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HEALTH INSURANCE: Basic Information
1) What kinds of health insurance are there?
There are essentially two kinds of heath insurance: Fee-for-Service and Managed Care. Although these plans differ, they both cover an array of medical, surgical and hospital expenses. Most cover prescription drugs and some also offer dental coverage.
a. Fee-for-Service
These plans generally assume that the medical professional will be paid a fee for each service provided to the patient. Patients are seen by a doctor of their choice and the claim is filed by either the medical provider or the patient.
b. Managed Care
More than half of all Americans have some kind of managed-care plan. Various plans work differently and can include: health maintenance organizations (HM0s), preferred provider organizations (PPOs) and point-of-service (POS) plans. These plans provide comprehensive health services to their members and offer financial incentives to patients who use the providers in the plan.
2) How do I pick a health plan?
If your employer gives you a choice of plans or you need to purchase your own coverage, it is crucial that you understand your health insurance choices and pick the insurance that is best for you and your family.
Here are some questions you should ask yourself when choosing a health insurance plan:
a. How affordable is the cost of care?
* What is the monthly premium I will have to pay?
* Should I try to insure most of my medical expenses or just the large ones?
* What deductibles will I have to pay out-of-pocket before insurance starts to reimburse me?
* After I've met my deductible, what percentage of my medical expenses are reimbursed?
* How much less am I reimbursed if I use doctors outside the insurance company's network
b. Does the insurance plan cover the services I am likely to use?
* Are the doctors, hospitals, laboratories and other medical providers that I use in the insurance company's network?
* If I want to use a doctor outside the network, will the plan permit it?
* How easily can I change primary-care physicians if I want to?
* Do I need to get permission before I see a medical specialist?
* What are the procedures for getting care and being reimbursed in an emergency situation, both at home or out of town?
* If I have a preexisting medical condition, will the plan cover it?
* If I have a chronic condition such as asthma, cancer, AIDS or alcoholism, how will the plan treat it?
* Are the prescription medicines that I use covered by the plan?
* Does the plan reimburse alternative medical therapies such as acupuncture or chiropractic treatment?
* Does the plan cover the costs of delivering a baby?
c. What is the quality of the insurance plan I'm looking at?
* How many patient complaints were filed against the plan last year and how many were upheld by state regulatory agencies like the state insurance commission or the state medical licensing board?
* How many members drop out of the plan each year? State insurance departments keep track of "disenrollment rates."
* Do the doctors, pharmacies and other services in the plans offer convenient times and locations?
* Does the plan pay for preventive health care such as diet and exercise advice, immunizations and health screenings?
* What do my friends and colleagues say about their experiences with the plan?
* What does my doctor say about his or her experience with the plan?
3) Can I buy an individual policy?
Yes. If you are unemployed, self-employed, or decide to return to school you may want to buy an individual health insurance policy.
Here are a number of options that you may consider:
a. Ask your insurance company if you can convert its group policy to an individual policy. You will pay a higher rate than you did before and your benefits may be limited, but the terms will still probably be better than if you buy your own policy.
b. If you are married, see if your spouse's employer will add you to its group plan.
c. Try to join a group health plan through a trade association or alumni group or professional association may offer reasonable rates. If you are over age 50, you can join the American Association of Retired Persons (AARP), which offers an extensive plan. Even some credit card companies offer health insurance coverage.
d. As a last resort, you can buy an individual policy. The rates will be high and coverage limited, but it is important that you be protected against financial catastrophe if you or your family are hit with a major illness or injury. If you are self-employed, most of the health insurance premium will be tax-deductible.
4) If I change jobs or become unemployed, can I bring my coverage with me?
If you switch employers, you have the right to carry your group health insurance coverage with you to a new job for up to 18 . You must pay the full premium, but at group rates that are far cheaper than the individual rates you would pay for similar coverage. Health insurance under COBRA is available if you are in the following situations:
a. You leave a company and become unemployed or self-employed for up to 18 months.
b. You are a widow or widower or child of an employee who dies while working for the same company for three years or more.
c. You are the divorced spouse or child of an employee who has left the company he or she was employed at for at least three years.
d. You are the child of an employee who left a job and have not yet reached age 23.
Long Term Care Insurance: Because of old age, mental or physical illness, or injury, some people find themselves in need of help with eating, bathing, dressing, and other physical activities. Long-term care insurance can help pay for such care in the future, in the event you are faced with the need for such assistance. The information below can help you understand some of the issues to consider when deciding on a long-term care insurance policy.
5) What is 'long-term care'?
Because of old age, mental or physical illness, or injury, some people find themselves in need of help with eating, bathing, dressing, toileting or continence, and/or transferring (e.g., getting out of a chair or out of bed). These six actions are called Activities of Daily Living-sometimes referred to as ADLs. In general, if you can't do two or more of these activities, or if you have a cognitive impairment, you are said to need "long-term care."
Long-term care isn't a very helpful name for this type of situation because, for one thing, it might not last for a long time. Some people who need ADL services might need them only for a few months or less.
Many people think that long-term care is provided exclusively in a nursing home. It can be, but it can also be provided in an adult day care center, an assisted living facility, or at home.
Assistance with ADLs, called "custodial care," may be provided in the same place as (and therefore is sometimes confused with) "skilled care." Skilled care means medical, nursing, or rehabilitative services, including help taking medicine, undergoing testing (e.g. blood pressure), or other similar services. This distinction is important because Medicare and most private health insurance pays only for skilled care-not custodial care.
6) Should I buy long-term care insurance?
If you need long-term care services and have to pay to obtain them, what financial resources could you call on? Do you have enough to pay for four or more years in a nursing home, an assisted living facility, or home health care?
If you're over 65, don't rely on Medicare or private health insurance. Medicare doesn't pay for custodial care, and private health insurance rarely pays any of the cost of long-term care. If you expect to have very little money when you need long-term care services, you might qualify for Medicaid, a government program that pays the medical and long-term care expenses of poor people. If you expect to be in that situation, you probably shouldn't buy long-term care insurance, because your state's Medicaid program will pay your long-term care expenses. Buying long-term care insurance would only save the state-not you-money. If you expect to have a lot of money when you need long-term care services, you also probably shouldn't buy long-term care insurance. Instead, you should plan to pay for the care "out of pocket"-that is, as a regular expense. One financial advisor suggested in a newspaper interview that if your net worth is in the $1.5 million range, not including the value of your home, you could safely skip buying long-term care insurance and treat long-term care expenses, if they arise, as you do your other bills.
If you fall in-between these two categories, owning long-term care insurance, like all other insurance coverages, offers peace-of-mind benefits as well as financial ones. For example, a recent survey of people age 50 and over asked how confident they were that they could pay for long-term care services if they needed them. Among those with long-term care policies, 52 percent said they were very confident and another 40 percent said they were somewhat confident. Among those who didn't own a long-term care policy, only 8 percent were very confident and only 27 percent were somewhat confident.
But if you're under 85-and especially if you're under 65-that doesn't mean you should ignore the topic of long-term care insurance because
* You might already be unable to buy long-term care insurance. Wakely Consulting Group, an actuarial firm, studied applicants for long-term care insurance in 2003-2004; the findings: 11 percent of applicants in their 50s, 19 percent in their 60s and 43 percent in their 70s were rejected.
* The latest data from the National center for Health Statistics (for 1999) reported that roughly 160,000 of the people living in nursing homes were under age 65 (nearly 10 percent of the total). Of those receiving home health care services, roughly 400,000 were under 65 (about 30 percent of the total).
So, unless you have so little money that you will qualify for Medicaid, or so much money that you can pay the bills out of your own pocket, you should consider buying long-term care insurance.
7) How much does long-term care cost?
The fact that you might need long-term care doesn't mean that you have to pay someone to provide it. Many people who need help get it for free from a relative or friend, usually at home. In a recent survey of people over 50, roughly 90 percent said they expect to be the primary caregiver if their spouse or partner needs long-term care. But even unpaid caregivers need a break from time to time, or have full- or part-time jobs that prevent them from care giving throughout the day. If you do pay someone to provide assistance with ADLs, the cost of long-term care depends on three factors - the general level of charges in your part of the country, the specific expense rate for the services you need, and how long the need for care lasts.
Finally, don't forget that long-term care costs, like most health care costs, are rising faster than the general rate of inflation. The bottom line? A four-year-or-longer stay in a nursing home could cost $200,000 to $450,000 or more (in today's dollars). If you can't pay this out of your own pocket and aren't poor enough to qualify for Medicaid, you should consider buying long-term care insurance.
8) What's the best age to buy long-term care insurance?
In general, it's a good idea to buy long-term care insurance before you're 60, for two reasons:
a. The younger you are, the less likely it is that you'll be rejected when you apply for the policy. If you apply in your 50s, there's a one in ten chance you'll be rejected. If you apply in your 60s, the chance of rejection is two in ten. If you apply in your 70s, the chance of rejection is four in ten.
The younger you are, the lower the premium will be for a given set of benefits and features. Once the premium is set, it stays at that amount for the life of the policy, unless the claims for the group of people who have bought that type of policy require that rates for the group be raised
9) What features of long-term care policies should I focus on?
There are various questions and issues to keep in mind when choosing a long-term care policy.
a. Where may care occur?
The best policies pay for care in a nursing home, assisted living facility, or at home. Benefits are typically expressed in daily amounts, with a lifetime maximum. Some policies pay half as much per day for at-home care as for nursing home care. Others pay the same amount, or have a "pool of benefits" that can be used as needed.
10) How can I save on long-term care insurance?
The tips below will help you save money wisely, but don't rely on price alone.
MOST IMPORTANT: Because you may not collect for decades to come, be sure to buy from a company that has been around for some time and is financially stable. You may want to look up, from an independent rating agency, the financial strength ratings of a company you're considering.
GENERAL GUIDELINE: Keep the premium for your long-term care insurance policy to 7 percent of your income, or less. For example, if your monthly income is $4,000, the long-term care insurance premium should not be more than $280 per month. (This is what the National Association of Insurance Commissioners recommends in its Model Regulation for Long-Term Care Insurance.) Another expert advises that the income to use in this calculation isn't your current income, but your expected income in retirement, since that's the income from which you'll be paying premiums for most of the policy's existence.
Other ways of saving:
* Find out if long-term care benefits are available through a group policy from your employer. Employers might subsidize the cost, lowering what you must pay.
* Check whether you can add long-term care benefits as a rider on an existing life insurance or annuity policy. These combination arrangements can save because the insurance company gains operational savings that it can pass along to you.
* Buy a policy with the longest waiting period you can afford. For example, choosing a 90-day period instead of a 30-day period can cut the premium by 30%. However, if you do need long-term care services, you should save some money to pay these costs until the waiting period ends.
* If both spouses of a married couple are considering buying long-term care policies, look into buying one joint policy for both of you. Such a policy pays when either one needs care and can pay for both, if necessary, up to its benefit limits.
* If you're still looking to trim the premium further, consider buying a policy that will pay most, but not all, of the average nursing home costs in your area. For example, if a nursing home room now costs $120 per day, buy a policy that pays $100 per day. However, be sure to buy an inflation-protection provision.
Check with several companies and agents, comparing both benefits and costs. As with other types of insurance (and many other purchases), comparison shopping can save you money. Just be sure you're comparing policies with similar provisions and companies with comparable financial strength and service records.
11) Should I invest the amount I would pay in long-term care insurance premiums instead of buying long-term care insurance?
If you're under 55, you might think that, since the likelihood of long-term care outlays is many years in the future, you could invest the money you might otherwise spend for long-term care insurance premiums. That way, if you do need long-term care, you could just draw upon that investment, and if not, you'd have money for your heirs, for a charitable donation, or for your own needs.
But this strategy leaves you vulnerable if you need long-term care services in your late 50s, 60s, or early 70s. And it might also leave you vulnerable if you need these services for a This figure is not intended to represent the premium for a long-term care policy for a 55-year-old, because premiums vary considerably depending on the daily benefit amount, length of benefit period, length of waiting period, and inflation and other policy features. It only shows how the overall analysis might work.
12) What are 'Partnership for Long-Term Care' programs?
Long time, even if you don't need assistance until you're in your 80s. Here's why:
* Assume you're 55 and won't need long-term care for 30 years, when you're 85.
* Assume you save $2,000 per year,(1) that you invest the savings, and that your investment grows at 5 percent per year, net after taxes.
After 30 years, your savings will have grown to $139,500.
* Assume today's monthly cost of nursing home care grows, due to inflation, by 5 percent per year, from $7,000 per month now to $28,800 per month in the future.
* At that time-that is, when you're 85-if all these assumptions come true, your savings would be able to pay for less than three months of nursing home care; if you need more money-say, because the cost of services for long-term care grew faster than 5 percent per year or your investments earned less than 5 percent net after taxes-you'd have to liquidate other assets that you hadn't planned to liquidate, if you have them.
It's possible that you'll save more than $1,000 per year, or earn more than 5 percent net after taxes, or that the cost of long-term-care services will rise more slowly than 5 percent per year, or that two or more of these things will happen. In that case, if you need long-term care services for the first time after age 85, you would be able to pay for more than the example above shows.
Of course, it's possible that you'll never need long-term care services, or that if you do need them, you'll need them only for a month or two. In that case, a long-term care policy won't help. For most other scenarios, it's probably a prudent buy. Medicaid is a state-government-administered program that pays the medical and long-term care expenses of poor people. If you have more money than your state permits when you need long-term care services, your state's Medicaid won't pay for those services. You'll have to spend your own money-including using up your assets-until you become poor enough to qualify.
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