Long Term Care in New York Times

"My friend M. — you’ll understand in a moment why she’s terrified of my using her name — had to make a searing decision a year ago. She was married to a sweet, gentle man whom she loved, but who had become increasingly absent-minded. Finally, he was diagnosed with early-onset dementia.
The disease is degenerative, and he will become steadily less able to care for himself. At some point, as his medical needs multiply, he will probably need to be institutionalized.
The hospital arranged a conference call with a social worker, who outlined how the dementia and its financial toll on the family would progress, and then added, out of the blue: “Maybe you should divorce.”
“I was blown away,” M. told me. But, she said, the hospital staff members explained that they had seen it all before, many times. If M.’s husband required long-term care, the costs would be catastrophic even for a middle-class family with savings.
Eventually, after the expenses whittled away their combined assets, her husband could go on Medicaid — but by then their children’s nest egg would be gone, along with her 401(k) plan. She would face a bleak retirement with neither her husband nor her savings.
A complicating factor was that this was a second marriage. M.’s first husband had died, leaving an inheritance that he had intended for their children. She and her second husband had a prenuptial agreement, but that would not protect her assets from his medical expenses.
The hospital told M. not to waste time in dissolving the marriage. For five years after any divorce, her assets could be seized — precisely because the government knows that people sometimes divorce husbands or wives to escape their medical bills." -- excerpt from Until Medical Bills Do Us Part, Nicholas D. Kristof, The New York Times, 8/29/2009

Although Mr. Kristof confuses health care with long term care and therefore comes to a hopelessly flawed conclusion, his account of his friend's story does highlight the many difficulties faced by those needing long term care and their families. Unfortunately, the editorial utterly ignores the existence of Long Term Care Insurance, which would have protected his friend's assets, marriage, and dignity. For more about Long Term Care Insurance, please see the previous entries in this blog. Coming soon -- part 2 of Medicare Supplement Insurance.

Choosing Long Term Care Insurance -- Part 2

In the last post we reviewed the basics of how most Long Term Care policies work and discovered how to select your level of coverage. In this post we will briefly visit some of the riders that are typically available and how they enhance the basic Long Term Care plan.

The first and most important rider you should consider is one for inflation protection. Generally, inflation protection comes in one of three forms -- future purchase options (FPOs), simple interest, or compound interest.

FPOs essentially guarantee you the right to purchase more Long Term Care coverage (usually by increasing the daily or monthly benefit a specified amount) down the road at specified intervals such as 5 or 10 years after the original plan was purchased. FPOs are attractive because they add little or no cost when the original plan is issued. However, they do have some disadvantages.

For one thing, FPOs are all or nothing. If you have the option to buy more coverage in 10 years, but you end up using the plan in 9 1/2 years; then you will most likely not be eligible to get more protection even though you will likely need it due to inflation. Also, if you decide not to purchase additional coverage at the FPO date (i.e. 10 years); then you will not usually still have that option at a later date (i.e. 12 years).

Secondly, FPOs tend not to keep up with inflation over the long run even for those who buy more coverage at every opportunity. This is because FPOs offer limited buying opportunities such as an additional $10,000 per year perhaps once in 5 or 10 years.

Lastly, in the long run FPOs often end up being more expensive than other forms of inflation protection because although you are guaranteed the right to purchase more coverage, the rates for that coverage will usually be based on your age at the FPO date and not the original plan's date.

The other common strategy to deal with inflation of Long Term Care costs is to add a rider that enables your benefit amount to accrue interest. Basically, there are two factors two consider: first, what is the rider's interest rate (typically 2% to 5%); and second, is the interest simple or compound.

Obviously, the higher the interest rate, the more coverage you will have available as time passes. Based on Long Term Care costs' past inflation rates, I would recommend that an interest rider's rate be approximately 5%. Although you might want to select a lower interest rate or no inflation protection at all depending individual factors such as your age or types of costs you are insuring against, you should be well informed about the risks you are assuming before doing this.

Simple or compound interest? Simple interest accrues only on the principle amount of the plan. For instance, if your plan gives you $100,000 of protection and you select a 5% simple interest rider, then you will accrue $5,000 more protection (5% of $100,000) each and every year no matter what your accumulated total is.

On the positive side, simple interest riders are usually less expensive than compound ones and the amount of protection they give generally keeps up with inflation for the first few years. However, over time simple interest riders tend to lag behind the inflation in costs because this inflation is compound in nature.

True inflation is compound, and for this reason a compound interest rider is the only true form of protection against inflation in the long run. A 5% compound interest rider on $100,000 would give 5% more protection on the accumulated total each year. This means that there is no difference in the protection afforded between simple and compound plans after the first year, but for each successive year the compound plan will grow increasingly greater than the simple plan.

Many people believe that inflation protection is unnecessary. However, you should keep in mind that today's Long Term Care costs of about $160 per day are likely to amount to approximately $650 per day in 30 years. If you do not want to pay for the relatively inexpensive inflation rider now, you may find yourself paying a whole lot more later to make up the difference between what your plan pays and what your actual expenses are.

Another feature or rider on many Long Term Care plans is waiver of premium. This means that your premium may stop during a claim. Although there may be a fairly brief waiting period such as 90 days, the general benefit is that while your plan is paying for your Long Term Care costs you are not having to pay your premiums. This feature or rider will free up more money for you while you receive Long Term Care.

Another feature or rider of most plans is the types of care the insurance covers. You want a plan that covers as much as possible. For instance, you should make sure that your policy pays for care not only at nursing homes but also at assisted living facilities, adult day care, home health care, and respite care. This feature permits you and your loved-ones the most choices for your care and will maintain your coverage if your needs change.

Additionally, you should try to secure a plan that includes an alternate plan of care provision so that it will cover innovations in Long Term Care that may not be specifically listed in your policy. Also, you may want to consider a plan that includes a bed reservation feature so that you will not loose your nursing home bed if you leave the home to visit family or for a hospital stay. Finally, you should select a plan that is guaranteed renewable. This means that your plan can never be cancelled no matter your age or your use of the insurance as long as you pay the premiums.

Choosing Long Term Care Insurance -- Part 1

During the course of our myth-busting we have seen that Long Term Care is very expensive, is very likely to be needed, is not covered by other types of insurance, and strains family relationships. So, if you are choosing a Long Term Care policy, then which one is right for you?

Selecting Long Term Care Insurance may affect your and your family's future more than any other single decision you will make. Also, the process can be complicated at times; so don't go it alone. Just as you would seek an attorney's assistance to draft a will, you should seek out a licensed insurance agent who is trained in Long Term Care when you are considering such insurance. Finally, you should ask loved-ones or family members to be present with you while you consider your options.

The key to selecting the best Long Term Care Insurance for you is the policy's benefits. Your health insurance likely has a deductible. Usually the higher the deductible the lower your premiums. Most Long Term Care Insurance has a deductible in the form of time called a waiting period. A waiting period is the number of days you will pay (or wait) before the plan begins paying.

For instance, if your doctor certifies that you will need Long Term Care on April 1st and your policy has a 30-day waiting period, then your plan would not start paying towards your Long Term Care costs until on or about May 1st. Although longer waiting periods will reduce your premiums, you should do your best to ensure that you can afford to pay for your Long Term Care out of your pocket before your insurance begins coverage.

Although your personal situation and expectations should be taken into consideration, I would recommend the following waiting periods as a general guideline based on your total assets not including your primary residence and primary automobile:

• If your assets are less than $100,000, then select a waiting period of 30 days or less.
• If your assets are between $100,000 & $500,000, then select a waiting period between 60 & 90 days.
• If your assets are more than $500,000, then select a waiting period of 100 days or more.

Another decision to make regarding Long Term Care Insurance is the daily or monthly benefit, which is the amount of money the policy will pay each day or month that you need Long Term Care. For instance, if you were drafting a plan in the Carolinas to pay for either round-the-clock care in a nursing home or approximately 10 hours per day of home health care, then you would want a daily benefit of about $160 or a monthly benefit of about $5,000. Your daily or monthly benefit may need to be adjusted higher or lower depending on where you live, your preferences regarding your care, or if you have other means to pay for care.

Closely related factors are your benefit period and benefit maximum. Benefit period refers to the length of time you can receive benefits, and benefit maximum refers to the amount of money you have for benefits. The majority of people receiving Long Term Care will need it between 6 months and 5 years. Most of these will receive care from 1 to 3 years.

For example, if your policy's benefit period is 60 months or 1,825 days and your benefit amount is $5,000 per month or $160 per day, then your benefit maximum would be approximately $300,000. Depending on the specific details of your plan, your coverage may end either when your benefit period ends or when your benefit maximum is spent.

Personally, I would prefer a policy that pays until the benefit maximum is reached. Let's say that you have the above policy but your care only costs $80 per day instead of the anticipated $160 per day. If your policy ends with your benefit period, then after 60 months your coverage ends even though it only paid out half of what it was worth. On the other hand if your plan doesn't end until your benefit maximum is spent, then it essentially creates a bucket of money ($300,000) to draw from. Although at $160 per day it would be exhausted in 60 months, if your care only costs $80 per day, then it would last 120 months.

Got Long Term Care Insurance?

Got Long Term Care Insurance? The fourth myth of Long Term Care Insurance is that you already have it. Now don't get me wrong, if you have an actual Long Term Care policy in force, then you have at least some coverage. However, many people mistakenly believe that they have coverage through some other means.

Part of the confusion arises from the distinction (or lack thereof) between skilled care and Long Term Care. Both skilled care and Long Term Care can occur either in a nursing home or at home. However, skilled care such as short-term IVs, physical therapy, speech therapy, and dressing a pressure ulcer are usually covered to some degree by health insurance. On the other hand, Long Term Care such as oxygen therapy for an emphysema patient, catheter maintenance, colostomy drain, and help with the activities of daily living (bathing, dressing, etc.) are usually not covered by health insurance.

The key difference between skilled care and Long Term Care is whether or not the patient is making progress in his or her recovery. Generally speaking, once a treatment becomes necessary to maintain care for a chronic condition, then the patient is receiving Long Term Care and the patient's health insurance will usually stop paying.

Even if the treatment is considered skilled care, there is usually a limit to how long a health plan will pay. For instance, Medicare will currently pay the approved charges for skilled care for 20 days. After that Medicare will continue to pay a portion of the approved charges for skilled care, but the patient will be responsible for a co-pay (currently $133.50 per day) for days 21 -- 100. After 100 days Medicare ceases to provide any coverage for skilled care.

Unfortunately, Medicare is not alone in lacking coverage for Long Term Care. Some of the other plans that provide no coverage for Long Term Care include group and individual health plans, retiree health plans, Medicare Advantage and Medicare Supplement plans, and disability insurance.

What about Medicaid? Medicaid is the usual name for a program jointly administered by the federal and state governments to help the indigent. As far as Long Term Care is concerned, Medicaid has several limitations that may reveal it is not a good option (or not an option at all) for you.

First, you must qualify for Medicaid by having a limited income and below approximately $2,000 in assets. Second, Medicaid will conduct a look back audit (currently 5 years) to ensure that you have not transferred assets to others in order to qualify for Medicaid. Third, if Medicaid finds that you have transferred assets, then it will assess a penalty of time during which it will not pay your Long Term Care costs. There is no cap on these penalty periods. Fourth, assuming you qualify for help from Medicaid your choices for Long Term Care will be limited. For instance, under Medicaid you may not have the option to receive Long Term Care at home, or reside in the nursing home of your choice, or reside in the same facility as your spouse. Fifth, if you receive help from Medicaid for your Long Term Care costs, then upon your decease there is a mandated estate recovery. This means that Medicaid will draw on your estate to reimburse their expenses for your Long Term Care.

Fortunately, you can avoid all of the above limitations and the costs of Long Term Care by insuring against it. If you have already secured a Long Term Care policy, then congratulations! My only advice to you is to make sure you have enough coverage especially if your plan does not include an inflation rider. Keep in mind that a month of Long Term Care that costs $4,500 today will likely run about $12,000 per month in 20 years.

Long Term Care Insurance Is Too Expensive

Long Term Care Insurance is too expensive. The third myth of Long Term Care is that the insurance is not affordable. The truth is that Long Term Care is not affordable.

According to Genworth Financial's Cost of Care Survey published in March of 2006 the following were the national averages for Long Term Care costs:

• $18 per hour (or $180 per 10-hour shift) for home health aide


• $62 per day (or $22,500 per year) for adult day care


• $2,900 per month (or $34,000 per year) for assisted living


• $170 per day (or $62,000 per year) for a semi-private room in a nursing home


• $194 per day (or $70,000 per year) for a private room in a nursing home

A similar picture is painted in Genworth Financial's Cost of Care Survey published in April of 2008. The following are the average Long Term Care costs in South Carolina:

• $17 per hour (or $170 per 10-hour shift) for home health aide


• $2,669 per month (or $32,028 per year) for assisted living


• $149 per day (or $54,385 per year) for a semi-private room in a nursing home


• $158 per day (or $57,670 per year) for a private room in a nursing home

So who is paying these costs? According to Centers for Medicare and Medicaid Services 2004 Statistics published in January of 2006, only 9% is paid by private insurance and 22% is paid out of pocket. Why would someone pay for Long Term Care out of pocket when they could insure against its costs? Some people do not realize that there is Long Term Care Insurance. Others wait until they need the coverage but no longer qualify medically. Some folks mistakenly believe that they already have coverage through Medicare, their health plan, or their disability insurance.

Of course, a few acknowledge the risk and expense and are trying to save or invest to meet their anticipated Long Term Care costs. However, consider that according to American Council of Life Insurance projections published in June of 2003 although the average nursing home cost was $54,998.20 per year in 2003, it will rise to more than $200,000 per year by 2030. Some experts predict that baby boomers should expect to spend between $750,000 & $1,250,000 for 3 to 5 years of Long Term Care 30 years down the road.

The question is even if you could save the money to pay for Long Term Care costs, is that really want you want to do with the assets you have accumulated over a lifetime when you could instead insure against the same risk for pennies on the dollar? This is the reason why many who have the wealth to pay for their own Long Term Care costs purchase Long Term Care Insurance. The wealthy understand that one increases wealth by spending as little of their own money as possible while still avoiding likely or costly risks.

In the end you have to ask yourself, "Can I afford not to invest in Long Term Care Insurance?" Some companies have made it easier, too, by offering discounted rates for those who are married or those willing to pay annually. Additionally, many companies are now offering plans that allow you to select the level of coverage you desire or can afford. Let's face it, even if you can only afford to protect half your assets, then you are still protecting half your assets!

Isn't Long Term Care Insurance for the Elderly?

Isn't Long Term Care Insurance for the elderly? The second myth of Long Term Care is that only seniors need worry about it. Although it is true that the risk of needing Long Term Care increases as one advances in age, AARP's National Alliance for Caregiving study in April of 2004 revealed that of those receiving Long Term Care in the United States 16% were between ages 50 & 64 years and 22% were between ages 18 & 49 years. This means that approximately 1 out of every 3 persons needing Long Term Care in the U.S. are under 65 years old.

Although Long Term Care is often associated with diseases such as senile dementia, Alzheimer's, or Parkinson's, it is frequently needed during recovery from strokes or injuries received from automobile wrecks, which are just as likely to occur to the young or the old.

Consider that the overall odds of you needing to use the insurance on your home are about 1 in 1,200; and yet nearly every home-owner has this insurance. However, the overall odds of you needing Long Term Care at any age are approximately 1 in 2; and the risk is certainly no less expensive than the loss of your home. According to the American Council of Life Insurers "Long Term Care Insurance, An Affordable Choice", nearly 50% of people entering a nursing home will deplete their personal savings and assets to pay for their care within three months!

Aside from having coverage whenever you need it, purchasing Long Term Care Insurance sooner rather than later has another distinct advantage: you are more likely to pass the medical underwriting. Like life insurance, applying for Long Term Care coverage generally includes answering questions about your health as well as the insurance company checking your medical records. By the time you are 65 years or older, qualifying medically can be a serious challenge to your securing a policy.

Even if you are relying on good health while you wait, you run the risk of something happening to your health and becoming uninsurable. The bottom line is if you cannot pass medical underwriting, then you will not be insured no matter how much you are willing to pay on your premiums.

A final advantage to buying Long Term Care Insurance as soon as possible is that you will save money. Once again similar to life insurance, Long Term Care policies are less expensive the younger you are and do not increase their premiums as you age.

For example, let's examine two individuals aged 50 & 30 obtaining Long Term Care Insurance. Assuming they both purchase the same amount of coverage the 50 year-old would pay an annual premium of $2,015, but the 30 year-old would pay only $550 per year. Now let's assume that both individuals use their insurance when they turn 80 years old. Although the 30 year-old would have paid premiums for an extra 20 years, he or she would have paid a total of $27,300 as compared to the 50 year-old's total of $60,450.

Whether it is the risk of not having coverage when you need it, becoming uninsurable due to changes in health, or paying more expensive premiums for the same level of coverage, when it comes to Long Term Care Insurance there is a high cost for waiting.

Is Your Family Protected?

Is your family protected? The first myth of Long Term Care Insurance is that it is for you. Wrong! Long Term Care Insurance, much like Life Insurance, is for your loved-ones.

Let's face it: if you have any family or friends at all, then you will receive Long Term Care when you need it. The question is how much will it cost your family or friends to provide Long Term Care for you?

According to a National Center of Health Statistics study in 2007, only 15% of Long Term Care is nursing home care and only 8% is provided in an assisted living setting. This means that approximately 77% of Long Term Care is either home health care or adult day care where the primary caregiver is usually a family member.

This situation places heavy financial and emotional burdens on today's families because many are two-income families, are geographically separated from those needing care, and may be needing to help multiple generations at the same time.

Traditionally caregivers have been female, but today many work outside the home. The price of helping you could easily be their loss of income. According to one study, employees whose family members have Long Term Care Insurance are twice as likely to stay on the job.

In today's society, children can live hundreds or even thousands of miles away -- making it impossible for them to help. Also, a study on caregivers' responsibilities revealed that approximately 23% provide Long Term Care for two persons and 8% provide Long Term Care for three or more persons.

A couple of final considerations are that rarely do family or friends have professional medical training and that your Long Term Care is an imposition on your loved-ones that robs you of your personal dignity and independence.