Getting to Know a Precious Alternative –
Long Term Care Insurance
by Patrice S. Goldfarb
Long term care expenditures are expected to multiply as the elderly population grows, an estimated 73% in the next 30 years (The Urban Institute). It is one of the most threatening issues for our aging population.
Medicaid, originally designed to help low-income families meet acute care needs, has become the mainstay public public program for long-term care assistance. Currently, more than half of Medicaid’s expenditures are for this care. Our government cannot continue to fund this bill and had passed legislation to encourage individuals to purchase long term care insurance policies. All retirement planning should include a discussion about long term care.
Where does long term care insurance belong in the estate plan?
The purpose of long term care insurance is to protect assets
With people living longer than ever before, the demand for health care - including long term care - will
significantly INCREASE
According to a Harvard Medical School study, half the single people over age 75 used all their savings and assets in just over three months after entering a nursing home. 50% of all couples and 70% of single persons are impoverished within one year of entering a nursing home
The national average cost is $100/day for a nursing home. In the New York/New Jersey area the average cost is $200 to $300/day. This translates to paying more than $200,000 for the average 2 1/2 year stay. For most people, paying these expenses out-of-pocket for an extended period of time can mean financial devastation. It can wipe out dollars that have been saved for retirement.
Medicare and Medicaid do not pay sufficient benefits to cover costs
Who Pays for Long Term Care:
Medicare - 12.3%
Private Insurance - 5.5%
Personal Savings - 40.6%
Medicaid - 47.6% (after spend down)
What is Long Term Care?
This is the type of day-in, day-out care required if you have a serious long-term illness or disability.
It is a continuum of care ranging from home health care and adult day care to nursing home care. It also includes respite care (which gives family members a break from caring for older persons at home); aid or chore services and assisted living facilities.
It is care provided by another party for the benefit of someone who is unable to care for himself
This is care that is not covered by health insurance policies, Medicare or Medicare Supplements.
The Facts: Our Aging Population
In 1960 there were 1 million citizens in the U.S. Over age 85. In 1980 there were 3 million. By 2030 it is anticipated that there will be 10 million and by 2050 it will be 15.3 million
Every 7.5 seconds one person will turn 50
Every 6 seconds someone in the U.S. turns 80
By the year 2000, 12% of the population will be over age 65. That’s about 35million
The fastest segment of our population are women over age 85
Men who are 65 in the year 2000 are likely to live another 16 years. Women will survive another 21 years.
32 Million people are aged 65 and over. This number is projected to double in the next 50 years
With people living longer than ever before, the demand for health care - including long term care - will significantly INCREASE
The Facts: The Likelihood of Needing Long Term Care
43% of individuals age 65 will enter a nursing home sometime in their lifetime.
While the average stay is 2.5 years,
1 in 3 will spend 3 months or more in a nursing home
1 in 4 will spend one year or more
Approximately 1 in 11 will spend 5 years or more
The family structure has changed. Children are not taking pare
nts in to live with them. Families live in different states....
70% of people who are older than 65 will need long term care services and the risk increases with age
The lifetime risk of entering a nursing home is between 20% and 40%
For every person receiving care in a nursing home, there are four people receiving care outside a facility.
The Facts: Financial
According to a Harvard Medical School study, half the single people over age 75 used all their savings and assets in just over three months after entering a nursing home. 50% of all couples and 70% of single persons are impoverished within one year of entering a nursing home
The national average cost is $100/day for a nursing home. In the New York/New Jersey area the average cost is $200 to $300/day. This translates to paying more than $200,000 for the average 2 1/2 year stay. For most people, paying these expenses out-of-pocket for an extended period of time can mean financial devastation. It can wipe out dollars that have been saved for retirement.
Medicare and Medicaid do not pay sufficient benefits to cover costs
Who Pays for Long Term Care:
Medicare - 12.3%
Private Insurance - 5.5%
Personal Savings - 40.6%
Medicaid - 47.6% (after spend down)
The annual cost to companies for lost productivity from eldercare responsibilities is $17 billion per year or $3,142 per employee
The impact on caregivers own lives is substantial:
33% miss work sometimes
33% are late for work or leave early
45% use their own vacation or sick days to provide care
33% are less productive when they are on the job
12.
5% give up their jobs entirely
MEDICAID SPEND DOWN GUIDE:
SINGLE INDIVIDUALS
"Spent Down” before you are eligible for Medicaid assistance. Here are some important exemptions:
- Home: regardless of income
- Automobile: one automobile valued at no more than$4,500
- Personal Belongings: household goods and other personal items
- Wedding Ring: one wedding ring and one engagement ring, regardless of value
- Property: up to $6,000 equity in personal and real property, if essential for support
- Life Insurance: cash surrender value up to $1,500
- Assets: about $2,000
- Burial Costs: funeral and burial plots up to $1,500
- Personal Needs: allowance is $35 to $70 per month, spent for personal expenses are not covered by Medicaid
- Home Maintenance: allowance of about $2,000 per month
*figures are periodically adjusted for inflation
MARRIED COUPLES, WHEN ONE SPOUSE ENTERS A NURSING HOME
- Under the Assets Limitations Standard, almost all of an individual’s assets must be “Spent Down” before the individual is eligible for Medicaid assistance. The following are exemptions::
- Assets: half the couple’s combined assets up to $76,740
- Home: regardless of value
- Household: household goods, regardless of value
- Personal: regardless of value
- Automobile: one automobile only, regardless of value
- Property: up to $6,000 in personal and real property if essential for support
- Life Insurance: cash surrender of up to $1,500
- Burial Cost: burial plots and funeral expenses up to $1,500
- Basic Living: allowance for the at-home spouse is up to $1,871 per month including his/her income
- Personal Needs: allowance for the nursing home spouse is $50 per month to be used for medical expenses no covered by Medicaid. The community spouse can keep up to 150% of the federal poverty limit for a couple
*figures are periodically adjusted for inflation
Decisions the Elderly Face
The average person erroneously assumes that if he or she needs long term care Medicare will pay for it. The fact is Medicare does not pay for custodial care. Nor does any Medigap policy
This leaves the elderly with several decisions to make if they are facing a long term care need:
Ask family members for financial support
Use their life savings
Apply for Medicaid (after using all their assets)
Purchase long term care insurance
Viatical settlement if uninsurable
Why Doesn’t Medicaid Pay More?
General eligibility requires impoverishment
Spend down and recoupment requirements
Disinheriting heirs
Impoverishing the community spouse
Individuals must first use their own assets to pay long term care costs
Look back periods for transferring assets
Government can’t afford to assume this financial burden
What Long Term Care Insurance Can Do:
It pays some or all of the cost of home health care or nursing home care
It protects a portion of your accumulated assets
It protects income and assets for your spouse
It reduces reliance on Medicaid
It provides peace of mind
It protects your dignity
What to Look for in a Policy:
- Policy is tax-qualified
- Adequate Benefit Period - minimum of 3 or 4 years, lifetime if cost is not an issue
- Adequate Daily Benefit - is it large enough to cover costs or will assets have to be invaded
- Inflation Protection - 5% compound inflation rider is usually the best buy
- Affordable Waiting Period before Benefits Begin
- Benefit Triggers are Well Defined
- Home Based and Community Based Care are Covered
- Benefits are Paid in Full for all Facilities
- The Policy is Guaranteed Renewable
- Pre-existing conditions disclosed on the application are covered immediately. Those not disclosed are covered after six months
- Premiums are Level
- Waiver of Premium applies to both Nursing Home and Home Health Care
- Provisions for unintentional lapse
- The Carrier is Financially Stable
Types of Long Term Care:
Adult Day Care: Is recreational and/or rehabilitative services provided for persons who benefit from daytime supervision. It is an alternative between care in the home and in an institution. Refers to health support and rehabilitation services provided in the community to people who are unable to care for themselves independently during the day but are able to live at home at night
Alternate Care Facility: A licensed residence other than a skilled nursing facility where care services are delivered (i.e. hospice, assisted living, Alzheimer’s or Christian Science setting)
Assisted Living Facility: A non-medical institution providing room, board, laundry, some forms of personal care and usually recreational services. Licensed by state departments of social services, these facilities exist under several names including domiciliary care facility, sheltered house, board and care home, community-based care facility, residential care facility, etc.
Custodial Care: This type of care is to help people with their daily activities such as dressing, bathing, eating and taking medication. Personnel do not need to be licensed. Medicare does not cover this type of care, however, in most states, Medicaid does if it is based on a doctor’s orders
Home Health Care : Can be a variety to things such as nursing care, occupational t or physical therapy; services of a home health aide, homemakers or social workers
Hospice Care: Is for terminally ill patients who have six months or less to live. It is home or institutionalized care designed to ease the physical and emotional suffering rather than to cure the individual
Intermediate Care: Must be licensed and their rehabilitative care must be based on a doctor's orders or under the supervision of skilled medical personnel. A registered nurse must be on duty during the day shift only. Medicare does not cover this type of care but Medicaid does if the confinement is based on a doctor’s orders.
Respite Care: Is nursing home or home care that temporarily replaces the existing level of support received from an informal, nonpaid caregiver (i.e. family member) for the purpose of providing care and supervision to the patient while relieving the caregiver
Skilled Nursing Care: A registered nurse must be available at all times. Your care must be supervised by a doctor who can review your condition, prescribe medications and advise on special therapy. Medicare will pay for skilled nursing services only in a facility that is approved by Medicare and licensed by the state
LTC insurance premiums are tax deductible as a medical expense (subject to 7.5% adjusted gross income) as follows:
Attained Age Limitation
Less than 40 $ 210
41-50 400
51-60 800
61-70 2,120
More than 70 2,660
Self employed individuals can deduct premiums as they do medical insurance:
1997 40 %
1998-2002 45 %
2003 50 % 2004 60 %
2005 70 %
2006 and later 80 %
LTC insurance benefits received by a claimant will be tax-free (subject to limitations)
LTC expenses not covered by insurance will be tax deductible
Employers who pay LTC premiums on behalf of employees will be entitled to deduct the premium as a business expense
LTC premiums paid by an employer on behalf of an employee will not be treated as income to the employee
If an individual “knowingly and willfully disposes of assets in order...to become eligible for medical assistance that person will be guilty of a felony and upon conviction be fined not more than $25,000 or imprisoned for not more than five years (this has been modified since first being passed)
Patrice S. Goldfarb, President
Creative Benefit Solutions, Inc.
Creative Benefit Solutions, Inc. is an employee benefits consulting organization, specializing in health related issues such as long term care, medical plan design and funding. The company was founded in 1992 and works with attorneys, accountants, insurance agents, and individuals
Patrice S. Goldfarb, founder and President, has over 15 years of experience in the employee benefits and long term care planning arena. She works extensively with business owners, professionals, non-profits and corporations. She has specialized in long term care insurance for the last 10 years.
Ms. Goldfarb has published articles in association journals and has conducted seminars for accounting firms, bar associations and financial services organizations on topics such as: “The Myths and Realities of Long Term Care“, Issues to Consider in Choosing the Right Health Plan”; “Long Term Care Insurance Design and Planning” and “International Health Insurance Issues”. She is a certified instructor for the Life Underwriters Training Council and the New York State Department of Insurance. She is a former President of the New York City chapter of Women’s Life Underwriter’s Confederation and has sat on the board of the New York City chapter of the National Association of Life Underwriters.
Patti can be reached at (212) 536-6177
