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Long-term care is provided for you when you cannot perform some of the daily activities that we all take for granted. For instance, when we wake up in the morning, we get out of bed, go to the bathroom, take a shower, get dressed, and eat breakfast. Those functions are considered activities of daily living. If it is determined by your physician that you need help with two out of six of the activities of daily living, long-term care would be needed. You may be fine physically, but have difficulty with your short-term memory, or are easily confused. When you can no longer live safely on your own, long-term care will be provided.
It may surprise you to know that long-term care is not just provided for the frail elderly in nursing homes. The chart below illustrates that 40% of those who are currently receiving long-term care are between the ages of 18 and 64! This is due to lifestyle accidents, such as skiing accidents or automobile crashes (head injuries are common). Many people who receive long-term care stay at home or take advantage of community based services.
57% Elderly
40% Working Age Adults
3% Children
(Source US General Accounting Office, Long Term Care Issues and Future Directions, April 1995
Nursing Home Care is 24 hour a day care provided in an institutional type setting. Most policies will require that the nursing home be licensed in the state that they operate in. There is staff available at all times, and usually a Registered Nurse on duty at all times. Medications and meals are provided. The client will have a room that will be private, or semi-private. Private rooms are more expensive than semi-private rooms. If you know that you will want a private room, you may want to consider increasing the daily benefit when you apply for coverage.
Assisted Living allows for more independence, but also has staff available 24 hours per day. A Registered Nurse is not always on duty, and not always required in this setting. The client will have his or her own “apartment” or room that is much bigger than a nursing home room. They are usually able to dress themselves and walk to the dining area for meals. Medications are generally handed out to each client. Meals are prepared for them either in a restaurant style setting, or a family dining type setting. Clients who live in Assisted Living are sometimes still able to drive, but not usually. Most policies will require that the Assisted Living facility also be licensed in the state that they operate in. In order to live in an Assisted Living facility, the client must be able to “Negotiate the Pathway to Safety”. This means that they are mentally and physically able to get up and exit the building with little instruction in the event of a fire or other disaster. Each state monitors this process in their own fashion, and if they observe a resident who cannot accomplish this task, they will give the facility 30 days to retrain that individual. If after 30 days they are still not able to complete the task, they will be asked to move to another level of care.
Home Health Care means that you are receiving services in your home. Home health care usually means skilled medical care in the home, and it is considered acute care for a short period of time. In-home care is for chronic conditions that cause you to need help at home—either 24-hour care or just a few hours every day. Home care aides and companion services are generally used in this case. A Registered Nurse is usually not required for in-home care. Live-in, or 24 hour care in the home is much more expensive than nursing home care typically. Some policies will require that a licensed home health agency provide the care, other policies will allow for a friend or someone in the community to provide the care. Most policies in the past have not had a provision for family members to be the care providers, but recently this seems to be changing.
Hospice Care is implemented when you have 6 months or less to live, as stated by a physician. Hospice can be provided in the home, or in a nursing home type setting. Usually, a Hospice Agency will become involved. They will teach the family or other caregivers how to care for you and keep you comfortable during your last days. Pain control measures are implemented if this is required. The actual Hospice Nurse is not with the family 24 hours per day. If the family needs 24 hour care while their loved one is in a hospice program, they will need to hire an agency to provide those services. The Hospice Nurse provides education and training to the family, and supports them through the end of life process. At this point, no life saving measures are implemented—only comfort measures.
Adult Day is care provided during the day while families are at work. The Adult Day Care Center either picks up the client, or the family drops them off in the morning, and then they return to their home at night. Most ADC Centers will dispense medications during the day; provide meals, and a multitude of activities. Day trips and outings are common, as well as entertainment at the facility. Most ADC Centers are now calling themselves “Clubs for Mature Seniors”. The newer ADC Centers are very aesthetically pleasing, and offer a wide variety of services.
Most people assume that their insurance plan will provide reimbursement for care—especially if they need care at home as a result of an accident or illness. And many adult children of parents who need custodial care are shocked that Medicare does not provide service. The reality is that there is no traditional insurance coverage provided for people with chronic illnesses—especially if there is no need for a hospital stay. So if you need help due to illnesses such as Multiple Sclerosis, Parkinson’s, Alzheimer’s, etc., you will need to rely on family and friends to provide care and financial support or depend on government assistance unless you have planned ahead by having a long-term care plan in place.
The cost for long-term care amounts to over $125 billion per year in America. (U.S. General Accounting Office) Nursing home care costs an average of $52,195 per year (for semi-private room) and home care can cost an average of $23,400 per year. (Mature Market Institute, “MetLife Market Survey on Nursing Home and Home Care Costs”, 2002)
44% Medicaid
25% Out of Pocket (Private Pay)
14% Medicare
2% Private Health Insurance
8% Long Term Care Insurance 7% Other
(Source: Department of Health and Human Services, Health Care Financing Administration, Off ice of the Actuary, National Health Statistics Group, Personal Health Care Expenditures, 2001)
On average, 50% of women will require some form of Long Term Care in their lifetime, and 33% of men will require long-term care. The risk for women may be higher, due to a longer life expectancy. The risk for men may be lower, due to a shorter life expectancy, and due to the fact that women tend to care for their spouses longer at home without the assistance of home health care or other services.
The risk of entering a nursing home is fairly high. It is estimated that 39% of Americans over the age of 65 will enter a nursing home for long-term care. Of those, approximately half will stay there for an average of 2.5-3 years, and 10% will stay for five years or longer.
(Source: Murtaugh, Christopher M. “The Amount, Distribution, and Timing of Lifetime Nursing Home Use.” Medical Care. Vol 35, no3. April 1997)
For a couple turning 65, there is a 70% chance that one of them will need long-term care (Wall Street Journal)
More than half of people 65 and older will eventually need some form of extended care. (The New York Times)
60% of people over 75 need long-term care. (Business Week)
97% of people over age 85 require assistance in the last year of life. (The LTC Report)
Singles are at risk because they are usually not with someone who can properly care for them. The same is true for wives, who tend to outlast their husbands by seven years average. (Jane Bryant Quinn)
Real Life Stories
Bill and Janet
Bill and Janet have been married for 34 years. They are still very much in love, but Bill can’t recall much about his life. He was diagnosed at 60 years old with the early stages of Alzheimer’s disease. For the last six years there has been a constant schedule of custodial care and someone monitoring Bill’s needs. Luckily, Bill’s corporation included a long-term care policy in his executive carve out program that provides a monthly check in the mail to cover the expenses of Bill’s care. His wife, Janet, has help in providing a safe place for Bill to live, and has the freedom to go shopping or spend time going out to dinner with friends. Janet loves to dance, and once in a while Bill can still lead. But she wonders what life would have been like if she did not have the care support and financial security provided by their long-term care insurance policy.
Becky and her mother, Sylvia
Becky is an only child, single, and works very hard to have a home and financial security. She and her mother didn’t get along well, and sometimes she wondered what would happen if her mom ever needed care. Would she move to the town where her mom lives, or would her mom have to move to where Becky lives? And how would she be able to handle the potential care needs and keep her job? Even though Becky had heard of long-term care insurance, in the back of her mind, she didn’t think her mom would linger very long. Her mom was a heavy smoker, and she figured she would most likely not have a long illness. Unfortunately, Sylvia was diagnosed with lung cancer, and needed nursing home care. She paid $6,000/month out of her own assets and Becky felt terribly guilty because she was unable to care for her mom at home. Even in spite of her serious illness, she remained in the care facility for about 18 months. (That’s over $108,000)
Sally and her dad, John
Sally and her father, John, attended an educational workshop on long-term care planning, and were very interested in getting a plan for Sally. They both had just spent the previous 14 months caring for Sally’s mom at home, and knew first had how difficult it is to provide quality care and have access to the best professionals. The problem is that Sally has Lupus, a chronic illness that makes her uninsurable for traditional long-term care insurance. Since Sally is the only heir to a sizeable estate after her father passes, John was concerned about protecting his legacy and also making sure his daughter was properly taken care of should there be a change in her health. Since traditional insurance was not an option, Sally and her dad decided on a combination plan—an annuity combined with a high deductible long-term care insurance policy. They were able to have some coverage just in case the worst happens, and were able to quantify their risk so other planning decisions could be made. The plan provided peace of mind for both of them, and was an affordable way to get some protection that would otherwise not be available.
Those who have experienced the need for long-term care or assisted a loved one who needed long term care will have a much better understanding of the disastrous implications of not planning ahead. Many families have seen their loved ones placed in nursing homes, and know first hand the financial implications when applying for Medicaid.
Whether or not you have had first hand experience, here are some questions that need to be answered.
Many people who have already purchased long-term care insurance will tell you that one or more of the following reasons are important to them:
Which reason is most important to you?
Many people find the discussion of long-term care a difficult topic to discuss with their families, not to mention their insurance agent or financial planner. And even though denial may be a great coping strategy, it does not help when you find yourself in a crisis.
The irony is that most people who are interested in getting long-term care insurance are those who already have had a change in their health, and they now understand they may be uninsurable. For those who are in good health, it is hard to imagine that the statistics will apply to them.
Many diagnoses will eliminate you from qualifying for coverage.
Memory Loss
Multiple Sclerosis
Parkinson’s Disease
Dementia
Cirrhosis of the Liver
Some Cancers
Stroke
Multiple TIAs (mini strokes)
Insulin Dependent Diabetes (with some policies)
Many more
Someone once said, “You buy long-term care insurance with your health, and pay for it out of your assets or income.” Don’t plan ahead to be in a crisis. Get the information today so you will be empowered to make good sound decisions concerning your health and financial goals. (info@arn-us.com or call 1.800.984.8407)
Private Pay
You can decide to not insure against the risk of long-term care, and choose to pay out of your own pocket. Some people think they have enough in the bank to take care of any future needs. But before you decide on this strategy, it is important to consider the cost of care in the area in which you live (or the area in which you plan to retire). The average cost of care in the United States is $52,195 per year (for a semi-private room), $23,400 per year (for a Home Health Aide). (Mature Market Institute, “MetLife Market Survey on Nursing Home and Home Care Costs,” 2002) Limited care at home following a disability costs $36,000 or more annually. (American Council of Life Insurers March 2, 2001 news release referencing “Can Aging Baby Boomers Avoid the Nursing Home?” and “Who Will Pay for the Baby Boomers’ Long-Term Care Needs?”) In some regions, it can cost twice as much. But it’s not how much it costs today that is the problem. The scary part is what will the cost be ten or twenty years from now? The cost of care is rising 5% - 7% per year, so in 12 – 14 years, the cost will double. Do you really want to leave a legacy to your care provider rather than to your family or favorite charity?
Another consideration is that if you choose to pay privately for care, you will probably be subsidizing the cost of those who did not have a chance to plan ahead, or those who chose not to be proactive. Let me explain. In order for nursing homes to stay in business, they have to price their services to cover their overhead costs. When someone receives assistance from Medicaid, the amount of reimbursement received from the State is less than what the nursing home actually spends on the resident’s care. Depending on what state you live in, the nursing home may be losing $13 - $15 per day per person for those who receive Medicaid assistance. It then becomes a business decision to charge more for the person who is privately paying to make up for the loss in revenue.
Medicaid- you must be impoverished to qualify
Many people think they will simply transfer their assets to their children before they need long-term care, in order to immediately qualify for Medicaid. There are several reasons why this is not a reasonable action.
a. The look back period for Medicaid (in most states) is three years for most assets, and five years for Trusts. In other words, when an individual applies for Medicaid, the state will look back at all financial transactions for the last three years. If they see large amounts of money that have been gifted or transferred, the individual will be penalized for a certain number of months before they can actually use their Medicaid benefits.
Example: Mary transferred $258,400 to her son Joe last month. She is applying for Medicaid today. She will be penalized for $258,400/$2584 (the divestment penalty divisor), which equals: 100 months. Mary will have to pay for her own care for 100 months before she is eligible for Medicaid.
b. If you transfer assets to your children, there are other risks involved:
1) What happens if the children get divorced? One half of your estate may go down the road with the person who is no longer in your family.
2) What happens when the children apply for financial aid for their children’s college educations? If the money is sitting in your son or daughter’s account, that will create some ineligibility for needs-based scholarships.
3) What happens if your children get sued because of a car accident or other unforeseen circumstances? All of your assets could be at risk.
4) What happens if your children run into financial problems down the road, and use some of that money to pay off their debts?
5) What happens if your children pre-decease them, and the grandchildren suddenly inherit that money?
Planning ahead for Long Term Care is essentially one of the most important financial planning issues of our time. Long Term Care insurance can eliminate all of the concerns listed above.
Annuity + long-term care plan
Some people are philosophically opposed to buying any more insurance—they feel like they are already “insurance poor”. However, it is important to guard against the greatest risk you face. So for some people, it makes sense for them to use their assets to cover their risk. There are some creative alternatives available that combine your assets with an affordable long-term care insurance “umbrella policy”. I call it a partnership plan. If you don’t mind paying for some of your care, you just don’t want to risk all of your assets, then you may want to consider a combination of an annuity and a high deductible long-term care insurance plan. Ask today for details! info@arn-us.com
Asset-based plan
If you have “rainy day money” set aside that will not be used to produce income, you may be interested in a plan that allows you to transfer your funds to allow for you to have a long-term care plan.
Asset-Based LTC Plan (for couple age 60)
Traditional long-term care insurance
Long-term care insurance is the easiest and most reliable way to protect your independence and your economic security. Many people think that they will never need care, or feel that the long-term care insurance is too expensive. However, considering the future cost of care and the fact that we have a 50/50 chance of needing long-term care if we live past the age of 65, you may not be able to afford NOT to have a plan.
A comprehensive Long Term Care Insurance Policy will offer Nursing Home Care, Assisted Living, Adult Day Care, and Home Care benefits. Each company will have their own nuances to attract customers. For instance, some companies design their plans with large discounts for married couples or committed partners and offer preferred health discounts. In fact, there is a way to save up to 65% off the regular price if you qualify for all the discounts offered. Many companies are still offering Nursing Home/Assisted Living only policies, but many have eliminated the Home Care only type policy (some still offer this).
Typical features of a good Long Term Care Insurance Policy include:
Inflation protection is one of the most important optional features. It provides for increases in benefit levels to help pay for expected increases in the costs of long-term care services in the future. It is estimated that long-term care costs are going up about 5% - 7% per year, so it is important to design a plan that will be sufficient at the point of need. The only thing worse than going broke in a nursing home, is going broke in a nursing home with insurance.
There are two types of inflation protection available—simple and compound.
Compound Inflation protection With compound inflation protection, the daily maximum benefit and the lifetime benefit amount increase 5% per year, but the 5% amount added is figured on the previous year’s total. For the first ten years or so, there is not much difference in how the benefit increases. However, over twenty or thirty years, compound inflation protection makes a huge difference. So a policy that pays $100 per day now, will pay $265 per day in 20 years.
Even though compound inflation protection is more expensive, it is worthwhile to build it in at the beginning so that one can be assured of an adequate plan at the point of accessing long-term care benefits. What your premium costs at the beginning is not as important as what you pay for insurance toward the end of your life. Building inflation protection in up front allows your premiums to remain stable while your benefit maximums increase over time.
Simple Inflation protection provides that the daily maximum benefit and the lifetime benefit amount will increase 5% per year. Taking 5% of the original amounts and adding that same amount each year determines the amount of yearly increase. For example, a policy that provides for $100/day for four years would have a lifetime benefit maximum of $146,000. With simple inflation protection, the daily benefit of $100/day would increase $5 per year, and the benefit maximum would go up by $7,300 each year.
So, a policy that pays $100/day today will pay $200/day in 20 years.
Consider the clients’ assets, their ability to self-insure some amount of their care, and their age. Although it is always recommended that Compound Inflation Protection be added, an older person (age 80) might opt for Simple Inflation Protection.
Another alternative is to have the client purchase a higher daily benefit now, knowing that eventually that amount will equal the cost of care later. This is an example of a time when it is very important to have done a thorough fact finding mission with the client regarding their assets, and also to have educated them clearly o the benefits of inflation protection.
A daily benefit allowance is the maximum amount of money per day that the insurance company will pay for long-term care costs. (The amount ranges from $50/day to about $500/day.) Most policies provide for a reimbursement system that covers the costs of expenses incurred. A few policies operate with the indemnity system. It is important to read the policy literature to determine how the benefits will be paid.
When the reimbursement method is used, the insurance company establishes whether you are eligible for services and benefits. Most policy provisions have requirements for your primary care physician to certify that you need help with two out of six activities of daily living, or that you are not able to live safely without assistance because of cognitive impairment. Benefits are paid to you or the long-term care provider.
Policies differ in how the daily benefit is paid. Some provide for daily reimbursement, others for weekly or monthly payments. When thinking about real-life situations in which you would access the benefits, it is more beneficial to have a monthly budget to be spent on care than a weekly amount. And it is better to have access to weekly funds than daily reimbursement. For instance, with home care, it is likely that you would only need a physical therapist three times a week, but need a home health aide to help with bathing and dressing every day. Because the cost of services differs widely, having more flexibility built in the policy benefits the policyholder.
When the indemnity method is used, you receive a set dollar amount. Specific services are not important; you just have to be eligible for benefits. The insurance company pays the policyholder directly at the maximum daily rate. Some long-term care policies use a disability income model so that the money you receive each month can be spent on whatever services you need and you have the freedom to hire caregivers you choose. The increased flexibility is more expensive.
A benefit period is the limit of total benefits that will be paid out once you make a claim. Sometimes, the benefit period will be stated in length of time (i.e. 2 years, 3 years, 4 years, or even lifetime). Other policies will mention the maximum total benefit in a specific dollar amount. In most states, the minimum amount of benefit is one year.
You can choose the number of years that the policy will cover your long-term care needs. Typically, they can choose from 2 years, 3 years, 4 years, 5 years, 6 years, or lifetime care. It is recommended that you have a minimum of a 3-year policy. The average length of stay in a nursing home is about three years, however, keep in mind that most people will receive care in their home for at least two years before nursing home placement is required. Therefore, it might be more beneficial for you to have a five or six year plan.
IF you have a family history of Alzheimer’s disease, Parkinson’s disease, Multiple Sclerosis, Lou Gehrig’s Disease (ALS), or other long-term disease processes, it is recommended that you choose lifetime care.
Most policies today pay the policyholder out of a “pool” of money. For example, if you choose a 4-year plan at $100/day, they have a pool of money that equals: $146,000. If the client only uses $50/day for some length of time, the other half ($50) remains in their pool of money. This means that a 4-year plan could essentially last longer than four years.
Therefore, if you have been on claim for four years, yet you still have $30,000 left in their pool of money, you can stay on claim with benefits paid at their maximum daily benefit until that $30,000 has been exhausted. Benefits will be paid as long as it is certified by a health care professional that you will continue to need care.
During the underwriting process, all prior medical conditions will be analyzed. IF the Long Term Care Insurer accepts your application, you should not have to worry about pre-existing conditions when you file a claim. Most top of the line insurers will either accept or reject a client, and will not have pre-existing conditions built in to the policy. Be wary of any policy that will insure a client with a pre-existing condition clause. The larger most experienced companies will not deny claim for pre-existing conditions.
Most communities have several kinds of assistance available to help older adults live independently at home as long as possible. These resources can enhance the assistance already being provided by family members or friends, and may include:
Home health care—temporary or occasional care by a nurse or other medical professional
Personal care—help with bathing, grooming, and mobility (from chair to bed)
Homemaker services—housekeeping, cooking, grocery shopping, paying bills
Hospice care—support for those with a terminal illness
Respite care—short –term care that provides temporary relief to caregivers
Adult day care—a specialized service that sometimes includes physical, occupational, and speech therapy as well as socialization/recreation and monitoring of medications.
Usually people need help in finding the resources and coordinating the care needed. There are local, volunteer, or government agencies available, but many times, family members need help in assessing the situation and coordinating the resources. You can access the following services by visiting www.ssn-solutions.com, by e-mail at info@arn-us.com or by calling 1.800.984.8407.
Assessment and placement services
Phone consultation
Financial services (which include crisis management strategies to preserve assets and spouse’s economic security)
Care management services
Personal assistant
Elder law and estate planning attorneys