Home Health Care
Consider Insurance Options
There are a number of options under the broad umbrella of insurance that may be available to help consumers pay for home health care.
Life Insurance
Those who own life insurance policies can consider a number of ways to use or convert them to help pay for home health care. These arrangements may be the most fitting for those who have been diagnosed as terminally ill but intend to receive care at home, since most insurance companies will require that a policyholder must be diagnosed with a life expectancy of a few years or less to exercise these options.
Accelerated death benefits. Check the existing policy or consult the insurance agent or company to see whether it includes a life benefit or accelerated death benefit (ADB) provision. Such provisions, often found in the fine print of a rider or endorsement, may allow the policyholder to collect from 25% to 100% of the death benefit in an early payment, either in a lump sum or monthly allotments. They usually pay 50% to 80% of the policy’s face value and require a life expectancy of 24 months or less.
Secured loans. Even if a life insurance policy does not have an ADB option, it may be possible to negotiate a loan secured by the future benefits.
Cashing out. In some cases, it may be possible and prudent to instruct the insurance company to simply cash out the policy, and take the amount of its current surrender value.
Viatical settlements. These allow the insured to sell a policy to a company that will pay a percentage of its face value in a lump sum in exchange for the right to collect the balance at death. But beware that the amount paid in a conversion or viatical exchange will be significantly less than the face value of the policy — commonly, between 50% and 85%, depending on the policyholder’s life expectancy. Again, this may be the most fitting option for those who have been diagnosed with a terminal disease, since most companies will require an estimated life expectancy of 36 months or less.
Also, few policyholders who are likely to require care for an extended period, this action has additional drawbacks. The amount received from selling the insurance policy will be counted as an asset when applying for Medi-Cal, preventing some people from qualifying for benefits.
In addition, the beneficiary who was named in the policy will no longer get the proceeds — often a huge concern when the beneficiary is likely to be dependent on the future funds.
To prevent fraud against especially vulnerable consumers, California imposes some of the toughest legal controls on viatical settlements, requiring all those dealing in them to be specially licensed. Check the California Department of Insurance's list of licensed companies and brokers.
For more information on using insurance proceeds to pay for home health care, contact the California Department of Insurance. They operate a consumer hotline at 800-927-4357.
Annuities
An annuity, a type of a hybrid between insurance and an investment, is a contract in which an insurance company promises to make a series of payments to an insured who pays a premium. Basically, it functions as a savings account, with the insurance company as the bank. Within that simple definition, there are a dizzying number of variations — and because of that, annuities can be risky for those who don’t fully understand their clauses and conditions. In some arrangements, survivors can be designated to receive income after the insured’s death.
Annuities come in two types:
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Deferred annuities, by far the most common type, hold the premium payments to accumulate interest for a number of years until periodic payments are made. A potential advantage for some people is that income tax on the money is not due until distributions are received. Some deferred annuities are fixed, guaranteeing a minimum interest rate. Others are variable, allowing the insured to direct the investments among various accounts such as stocks, bonds, or money markets.
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Immediate annuities are paid for in a lump sum premium — and the insurance company begins paying periodic payments at once.
While annuities are just one of a myriad types of investment options, they come with some type of insurance attached — and some contain long term care riders meant to appeal to those who need to finance nursing home costs. For example, if one spouse in a married couple needs Medi-Cal-covered long term care, an immediate annuity may allow the couple to turn their excess assets into income for the Medi-Cal recipient’s spouse.
Possible drawbacks. Many annuities contain surrender charges — payments tacked on for withdrawing money within a period after purchase, usually six or eight years, but sometimes as long as ten years. This may make them a poor choice for seriously ill or older people who wish to use them as a source of paying for care, since immediate care costs can quickly mount and their longer term needs are likely to be uncertain. As added protection, California law requires that annuity contracts sold to seniors must contain a disclosure about the surrender charge period.
For more information about possible pitfalls of annuities, along with a synopsis of California laws controlling them, see Annuity Truth — The Truth About Purchasing Annuities for Older Americans.
Also see “What Seniors Need to Know About Annuities” by the California Department of Insurance and
“Variable Annuities — What You Should Know” by the U.S. Securities and Exchange Commission.
Long Term Care Insurance
Private long term care insurance can help cover the costs of home health care. Policies usually require paying a monthly premium based on the individual’s age and health condition when purchased — and payments begin only after a waiting period or when the company considers that the care is needed according to the rules set out in each policy. Many of these policies pay only for short term care, and are used to supplement Medicare coverage.
Warnings about coverage. In California, long term care policies must be labeled according to the type of benefits that will be paid. When searching for home health care coverage, make sure the policy clearly indicates it is either “Home Care Only” or “Comprehensive” — which means it will pay benefits in a nursing home, assisted living facility — and may help pay for some types of home and adult day care, too. Those identified as “Nursing Facility and Residential Care Facility Only” will not cover care received at home.
Importantly, many companies require that an insured must be in relatively good health before they will issue a long term care policy. Those who are in poor health or already contemplating the need for more extensive care will not be good candidates for such coverage.
Because of potential complications and limitations in this coverage, it is especially important to proceed carefully when purchasing it. If you have been dealing with an insurance agent you trust, consult him or her — or ask for referrals from friends and associates who have had satisfactory experiences in finding coverage.
For more information and help with understanding and comparing insurance policies, contact the local Health Insurance Counseling and Advocacy Program (HICAP).
To learn about policies and benefits and a premium history of each company that sells long term care insurance in California, see “The Long-Term Care Rate and History Guide” by the California Department of Insurance.
