As I talk with families and financial advisors about continuing care retirement communities, or CCRCs, we often get asked about how long-term care insurance fits into the picture and whether such coverage is needed by those who move into a CCRC.
The continuum of care provided by CCRCs (i.e. supporting independent living, assisted living and/or skilled nursing care all on one campus) provides a means for easy access to long-term care services. In fact, most CCRCs contractually guarantee that their residents who are independent today will be provided the appropriate level of care as their needs progress. Yet, just because the community provides a means of easy access to long-term care services does not mean there isn’t a cost for these services and thus the potential need for long-term care insurance to cover these costs.
There are a number of different types of contracts offered by CCRCs. Ultimately it is the type of contract offered that dictates how a resident will pay for long-term care services and whether there is a need for the resident to maintain long-term care insurance.
There is only one type of contract where it could reasonably be said that a resident of a community offering such a contract may not need to maintain long-term care insurance. The type of contract I am referring to is known within the industry as a “Type-A” contract, though it is often referred to as an “extensive” or “full life-care” contract. Residents of retirement communities offering a Type-A contract effectively pre-pay for all of their future care services through the payment of an entry fee and possibly some portion of their monthly service fee. In theory, such a resident would not pay any additional cost when the time comes that they require care services.
Of course, there are exceptions to every rule and it shouldn’t be taken as a blanket statement that residents of CCRCs offering Type-A contracts do not need to maintain long-term care insurance. Here are a few of the reasons:
- The CCRC may provide your care at no additional cost for a semi-private room only. Suppose, for example, you prefer a private room and it is an additional $1,500 per month out of pocket to receive care in a private room. A long-term care insurance policy may cover this additional cost.
- The type of insurance coverage you own could impact the value of such coverage in a Type-A community. For example, a reimbursement policy- which reimburses for expenses up to your policy limits- may not have any impact because under a Type-A contract there are no additional expenses in which to reimburse. However, a cash or “indemnity” insurance plan is not designed around a reimbursement model. Instead, it pays a flat dollar amount when you meet the qualifying triggers for a long-term care claim. (Following any applicable elimination period.) The cash benefit paid by this type of policy may be used to offset your basic monthly service fee or any additional peripheral services. Talk with your insurance carrier and the CCRC for more details about this.
- Suppose you move into a CCRC, drop your long-term care insurance coverage, and later decide that a CCRC is not a good fit for you. In this case you have lost valuable coverage that could have later been used to potentially cover hundreds of thousands of dollars of care in a separate, stand-alone care facility.
Next week I will cover a few examples of how long-term care insurance could have an impact in continuing care retirement communities offering contract types other than Type-A.
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