Transcript Document

Long Term Care
Insurance
Kate Mewhinney, Certified Elder Law Attorney
Clinical Law Professor
The Elder Law Clinic
Updated January 2009
Our Topics Today
What does long term care (LTC) refer
to?
 How is LTC being paid for now?
 Government and private sources of
payment
 Advocacy for public coverage of LTC
 The odds of needing LTC
 The costs of different types of LTC

Our Topics, cont’d.
What affects the cost of LTC insurance
(LTCI)
 “Tax qualified” LTCI policies
 Bells and whistles worth paying for
 What you need to know about Medicaid
 Who can’t and who shouldn’t get LTCI
 Who should consider LTCI
 Consumer resources and elder law
attorneys

Types of Long Term Care
In-home services
 Adult day centers
 Assisted living (a/k/a domiciliary care,
adult care home, rest home)
 Nursing facility care – SNF and ICF

Government Programs
Needs-based (income/resource rules)
◦ Medicaid (nursing home care) pays for
about ½ of all nursing home costs in
the U.S.
◦ Special Assistance (SA) for assisted
living in N.C.
 Medicare
 Veterans Benefits

Private Sources of Payment
Unpaid care from friends and family.
 Out of pocket (“private pay”).
 Medicare supplemental insurance
(for co-pay during days 20-100 in SNF)
and, under policies D, G, I and J, for limited
home health care.
 Long term care insurance.

Quick Overview of LTCI
 First
available in 1987
 400,000 policies issued in ’07
 83% of buyers purchased before age 65*
 ’07 claims paid:
 43% of claims for home care;
 33% were for assisted living;
 24% for nursing home care*
8
million have LTCI* - most are affluent
 About 10% of 50 or older have LTCI
*American Association for Long Term Care Insurance, News Release, June 17, 2008
Is it Affordable?
 Half of the elderly have incomes < $25K

A national study of average policy prices
found:
$1,064/year for a 55 year-old
$2,998/year for a 65 year old
2008 price for $150 daily benefit, 3 yrs coverage,
90 day elimination period, and 5% inflation
protection.
(Source: American Association for Long Term Care Insurance, “2008 Long Term
Care Price Index Announced,” June 10, 2008)
Sources of LTC Insurance
 Federal
LTCI program
 Partnership Policies in some states
 Policies through CCRCs
 Life insurance policies
Federal LTCI Program*
About 20 million people may apply:
 employees (most federal/ Postal Service, active
armed services, and D.C. court employees);
 annuitants (including retired armed services);
 spouses and adult children of employees and
annuitants; and
 parents, parents-in-law, and stepparents of
employees.
 facilities only option
*http://www.ltcfeds.com
Facility Only vs. Facility +
Home Care

For a 55 year old: 3 year benefit, 90 day
elimination period, and $100 daily benefit
$53 / month for facility only coverage
$76 / month for facility + home care
coverage
August 2008, www.ltcfeds.com
3 More Ways to Pay for LTC
1.
“Partnership Policies” reward
people who self-insure by increasing
their asset limits under Medicaid.
- Ex.: Person with $100K policy could
keep an additional $100K in assets,
and
get Medicaid.
2. Policies sponsored by continuing
care retirement communities
(CCRCs)
3. Some life insurance policies and
annuities.
Deficit Reduction Act (DRA) of 2005
Early ’90’s till 2006: only in 4 states
(CA, CONN, IN, & NY) – Robert
Wood Johnson Foundation program of
“partnership policies” to encourage
middle class to buy LTCI. 225,000
policies sold.
 To save on Medicaid, DRA authorizes all
states to use partnership policies.


Connecticut “Partnership Policies” in
’05: $4,100 premium/year, at age
65 for 3 years, $200 daily benefit, and
inflation protection.

Majority of purchasers in CA, CT, and
IN have assets over $350,000
(excluding home) and half have
incomes of $60K or more.
Source: Kaiser Commission on Medicaid and the Uninsured. Feb. 2006.
www.kff.org/kcmu
NC Partnership Policy
Dept. of Health & Human Services (DHHS)
issued a July 2008 report with draft legislation.
Next is an example that compares:
◦ A person with a Partnership Policy,
◦ A person with traditional LTC insurance, and
◦ Self-financed (out of pocket) care.
Financing of Long-Term Care Nursing
Facility Under 3 Scenarios
Scenario A: Purchase a dollar-for-dollar partnership policy

Insurance pays for 3 years of care at a cost of about 70K a year

Individual spends 90K, covering a little more than 1 year of care

Individual is eligible for Medicaid after a little more than 4 years
Total Cost of Care
$560,000
Year 8
Year 8
Year 8
$490,000
Year 7
Year 7
Year 7
$420,000
Year 6
Year 6
Year 6
$350,000
Year 5
Year 5
Year 5
$280,000
Year 4
Year 4
Year 4
$210,000
Year 3
Year 3
Year 3
$140,000
Year 2
Year 2
Year 2
$70,000
Year 1
Year 1
Year 1
$0
Scenario A
Scenario B
Partnership
Policy
Traditional
Policy
Scenario C
No long
- term
care insurance
Medicaid pays cost of care
Individual pays cost of care
Insurance pays cost of care
GAO 07-231
Scenario B:
•Insurance pays for 3 years of care at cost of about $70K/ yr
•Individual spends down $300,000, covering 4+ years of care
•Individual is eligible for Medicaid after more than 7 years
Total Cost of Care
$560,000
Year 8
Year 8
Year 8
$490,000
Year 7
Year 7
Year 7
$420,000
Year 6
Year 6
Year 6
$350,000
Year 5
Year 5
Year 5
$280,000
Year 4
Year 4
Year 4
$210,000
Year 3
Year 3
Year 3
$140,000
Year 2
Year 2
Year 2
$70,000
Year 1
Year 1
Year 1
Scenario A
Scenario B
Scenario C
Partnership
Policy
Traditional
Policy
$0
No long - term
care insurance
Medicaid pays cost of care
Individual pays cost of care
Insurance pays cost of care
GAO 07-231
Scenario C:


Individual spends down $300,000, covering more than 4 years of
nursing facility care at a cost of about $70,000 per year
Individual is eligible for Medicaid after a little more than 4 years
Total Cost of Care
$560,000
Year 8
Year 8
Year 8
$490,000
Year 7
Year 7
Year 7
$420,000
Year 6
Year 6
Year 6
$350,000
Year 5
Year 5
Year 5
$280,000
Year 4
Year 4
Year 4
$210,000
Year 3
Year 3
Year 3
$140,000
Year 2
Year 2
Year 2
$70,000
Year 1
Year 1
Year 1
Scenario A
Scenario B
Scenario C
Partnership
Policy
Traditional
Policy
$0
No long
- term
care insurance
Medicaid pays cost of care
Individual pays cost of care
Insurance pays cost of care
GAO 07-231
Medicare
 Covers
most older adults.
 Pays for limited post-hospital home
health care.
 Pays for skilled nursing facility care for
up to 20 days in full and 80 days in
part, if following a minimum 3 day
hospital stay.
 With
Medicare supplement policies,
Medicare pays only about 12 % of all
LTC costs.
Do We Need More LTC
Support by Government?
Leadership Council of Aging
Organizations, www.lcao.org, says yes.
LCOA is made up of 56 national nonprofit organizations, including:
 American Public Health Association
 AARP
www.lcao.org, Accessed August 2008
LCOA members include:
Alzheimer’s Association
 American Association of Homes and
Services for the Aging (AAHSA)
 American Geriatrics Society
 American Public Health Association

LCOA members include:
American Society on Aging (ASA)
 Families USA
 The Gerontological Society of America
(GSA)
 Military Officers Asso. of America
(MOAA)
 National Academy of Elder Law Attorneys
(NAELA)

Is now a good time to think about
how the United States finances LTC?


The last major political efforts to develop a
better approach to financing LTC were in
1994.
Other nations use a social insurance or risk
sharing approach
◦ For example, in Germany the risk of LTC costs
is spread out by including payments for LTC
within its Social Security System
Source: James H. Schulz and Robert H. Binstock, Aging Nation: The Economics
and Politics of Growing Older in America.
Who Will Need LTC?
2 of 5 Americans > age 65 will enter a
nursing home.
 In 7 of 10 couples, one spouse will need
LTC.
 Half will stay less than 3 months.
 Other half will stay an average of 2 ½ years.
 Less than 2% will stay over 7 years.

Odds of Nursing Home Usage
Source:
Kemper and Murtaugh, New England Journal of Medicine (1991)
Odds Increasers
Odds Decreasers
What Does LTC Cost in NC?
 Family
care can cost jobs and job
opportunities, and create caregiver stress
 Home Care: 64K/year (44 hours/week)
 Adult Care Home: $33 K/year
 Nursing Homes: $67K/year
Source: 2008 Cost of Care Survey, Genworth Financial, March 2008
What Affects the Policy Cost?
Premiums based in part on age and gender.
 Length of coverage: 3 yrs, 5 yrs, or lifetime.
 Elimination period: 30, 90, 180 days
 Amt of coverage: $100/day or more

Other Factors Affecting Cost
 Inflation
protection
 Home care coverage: none,
limited, or including family
members
Inflation protection
Nursing home care costs are increasing at a
rate of 5% annually, so today’s daily benefit
will not cover future costs
 Two types of inflation protection
◦ Automatic Inflation Protection
◦ Special Offer or Non-Automatic Inflation
Protection

Automatic Inflation Protection
An automatic increase in benefits each year
 Simple vs. Compound Interest

Automatic Inflation Protection,
cont’d.

Compound interest – based on the original
principal and any interest earned the
previous year (earning interest on interest)
◦ Recommended by most consumer
advocates
◦ A $100 daily benefit that increases by a
compound 5% annual interest rate will be
worth $265 a day in twenty years
Automatic Inflation Protection,
cont’d.
Simple interest – based only on the
original principal
◦ A $100 daily benefit that increases by a
simple 5% annual interest rate will go up
$5 per year and be worth $200 a day in
twenty years
 So, compare protection of $265/day vs.
$200/day in 20 years.

Special Offer or Non-Automatic
Inflation Protection
Allows you to choose to increase your
benefits every two or three years
 If you increase your benefits, your
premiums will also increase
 Two downsides of waiting
◦ may be more expensive to increase
benefits next time the increase is offered
◦ you may have to prove good health in the
future

What is your financial planning
goal for purchasing LTCI?
Protect assets, but not monthly income
OR
Protect assets and monthly income
 Making
this distinction will help you
determine how much daily coverage you
will need.
To protect assets, purchase the
difference between average daily cost
of LTC and projected monthly income.
To protect income and assets, purchase
a daily benefit that covers the full
amount of daily care.
“Tax-qualified” LTCI
Meets certain requirements of HIPAA
(Health Insurance Portability and
Accountability Act of 1996).
 Policy sold before 1/1/97 is “grandfathered”
in.
 90% of policies sold in 2001 were taxqualified.

 “Qualified” LTCI premiums are
deductible
◦ But limited to excess over 7.5%
adjusted gross income (AGI)
◦ Deductibility is unlikely to benefit many
 “Qualified” plan benefits are not
“income.”
Tax Deductibility
A sole practitioner, partner or member
of a professional limited liability
corporation can deduct all or part of the
premiums (for both the practitioner and
spouse) from pre-tax dollars, whether or
not the practitioner or the business pays
the premium. If in a C-Corporation, the
corp- can deduct 100% of the premiums.
“Qualified Policies” – cont’d.
 Unreimbursed
(uninsured) LTC
costs are deductible.
 Bill was proposed to make LTCI
premiums an “above the line”
deduction.
“Gatekeeper” provisions

Must need substantial assistance with two
Activities of Daily Living (ADLs) - eating,
toileting, transferring, bathing, dressing,
continence, (policy may limit to 5 of those 6)
and/or

Need for substantial assistance due to
“severe cognitive impairment.”
Tips on ADLs
Best to get a policy that includes bathing
as one of the five ADLs. This is usually
the first ADL that a person cannot do.
 Cognitive impairment: most states,
including NC, do not allow policies to
limit benefits solely because a person has
Alzheimer’s disease.

Rules on Disability for
Qualified Policies
Disability must be expected to last at
least 90 days.
 Simple “medical necessity” is not enough
to constitute disability.
 For cognitive impairment, a person
must require “substantial supervision,”
and the impairment must be severe.

Desirable Features & Terms
Financial stability of insurer: see A.M. Best
or Standard and Poor’s ratings. Look for
A+ or A++.
 Coverage of intermediate and custodial
care (home health), not just skilled care.

To access A.M. Best’s Credit Ratings, you
must register on the website.
Registration is free.
To register for A.M. Best’s ratings, go to:
http://www.ambest.com/ and click on
“Login-Sign-up,” in the top right
corner of the page.
Once you have logged in, scroll down to
Member Services and click on “Best’s
Financial Strength Ratings.”

The next screen will prompt you to search for
companies using either the company name or
the Company ID number. Enter the name of
the LTCI Company you are seeking.

The search result will draw up Best’s Financial
Strength Rating and Issuer Credit Ratings.

Definitions of these ratings may be found
under the “Ratings Definitions,” on the top left
side.
Desirable Features & Terms, Cont’d.
Assisted living & community programs.
 Respite care and hospice care.
 Cognitive impairment covered
 Monthly benefit meets person’s needs.
 Inflation protection: 5% compounded.
 Benefit period: 5 years would allow asset
transfers to get Medicaid eligible. In most
states, 1 yr is minimum policy.

Desirable Features & Terms, Cont’d.
Waiver of premium (to avoid lapse).
 Waiting period – for as long as client can
self-pay.
 Geriatric care manager services.
 Adaptation of home for handicap
accessibility.
 Renewability (but premiums can and will
increase for the same class of buyers).

Desirable Features & Terms, Cont’d.
Elimination Period
An ELIMINATION PERIOD is the length of time the individual must pay for services
out of pocket before the insurance company will begin to make payments. The elimination
period is a type of deductible or “waiting period” until the insured begins to collect money
from the policy.
Various options include:
(1) Daily -The insured must pay for qualified care from a qualified caregiver for 90 days
- Not a good option because it may take 6 months to satisfy a 90-day Elimination
Period in this manner.
(2) Weekly -The insured must pay from one day each week of qualified care for the
entire seven days to count toward the 90 day Elimination Period.
(3) Calendar Day or Immediately -The policy begins from the day that the insured is
accessed as being chronically ill by a licensed health care professional. This is the most
desirable option.
*Additionally, many policies now have a once in a lifetime elimination period-once the
elimination period has been met, the insurance company begins to pay immediately after a
subsequent bout of illness
More Features To Consider
Since most policies do not pay
benefits to family members who give
home care, some advisors will
recommend an “indemnity” policy
which pays a set amount regardless of
who is providing the care. But a
“reimbursement” policy is
generally cheaper.
New York Times article
A Conseco subsidiary, Bankers Life & Casualty,
has more than one complaint regarding long-term
care insurance for every 383 such policyholders.
Penn Treaty has one for every 1,207, while the
largest insurer, Genworth Financial, has one for
every 12,434 policies.
“Aged, Frail and Denied Care by Their Insurers,” by Charles Duhigg, The
New York Times, 3/26/07.
Possible Protection
Consider getting a policy only
from a company that is a member of
the Insurance Marketplace Standards
Association. www.imsaethics.org
N.C. Medicaid Rules
Income must be lower than the
nursing home’s cost, which averages
$5,000/mo.
 Some assets “countable” and some
not.
 A single person is limited to $2,000 in
countable assets.

Beware of Medicaid Advice
from LTCI agents
May misstate the rules, especially for
married couples.
 May not understand the transfer rules,
especially as to what transfers are
allowed and how long transfers affect
eligibility.
 May not know about non-countable
assets that could be purchased.

Protections for Married
Couples under NC Medicaid
Institutionalized spouse limited to $2,000
of countable assets in his/her name.
 Community spouse (at home) can keep ½
of countable assets, with a minimum of
$21,912 and a maximum of $109,560. [2009
figures for N.C.]

Non-Countable Assets include:
a home of any
value
 a vehicle of any
value
 household goods
 a prepaid
irrevocable burial
contract

burial plots for
applicant/recipient
and immediate
family.
 certain types of
annuities and trusts.

Keep in Mind….
Community Spouse Resource
Allowance rules can vary considerably
from state to state. In California and
NY, for example, the community
spouse can keep a minimum of
$109,560 (and often more, with
expert legal assistance).
LTCI is not available or
advisable for:
People who have costly illnesses, such as
dementia or Parkinson’s
 People who cannot afford the premiums
due to income and/or age
 People who have enough income or
assets to pay for the costs of long term
care.

Many issuers are getting picky.
One of my elder law colleagues
reports that John Hancock
Insurance Company rejects
anyone with fibromyalgia (and
other chronic illnesses), no matter
the individual’s actual health.
On the other hand Mass Mutual
rated her as “preferred,”despite her
fibromyalgia, based on her actual
health.
If you have a particular health
problem ask your agent to obtain
the underwriting standards for that
illness from the companies you are
interested in.
More Difficult to Be Approved
as You Age
One out of four 65 year olds is rejected
based on physical exams or medical
history.
 One out of three 75 year olds is rejected
for these reasons.

Affordability Standards
Some recommend LTCI only if have $75100K aside from home and car.
 Consumer Reports says not to buy if
your net worth is less than $200K (or
over $1.5 million).
 Federally required “suitability test.”

Who Should Buy LTCI?
 Age
55; Consumer Reports says age 65.
 More applicants in their 50s qualify for
preferred health discounts (44%) than those
who wait to their 60s to apply (32%). The
average age of applicants is 57.*
 Middle class
 Concerned about quality of care and/or
future of Medicaid
 Prefer home care
*American Association for Long-Term Care Insurance, “2007 National Long-Term Care
Insurance Price Index,” June 1, 2007
Who Should Buy LTCI, cont’d.
 No
family caregivers
 Family history of chronic illness
 The average age when people begin
using the policy is 82, with men
beginning to use at an earlier age
Costs and Benefits

People now using LTCI report:
◦ 48% say that allowed them to stay at
home longer and avoid institutionalization
◦ Additional hours of in-home care per day
◦ Asset protection
◦ Reduces out of pocket expenses
◦ Less stress and workplace interference
for family caregivers
Weighing the Costs and Benefits
Consider current and future finances
◦ Ability to continue paying the
premiums as you age?
◦ What protections does the policy offer
if unable to pay the premiums?
◦ Other resources available to help pay
for long term care?
Consumer Information
Seniors Health Insurance Information
Program (SHIIP) – www.ncshiip.com/
800-443-9354 - in NC only
919-807-6900 - outside NC
 In Winston-Salem: Senior Financial Care.
www.cccsforsyth.org/inhome.php4
336-896-1328

More Consumer Resources

Consumer Reports – Nov. 2003
www.consumerreports.org and click on
personal finance.
AARP
 Planning for Long-Term Care, United
Seniors Health Council (McGraw-Hill
2002) $14.95.

Consumer Information

National Association of Insurance
Commissioners (NAIC) www.naic.org
◦ “Shoppers Guide to Long Term Care
Insurance” is given out with all policy
information.
◦ Obtain a free copy from the North
Carolina Department of Insurance
 1-800-546-5664 - in North Carolina only
 919-807-6750 - outside North Carolina
Shopping for LTCI
Don’t rely only on insurance salespeople.
 Study the “Shopper’s Guide.”
 Consult an experienced elder law attorney.
 Learn the basics of your state’s Medicaid
rules.

Finding an Elder Law Attorney
-
National Academy of Elder Law
Attorneys has 5,000 members in all 50
states. www.naela.org
-
National Elder Law Foundation is the
only ABA-recognized certification in elder
law. www.nelf.org
Thank you!
Kate Mewhinney
www.law.wfu.edu/eclinic