at
Providing care in the last third of life is rarely thought through, either by the agent or the prospect. Most well underwritten contracts sold to people in their lower sixties will not see claims for 10 to 20 years when the claimants are in their mid- seventies or eighties. The ability to cope with caregiving at these ages is greatly diminished; thus the value of full access to home care benefits is diminished as well. It is a poor fit for older purchasers except in conditions where close extended family support is absolutely assured.
Understood in this
light, the cost of purchasing the 100 percent home care option, especially
on the integrated pool product, reflects a poor value. The real risk to most
of these purchasers is the shrinking purchasing power of their contracts over
time because of inflation. In the integrated product the 100 percent access
to home care does not add dime one
to the pool. This fact, when combined with the fact that over time
the 5 percent compound inflation fighter will not hold the margin of risk
to the client, indicates a different priority.
The real emphasis for seniors over 60 should be placed on increasing the daily amount. At a five percent compound increase of the daily amount, most plans are adequate to meet current and near term costs of care. This represents sufficient protection when the risk is lowest.
The real costs at probable time of claim, which may be 10 to 20 years out, extend by percentage well beyond the understood plan protection level agreed upon the day of the purchase. The wiser use of premium dollars for the retired, older purchaser would be to take the additional premium and buy a higher daily.
As an example, a 100 percent access to home care instead of a 50 percent access costs, on average, an additional 10 to 15 dollars per 10 dollars of purchased benefits per day. On a $100 a day plan the annualized difference averages $125 a year. This $125 is better spent toward the goal of increasing the daily to $120 with a 50% percent home care access. This approach enlarges the pool by $21,900 immediately. In 20 years the 5 percent compound inflation fighter increases the value to $55,330. Here are real tangible benefits at the most likely time of use, especially for women. This construction is only modestly higher in cost from the lower daily amount with the 100 percent access.
With the 50 percent access to $120 per day you have $60 available for homemaker or home aid services. This will provide an average of four hours per day that is more in line with the reported average home care plan anyway. Let’s not forget the reciprocal agreements many of these long-term care carriers have with home care agencies. These same services can be purchased at up to a 30% discount off their standard rates using the recommended home care agency; thus moving the purchasing power of $60 a day closer to $78 a day at no extra cost.
In short, buying additional access to bought and paid for benefits is not a great deal. The best feature of the 100% option is that it allows the older purchaser the choice of not spending his or her money on such a plan feature. This group of clients can then conscientiously purchase lower level access and use the saved dollars to increase the daily amount, which represents real worth.
Carroll Busher REBC RHU CBC