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Long Term Care Insurance


Long Term Care Insurance Kate Mewhinney, Certified Elder Law Attorney Clinical Law Professor The Elder Law Clinic Updated January 2009 ... – PowerPoint PPT presentation

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Title: Long Term Care Insurance

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, contd.
  • 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 cant and who shouldnt 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
  • 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 lt 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
  • 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
  • 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 90s 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

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

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

GAO 07-231
  • 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 non-profit organizations, including
  • American Public Health Association
  • AARP
  • www.lcao.org, Accessed August 2008

LCOA members include
  • Alzheimers 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 gt age 65 will enter a nursing
  • 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 todays daily benefit will not
    cover future costs
  • Two types of inflation protection
  • Automatic Inflation Protection
  • Special Offer or Non-Automatic Inflation

Automatic Inflation Protection
  • An automatic increase in benefits each year
  • Simple vs. Compound Interest

Automatic Inflation Protection, contd.
  • 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, contd.
  • Simple interest based only on the original
  • 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
  • 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
  • Policy sold before 1/1/97 is grandfathered in.
  • 90 of policies sold in 2001 were tax-qualified.

  • 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 contd.
  • Unreimbursed (uninsured) LTC costs are
  • 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)
  • 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 Alzheimers disease.

Rules on Disability for Qualified Policies
  • Disability must be expected to last at least 90
  • 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 Poors ratings. Look for A or A.
  • Coverage of intermediate and custodial care (home
    health), not just skilled care.

To access A.M. Bests Credit Ratings, you must
register on the website. Registration is free.
To register for A.M. Bests 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 Bests 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 Bests 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, Contd.
  • Assisted living community programs.
  • Respite care and hospice care.
  • Cognitive impairment covered
  • Monthly benefit meets persons 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, Contd.
  • Waiver of premium (to avoid lapse).
  • Waiting period for as long as client can
  • Geriatric care manager services.
  • Adaptation of home for handicap accessibility.
  • Renewability (but premiums can and will increase
    for the same class of buyers).

Elimination Period
Desirable Features Terms, Contd.
  • 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

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 homes
    cost, which averages 5,000/mo.
  • Some assets countable and some not.
  • A single person is limited to 2,000 in countable

Beware of Medicaid Advice from LTCI agents
  • May misstate the rules, especially for married
  • 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 Parkinsons
  • 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 individuals 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 75- 100K 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
  • 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, contd.
  • 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

Weighing the Costs and Benefits
  • Consider current and future finances
  • Ability to continue paying the premiums as you
  • 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.o
    rg 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
  • Dont rely only on insurance salespeople.
  • Study the Shoppers Guide.
  • Consult an experienced elder law attorney.
  • Learn the basics of your states 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.

Thank you!
  • Kate Mewhinney
  • www.law.wfu.edu/eclinic
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