June 2010

WHAT YOU NEED TO KNOW ABOUT - Long-Term Care

Author: Lew Wessel | Photographer: Photography By Anne

I purposely left the word “insurance” out of the title to this article, because, insured or not, there is a good chance you are going to need long-term care. So, how are you going to manage it? Here’s what you need to know.

DEFINITIONS
The U.S. Senate Special Committee on Aging described long-term care as follows: “…the goal of long-term care is not to cure an illness, but to allow an individual to attain and maintain an optimal level of functioning”. In short, “long-term care” is assistive, not curative care. It’s custodial, not remedial care; and, it’s long-term (generally over 100 days), not short-term care.

To qualify for benefits under a typical long-term care insurance policy, an individual must need assistance in performing two out of the six normal activities of daily living: eating, bathing, dressing, toileting, transferring, and maintaining continence OR need assistance due to cognitive impairment caused by an illness such as Alzheimer’s disease.

SO WHAT’S THE RISK?
According to Phyllis Shelton, Long-Term Care: Your Financial Planning Guide, the odds are about 50/50 of someone needing some form of long-term care during their lifetime. The Family Caregiver Alliance estimates that likelihood at 68 percent for someone over 65. I’ve heard higher and lower numbers, but the bottom line is that there is a substantial risk that you or a loved one will need long-term care sometime in your life. If you do need that care, per Shelton, the average nursing home stay is 2.4 years, and about one in seven nursing home residents are institutionalized for five years or more.

The risk is real and the consequences so significant that you need to make a plan. If you or your spouse succumbs to a stroke or suffers from Alzheimer’s disease, how are you going to deal with it? How are you going to pay for it?

THE CHOICES
Long-term care expert Alan Hamm, Long-Term Care Planning, points out that you have four choices for long-term care: family, Medicaid, personal savings or long-term care insurance. Note: One choice you do NOT have, and let’s be very clear on this, is Medicare. Medicare and supplemental Medigap policies do NOT provide custodial long-term care. If you have been hospitalized for at least three days and If you have a chance of recovering, Medicare will pay for 20 days in a skilled nursing facility and will pay a portion of the next 80 days of care. But, that’s it, even though a large number of people think and will tell you otherwise.

LET’S GO OVER THE FOUR BASIC CHOICES:

MEDICAID
Basically, to have South Carolina’s Medicaid program pay for your long-term expenses, you have to be virtually destitute (less than $2,000 in “countable assets”) unless you have a *Partnership long-term care policy (see below), AND your income level must be below $1,911 per month (for individuals). Medicaid is, basically, welfare, and, even though it is a life-saver for the truly needy, it is not a program for which you should strive or connive to qualify. As one health-care expert bluntly states: “Medicaid is invaluable. But, it’s not insurance. It doesn’t protect you from catastrophe. It takes care of you after catastrophe.” In addition, unlike some states such as New York, South Carolina’s Medicaid program is fairly inflexible and is primarily restricted to care in nursing homes.

FAMILY CARE
The Family Caregiver Alliance estimates that there are over 9 million informal caregivers assisting family members and friends over 50 who are suffering from some form of dementia. In addition, 78 percent of adults needing assistance rely on family and friends as their sole source of help. I’m sure that there are some families that have consciously and gladly made this their Plan A. Nevertheless, I’m equally sure that most people who find themselves caring for a disabled loved one never intended to do so and are ill-equipped emotionally, geographically and financially to do so. Obviously, if the money isn’t there to pay for professional care and Medicaid assistance is not available due to various circumstances, such as a desire to stay at home, then, as they say, it is what it is…

PERSONAL SAVINGS
Given adequate assets, there are many and varied resources available in the community that provide excellent assistive and/or custodial long-term care in a wide variety of settings. These include care consultants who can provide counseling, expert information and screening and management of services; home health care agencies which provide both skilled and unskilled companions and medical professionals; assisted-living facilities; respite care facilities; adult day care; nursing homes and more. All of these services cost money, and, in many instances, a whole pile of money. Costs vary widely from state to state, and even intrastate, but in the Hilton Head/Bluffton area, the following are representative:

•Home Health Care: $18 to $22 per hour for a “companion aide service” and $35 to $50 per hour for a licensed practical nurse (LPN) or Registered Nurse (RN).

• Assisted Living Facility: $150-$200 per day

Nursing Home: $175-$250 per day.

Studies show that 90 percent of Americans would rather stay in their own homes as opposed to being “institutionalized” in a nursing home. Unfortunately, round-the-clock (as in 24 hours) home care for even just a year, and even with “unskilled” help, can easily result in bills exceeding $100,000. Add in skilled nursing care, and the total, as I’ve actually seen on a tax return or two, can reach $250,000 and more.

LONG-TERM CARE INSURANCE (LTC)
LTC is not really a separate long-term care “plan”; it’s a decision on how much financial risk you want to or are able to retain and how much you want or need to transfer to an insurance company. The decision on whether or not to purchase LTC is similar to all insurance decisions: How real is the risk?; how big is the risk?; and is the insurance premium worth it in order to protect self and family from the financial consequences of that risky event occurring?

LTC policies have come a long way in the past decade as a result of good legislation and accumulated experience on the part of insurance companies and caregivers. I urge you, especially if you are in your 50s and 60s, to contact a reputable insurance agent and get a quote on coverage. As a starting point, restrict your search to financially strong insurance carriers (you can find insurance company ratings on the Internet) and companies that have a good claims reputation and a long track record with LTC. This is a complicated, specialized area, and you want a company that’s proven their expertise. Regarding the policy itself, you’ll want, at a minimum:

• Coverage that is adequate for the expected costs in your area. Benefits will normally be stated in daily or monthly amounts (e.g. $150 per day), with a monthly benefit being preferable, as it will give you and your caregivers more flexibility.

• Coverage that will be long enough to meet your expected needs. Time limits will normally be stated in years with lifetime coverage also available. Five years is the average time selected and is statistically adequate except in the case of Alzheimer care. One recent innovation you may look for is “Shared Care” wherein you and your spouse can “borrow” years from each other’s policy and thus potentially double the coverage for one spouse.

• Coverage for all types of care: nursing home, assisted living, home care, etc. Beware of a policy that is just limited to nursing home care!

• Inflation coverage. Chances are the care you are insuring will not occur for years or even decades, and inflation will increase the price of that care substantially. Don’t bother buying a policy without some type of inflation rider!

• Other benefits. LTC policies invariably contain many automatic and optional (riders) benefits that may prove extremely helpful to you in the future. These include funds available for making your home wheelchair accessible or for purchasing medical alert systems; cash to pay for training of family members to assist you; money to pay for reserving your nursing home bed while you’re in the hospital. And so on.

THE BEST TIME TO BUY THE LTC policy is, of course, the day before you need it. Unfortunately, that plan doesn’t usually work. The younger and healthier you are, the better the chance that the LTC insurance underwriters will accept you and the cheaper the premiums will be. The greatest risk of delaying the purchase isn’t the greater cost; it’s losing the ability to purchase the insurance at any price. A diagnosis of MS or Parkinson’s or Type I diabetes, for example, is a total deal breaker. Once you have the LTC policy, your coverage is guaranteed to continue as long as you pay the premiums.

A FINAL NOTE
Our citizens are getting older, and it’s scaring the heck out of our federal and state governments. They are, in fact, going to great lengths to get us to buy LTC insurance. At the federal level, LTC premiums are deductible (with limitations), and premiums for LTC insurance, unlike private health insurance, are allowed to be paid from HSA accounts. At the state level, South Carolina and others have passed *“Partnership” provisions wherein the amount of money paid for your long-term care by your private LTC policy is not counted in determining your eligibility for Medicaid. It’s complicated, but, bottom line, to incentivize you to buy LTC, South Carolina will certify you for Medicaid and still allow you to leave substantial monies to your family.

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