The Difficulty of Long Term Care Planning

A glaring omission in the health care reform is the fact that little thought has been given to providing long-term care benefits to our aging population which is growing at unprecedented rates. Historically, Medicare’s support for long-term care has been quite limited and, in light of the impending budget cuts and shortfalls, it is unlikely that the Medicare program will ever provide meaningful long-term care benefits.

Many people assume that Medicare will provide for all their medical needs, including long-term care. In reality, the long term care support is nominal.

Many people assume that Medicare will provide for all their medical needs, including long-term care. In reality, the long term care support is nominal. Currently, long-term skilled nursing support in a skilled nursing facility is available to an individual who spends at least three days in an acute care hospital and then needs either skilled nursing or skilled rehabilitation services. Medicare will cover the cost for the first twenty days in the skilled nursing facility, but beginning on day twenty-one and continuing through day one hundred, there is a significant co-payment of $141.50 per day.

After one hundred days, Medicare will not pay for any skilled nursing. The one hundred day “cap” is related to each separate illness. It is important to note that the limited benefits provided by Medicare are not guaranteed and can be difficult to receive. If, during any stay in a nursing home the Medicare-covered individual no longer requires skilled nursing care, reaches certain benchmarks in his or her physical and/or occupational rehabilitation, or is deemed to require only custodial care, Medicare coverage will immediately cease.

So, what alternatives are available for long-term skilled nursing? Some consumers purchase ‘Medigap” Supplemental Insurance policies in the belief that it will cover these costs. However, like a Medicare HMO, these policies usually cover a small amount of the costs, if at all, and, even if there was coverage, it would only cover the Medicare copayment amounts for days 21 through 100.

Other possibilities include: Long Term Care Insurance, (LTCI), Selfinsuring, Public Benefits, Life Insurance with Long Term Care Riders, (LTC), and possibly, Community Living Assistance Services and Supports program, a product of the recent federal health care reform. This article does not include a detailed discussion of in-home support for seniors.

LTCI: Like many insurance products, long-term care insurance is not going to be the answer for everyone. Those individuals who are able to both afford and qualify for a longterm care insurance policy pay premiums in the hope of minimizing future costs. Many TCI policies are not fixed and substantial premium increases, (some as high as fifty percent of the original premium) have occurred. In light of the current economic conditions, it is likely premium increases will be seen in the future. Because of this uncertainty, retired people with fixed incomes may be at risk if premium increases result in an inability of the owner to make the premiums, resulting in either a reduction of insurance or a cancellation of the policy.

Life Insurance: A life insurance policy with a LTC rider is an option to LTCI. These policies have a provision allowing access to the policy’s death benefit for the purpose of funding LTC. The policies usually require that the owner of the policy requires assistance with several of the ‘activities of daily living’ (ADLs). In addition, there are precondition waiting periods.

These policies contrast with LTCIonly policies in that they provide coverage for LTC if needed and a death benefit if the LTC is not required. However, in order to be a successful alternative for LTCI, the policy will not be available for any other purpose, i.e. retirement benefits. The policy needs to produce enough benefit to cover the cost of LTC if needed.

Self-insuring: While it seems a straightforward projection based on today’s data for LTC multiplied by a factor for inflation would provide an estimate for self-insuring, it is a more complicated analysis. Some of the considerations include: 1) Estimating the cost of a long-term care stay for a certain period of time. The average nursing home stay is about 2 ½ years, but it is just an average; 2) Multiplying the contemplated stay by the current average cost of care in California, (currently slightly more than $91,000 per year, exclusive of everything other than room and board); 3) If the amount of retirement income can be projected, some amount may be available to offset the monthly cost of long term care. The retirement income should be adjusted to reflect cost of living adjustments (COLAs); 4) The cost of the nursing home should also reflect COLAs, but it is more likely that the cost of the nursing home COLAs will exceed those of the retirement benefits; and 5) Estimating a rate of return on the funds and the period of time over which contributions will be made.

Self-insuring may be an option if the resources are available. One argument against federal funding of long-term health care is the fact that it could bankrupt the Treasury. Likewise, attempting to accumulate the funds for self-insurance will have a significant impact on individual funding.

The CLASS Act: This is a government run, voluntary long-term care insurance program, that is a part of the health reform bill. The benefits are legislated to average a minimum of $50 per day in cash benefits, although there is discretion in offering higher benefit options. Premiums have not been determined, although it is anticipated the premiums will increase with age. This option will not be available for sale through insurance agents, but instead will be available through employer payroll deductions. As of now, it has not been determined how self-employed people will enroll, or those whose employers do not offer the plan.

So, what is a person to do? A person with sufficient assets may decide to self-insure. Those with insufficient assets to self-insure may look to Medi-Cal. For those in between, some type of long-term care insurance may be the answer. But if a person is facing long-term care costs in the immediate future, the best answer might be to explore the ability to qualify for public benefits through California’s Department of Health Services Long Term Care Program with a qualified attorney.

Medi-Cal: The Governor’s proposed budget contemplates large reductions in home and community based services. However, there is no proposed reduction in Medi-Cal benefits for skilled nursing home services.

The eligibility requirements for these long-term care services include the counting of resources and income. The requirements are based on similar eligibility rules in the federal Supplemental Security (SSI) program. However, Medi-Cal rules may be less restrictive than SSI rules; in general, this is the case as of today in California. The regulations promulgated by Department of Health Services currently allow for
significant flexibility in planning to achieve eligibility for the long-term care program.

Moreover, for a couple facing long-term nursing home care costs, the rules to protect a spouse remaining at home from impoverishment when the “ill” spouse requires skilled nursing, are based on provisions in the Medicare Catastrophic Coverage Act of 1988. The provisions were implemented in California in 1990 and have had few changes since that time.

At some point in the future, it is anticipated that the State will adopt the Deficit Reduction Act of 2005. This will bring major changes to the ability to qualify for long-term care benefits through the DHCS Long Term Care Program. It is expected these new rules will only apply prospectively with the exception of long-term care for individuals with substantial home equity who became eligible due to application filed on or after January 1, 2006.

None of us have a crystal ball that allows us to know our future needs. It’s hard to decide whether or not to spend $50,000 or $60,000 to protect several hundred thousand dollars of your hard-earned money that could be needed to care for your long-term care needs. Could you invest the amount of insurance premiums over thirty years and have more funds than needed for your care? It is worth some thoughtful analysis.

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