Long Term Care: Comfort or Crisis
© 2002 Sharon McRee and Galen Griepp
Most of us have given only passing thought to the subject of “long-term care.” Even when we have witnessed a friend or family member suffering through the complications of a long recuperation or rehabilitation, most of us still tell ourselves, “that won’t happen to me!” “I will never need a home care assistant!” “I will rely on my children to help me!” “I will stay in my own home, no matter what!” “I will use government benefits to pay for the nursing home that I choose!” The truth is that, in any given year, each of us (depending on our age) is four to seven times more likely to become disabled than to die! To put this in perspective, let’s look at it this way: for every adult death, there are between four and seven adults the same age, who do not die from their illnesses, injuries or accidents, but become disabled and need some type of special care or rehabilitation. Nowadays, we are more focused and aware of our own medical “risk factors,” whether they arise from personal or family medical history. This awareness offers us the opportunity to take preventative measures with regard to risks from conditions such as heart attack, stroke, osteoporosis, cancer, depression, and obesity, and to adopt lifestyle changes that help us to live longer than any previous generation. Let’s take an optimistic point of view, and assume that you have an understanding of our own health risks, and modify your lifestyle accordingly. You follow your doctor’s advice and feel confident about the medical care you will receive if you experience an illness or injury. You probably know exactly how your medical expenses will be paid for; by private insurance or a combination of Medicare and supplemental coverage, in most cases. Unfortunately, most of us tend to forget that even successful treatment for a serious illness (or debilitating injury) includes a period, following the conclusion of medical treatment, when we are in recovery or rehabilitation. As any doctor will tell you, it is very difficult to predict the length of any patient’s period of recovery, or even if a given patient will ever fully recover. Because we feel confident about ourselves and our medical providers, we can be caught unprepared when the need arises for nursing home care, rehabilitative services, or in-home assistance. This chapter concerns itself the management of your recovery or, recuperation from an illness or injury, and the matter of your control, care and comfort over the long-term. WHAT ARE MY OPTIONS? Most of us understand that the federal government’s Medicare program will pay the cost of certain medical treatments. But Medicare is not designed to pay the costs associated with long-term care, whether it is needed in your home or provided for you in a health care facility. If Medicare is unlikely to pay these costs, how will you receive the quality of care that you need and deserve? Will you have any control over the choice of facility or care providers? Will your spouse (or your estate) be impoverished to pay for (or reimburse) your care? Some people have sufficient personal assets to pay for nursing home care, or for an in-home assistant, without substantially affecting the lifestyle of a spouse or depleting their assets. Others are “quite sure” that they can rely on their adult children to provide money or care, a point of view that often overlooks the possibility that highly-skilled medical attention will be needed, or that adult children may be limited in the degree of help and care they can offer. There are those who plan to rely on government benefits, such as those available through the Medicaid program, or through the Veterans Administration.. And then there are those who have anticipated the possibility of needing long-term care, and purchased long-term care insurance. Let’s take a look at the federal medical assistance programs, Medicare and Medicaid, and get acquainted with one of the newest and most important insurance products: long-term care coverage. MEDICARE Medicare is a federal insurance program that is paid out of Social Security deductions. All persons over age 65 are entitled to Medicare benefits, as are certain other disabled workers. How does Medicare work? Medicare has two parts: hospital insurance (part A) and medical insurance (part B). Participants in the Medicare program must meet certain deductible and co-payment requirements, as well as pay monthly premiums for part “B” coverage. Medicare does not pay for all medical expenses, and usually must be supplemented with private insurance (often called “medi-gap” coverage), or enrollment in an HMO that contracts with Medicare.
What about my recovery or rehabilitation? Medicare will pay the costs of medical treatment for an “acute” illness or injury, and will cover all of the cost for up to 20 days of skilled nursing care in a Medicare-cooperative facility. For days 21 through 100, you or your insurance company must pay part of the cost. Medicare offers no payments for skilled nursing care beyond 100 days, and never pays for care that is other than “skilled nursing care,” such as a semi-skilled personal assistant. If you think about the most common causes of illness and disability in the adult population, it seems fairly clear that recovery periods of over 100 days are not uncommon. Consider the circumstances following any of these common medical procedures: heart bypass surgery; stroke treatment; cancer therapy or surgery; joint replacement or repair; organ transplant; back injury and treatment; complications of diabetes. Would you be ready, willing and able to take over the costs of your skilled nursing care or to shoulder the full cost of semi-skilled help in your own home? There is a substantial likelihood that you will need long-term care. One national study projects that 43% of those who turned age 65 in 1990 will enter a nursing home at some time during their lives. Among all persons who live to age 65, about one in three will spend three months or more in a nursing home; about one in four will spend one year or more in a nursing home. (“Lifetime Use of Nursing Home Care,” The New England Journal of Medicine, February 28, 1991) Are you relying on another government program, Medicaid, to pick up the costs of continuing care? Is that a safe assumption on your part? Let’s take a look at the federal and state cooperative program called Medicaid. MEDICAID/MEDICAL Medicaid (known as MediCal in California) was conceived and implemented during Lyndon Johnson’s ambitious “Great Society,” to provide medical care for persons on welfare, the disabled, and other low-income recipients. Over the years, Congress and the states have made adjustments to the program, in general lending more attention to eligibility for benefits and to stricter standards and procedures leading to government recovery of money spent for an individual’s medical care. Medicaid is not a part of the Medicare program. Whereas almost all U.S. residents over the age of 65 are entitled to Medicare, only those with specific needs and qualifications are eligible for Medicaid. Therefore, Medicare is referred to as an “entitlement program,” and Medicaid is a “needs-based program.” Am I eligible for Medicaid benefits? To be eligible for receipt of Medicaid benefits, an individual must meet particular requirements. Certain categories of people are automatically eligible (including children and pregnant women, certain welfare recipients, and those receiving Social Security disability payments.) Also eligible for receipt of Medicaid benefits are indigent [poor] adults residing in skilled nursing or intermediate care facilities. There are strict rules concerning who is “sufficiently poor” to be eligible for Medicaid. What services does Medicaid cover? Medicaid will pay for health care services which are “medically necessary.” These include some prescriptions, doctor visits, adult day health service, some dental care, ambulance services, some home health, x-ray and lab costs, orthopedic devices, eyeglasses, hearing aids, some medical equipment, etc. Nursing home care is covered if ordered by a physician and deemed “medically necessary.” What about my “share of cost?” All states require Medicaid recipients to bear some share of the cost of their care. For example, the State of California has mandated that persons receiving Medicaid medical treatment benefits, who are receiving income (from any source) of over $600 per month must contribute a portion of their income toward their medical bills. As a rule of thumb, this “share of cost” obligation would be roughly equal to the amount of income which is in excess of $600. But those who receive Medicaid benefits for long-term care (nursing home) must share a portion of their care costs if they have monthly income in excess of $35! Since virtually all income over $35 per month must be contributed as a “share of cost,” long-term care expenses can easily consume all income from all sources. “Share of cost” requirements are linked to income, and come into play after it has been determined that an individual is otherwise eligible to receive Medicaid benefits. Eligibility is linked to the size and character of the assets in an estate, and eligibility may not be granted to those whose estates (assets) exceed certain strict limits, even when the individual has little or no income. If you have been of the belief that you will be eligible to receive Medicaid because you are in a minimum-income category, it is important for your read the following information. How will the size of my estate (assets) affect my eligibility to receive Medicaid? To qualify for Medicaid an individual must demonstrate that he/she has limited resources available. Since 1989, the property (asset) limit for one person has been set at $2000 in most states. Not all assets are “counted” when it comes to determining eligibility to receive Medicaid benefits. Property that is not counted is referred to as “exempt” property. Property which is included in the $2000 calculation is known as “non-exempt” property. Let’s use the rules of the State of California as our example, remembering that each state may (to some extent) customizes its own rules. In California, the following property is generally exempt and therefore is not counted in determining eligibility (but be sure to check on the rules and regulations of your home state): The home. A residence is totally excluded from the evaluation of eligibility if it is the principal residence. This includes mobile home, houseboat, or even a multi-unit dwelling, so long as the recipient lives there. Under certain circumstances, the exemption given to the home may be lost if certain steps are not taken to secure it, particularly if a nursing home stay is lengthy Other real property may be considered an exempt asset if it is used in whole or in part as a business or means of self-support. Household goods and personal effects are totally exempt. Jewelry is exempt only to very narrow limits (including wedding jewelry, heirlooms, and other jewelry valued at $100 or less.)One car is generally exempt if used for the benefit of the applicant or if needed for medical reasons. Whole life insurance policies with a total face value of $1500 or less are exempt. If the face value of all of the life insurance policies exceeds $1500, the cash surrender value is counted toward the asset threshold of $2000.Term life insurance is totally exempt. Burial plots are exempt. Prepaid irrevocable burial plans of any amount are exempt, along with $1500 in designated burial funds. IRAs and work-related pensions are generally exempt if applicant is receiving payments from the retirement plan. The retirement fund is not exempt if the applicant does not draw interest and principal from it. Non work-related annuities are exempt so long as the payments are calculated so as not to exceed the payee’s projected life expectancy. Cash reserves of up to $2000 are exempt, and may include liquid assets such as savings, checking funds, and excess cash surrender value of life insurance Spousal resource allowance. Each state has its own rules with regard to the value of property that may be owned by the “well” spouse. In California, for example, the non-Medicaid spouse may retain up to approximately $81,500 in liquid assets, not including the home. Any assets above the property reserve limit of $2000 (including any asset that is not exempt) will disqualify an individual from ELIGIBILITY to receive Medicaid benefits Will my home always be given special regard in a Medicaid situation? Not necessarily! In California, for example, a home will continue to be considered “exempt” as to the eligibility limits so long as the owner intends to return to the home and states this in writing. Certain other circumstances will sustain the exemption of the home, including a spouse or child under the age of 21 or a dependent relative continuing to reside in the home. The greatest risk at this stage (while you are still receiving Medicaid benefits) would be the loss of the home exemption where there is no spouse in residence. For example, a home exemption is at risk if the applicant’s spouse is deceased or is, herself/himself, confined in a care facility! If a home exemption is withdrawn, the homeowner would then, without question, have assets sufficient to cause non-eligibility for continuing Medicaid benefits. This does NOT mean that the “exempt” home is protected against claims by the state to obtain repayment (recovery) of the money spent on the care of a Medicaid patient. Can’t I give away assets or spend my money to become eligible for Medicaid? An individual whose personal property is above the Medicaid resource limit may “spend down” to $2000, but note that giving away assets may have a serious effect on Medicaid eligibility. In most cases a person can give away all of his/her assets without any consequence, and thus become eligible for Medicaid, with one large exception: eligibility forMedicaid nursing home benefits, the very thing most people are least prepared to pay for! Because a large percentage of the population will need short-term or ongoing nursing home care, with average costs (in California) in the range of $3600 per month, many people (and their adult children) are tempted to simply give away all of their property and use Medicaid benefits in a nursing home environment. This property “giveaway” has the effect of preserving assets and in many cases creating an early “inheritance” for the next generation. The medical cost burden is shifted from the individual to the taxpayer. Medicaid property transfer rules are designed to deter this strategy. Simply stated, the Medicaid rules will impose a period of ineligibility for nursing home care, roughly equal to the number of months of nursing home care that the asset could have purchased, if converted to cash. If an individual needing nursing home care has given away non-exempt assets within the 30-month period (36 months in some states) preceding his/her application for benefits, Medicaid will consider that individual to be ineligible for nursing home benefits for a specific period of time, calculated as follows: A typical example of the Medicaid ineligibility period following asset transfer Value of assets given away: $72,000 Cost of nursing home care: $ 3,600 month Number of months which the assets could have paid for in a nursing home: 20months ($72,000/$3600)* Number of months applicant will have to wait before gaining eligibility: 20 months* *Remember that this example assumes that the assets were transferred within the 30 months (or 36 months) prior to the application for benefits. This is called the “look back” period. The legal trend is toward enacting longer look back periods. If assets are given away out of a trust, for example, the “look back” period is 60 months, in California! As long as a home is an “exempt” asset, it can be given away without any eligibility penalty, because the transfer rules do not apply to most “exempt” property. However, in states which have adopted 1993 federal guidelines, (OBRA 93), the “look back” rule would apply to any sale or gift of a residence, if done within 30-60 months before applying for Medicaid benefits. Because of the “look back” period, it is not uncommon for innocent transfers (gifts to family members, friends or charities) to result in Medicaid ineligibility! Can Medicaid claim my assets after my death? After the eventual death of a Medicaid benefits recipient, even if it occurs many years later, the state can make a claim against the estate, if the individual was 55 years of age or older at the time he/she received Medicaid OR if the individual received Medicaid while in a nursing home. Each state has its own guidelines and procedures for recovery of monies spent for nursing home care. (Some states will not enforce a claim while there is a surviving widow or widower, for example.) Don’t be confused! It is important to remember that assets which may be “exempt” for purposes of achieving eligibility for Medicaid benefits are typically NOT “exempt” from later reimbursement claims by the state! Your state may seek recovery from any real or personal property or other assets in which the individual had any legal title to or interest in, at the time of death. This means that the state can place a claim against homes and other assets, including assets held in joint tenancies, tenants in common, living trusts, life estates, or “other arrangements.” This includes assets received by a surviving spouse, such as assets left to the spouse by will or community property. When should I consult an attorney about Medicaid planning? As you have read, Medicaid is not a “free ride,” and it is administered to discourage and uncover fraud, deception and abuse. Remember that Medicaid is a program that was originally intended to benefit poor people. At its inception, over 30 years ago, it was the social standard for people to attempt to pay for their own long-term care, even if doing so resulted in depletion of their estates. This social standard is still inherent in the Medicaid rules and regulations, even though one might argue that the “social standard” has changed. Nowadays, there seem to be broader expectations about government assistance with medical-related expenses, particularly since the costs of all medical services have skyrocketed, far in excess of the rate of inflation or increase in costs of other goods and services! if you truly feel that you are a candidate for Medicaid benefits, it would be well worth the small expense of consulting an attorney who is experienced in Medicaid law, prior to making your application for benefits. As you now understand, from reading the material in this chapter, serious issues can arise with regard to both eligibility for benefits and recovery of expenses by the state. Very often, a senior is strongly influenced by the wishes of his/her adult children, who may counsel the parent to give away assets to become eligible for Medicaid benefits. While this advice is generally meant to protect the parents’ interests, and sometimes to protect the property interests (inheritance) of the adult children, property transfers can backfire and should not be done without legal counsel. With the guidance and counsel of an experienced estate planning attorney, who recognizes that his/her duty is to the elder client (and not to the adult children), both generations often come to appreciate the economy and the wisdom of investing in long-term care insurance – or are able to realistically assess the parent’s options and ability to pay for his or her own care, understanding the limits and responsibilities that come with reliance on government medical welfare. LONG-TERM CARE INSURANCE A new insurance product has come onto the market within the past few years, and it may be one of the most important investments an individual can make. Long-term care insurance is a product that promotes “planning,” not “crisis management.” Do you recall the statistic noted earlier in this chapter? Depending upon your age, you are four to seven times more likely to become disabled in any given year, than you are likely to die! Yet there are millions upon millions of life insurance policies existing in this country, and fewer than one million long-term care policies. This discrepancy is partly owing to the fact that long-term care insurance is a new product. Many people are unaware of it, and many insurance professionals have not become totally familiar with its details. In fact, not all major insurance companies yet offer this type of policy. What is long-term care insurance? Long-term care insurance is designed specifically to provide pre-determined benefits (payable to a policy holder, a care provider or to an institution) to cover the expenses of long-term (after-hospital) care. Long-term care is generally defined as the necessary ongoing use of skilled, semi-skilled or sometimes unskilled assistance in carrying out one or more of the ordinary“activities of daily life.” A policy typically will be written with an “exclusion” period (waiting period), and may have other limits built into it. There are many options for consumers to consider, each choice having an effect on the cost of premiums for this type of coverage. Do I have to be in a nursing home to receive policy benefits? Long-term care insurance is designed to cover all or part of the cost of confinement in a nursing home or convalescent facility, but (depending upon the terms of the policy), it can also provide cash benefits for any type of assistance that is medically necessary. This means that, unlike the standards imposed for Medicaid benefits, an individual with long-term care insurance may remain in his/her own home (or any other location) and still receive all or part of the cost of professional care or even unskilled help, if made necessary because of a disability. Each policy is different, but as a general rule, the standard for determining whether the policy will pay a benefit is the loss of the ability to perform a certain number of the activities of daily living. The exact number of “limitations” a policyholder must manifest is determined by the language of the policy, and can be as minimal as impairment of one or two activities, or can require impairment of three, four or more. The “activities of daily living” include: bathing; feeding; toileting; dressing; moving about; and other similar tasks. Many people who are in recovery or rehabilitation are only limited in certain activities and may need to engage unskilled or semi-skilled help in the home to maintain normal functioning. Others will require assistance with several activities, and still others are best served in the environment of a professional care facility. Long-term care insurance is now widely available and consumers may customize policies to their own projected needs, ranging from policies which offer payments when there is a minimal “loss” of a daily activity, to those requiring loss of several; policies covering only professional care facilities, to those paying cash directly to an insured, who may choose his/her own location and level of help; those with no benefit waiting period, to those with one, three, or six-month exclusions In general, the benefit period (including waiting period) will begin when there is a so-called “medical necessity” for assistance with one or more activities of daily living, as determined by a physician. What will long-term care insurance cost? The cost of long-term care policies is widely variable, since many policies can be tailored to specific needs. Costs can be kept at a minimum by building into the policy: longer waiting periods for benefits, a requirement that the insured be impaired in several activities of daily living, or by limiting the maximum amount of daily, yearly, or lifetime benefit available, among other cost-saving options. There is no rule of thumb for predicting policy costs, but obviously a younger person, selecting more restrictive policy terms, will have the lowest premium. For example, the annual premium for a long-term care policy with inflation protection may run about $2000 for someone age 65. (See A Shoppers Guide to Long-Term Care Insurance, published by National Association of Insurance Commissioners, 1993) If a policy is purchased at age 75, the premium will generally be 2.5 (two and a half) times greater than at age 65, and it will be six times greater than a policy purchased at age 55. Obviously, if you are considering the purchase of a long-term care policy, you cannot begin your inquiry too soon! Can I afford long-term care insurance? Given the cost of prolonged health care and the dramatic increase in life expectancy, perhaps the better question is: can I afford NOT to have long-term health care insurance? Remember, as more insurance companies enter the LTC arena, there will be more policies with more options to choose from. These choices will allow you to keep the cost of your premiums at a level that is manageable for you. Some of the factors to consider are: § do I want to pay additional premium for “inflation protection?” [automatic increases in the benefits I am entitled to] § will I be able to continue to pay the premium, even after I retire or must live on a fixed income? § how long a “benefit waiting period” should I accept? Am I sure that I can “pay my own way” during that period? § should I accept a limited benefits package, because I know I can rely on other sources of help or income? § can I coordinate my private long-term care policy with Medicare or other insurance coverage that is available to me? How do I choose an insurance company? You may be most comfortable approaching your current life insurance (or health insurance) agent, and inquiring about LTC insurance. But don’t stop at that. A careful consumer will do some comparison shopping. When considering any policy, be sure that the company underwriting it is financially stable. Several private companies or rating agencies conduct financial analyses of insurance companies and grade them. These ratings are published, and are available at most public libraries. Ask for insurance ratings publications by any of these companies: A.M. Best; Duff & Phelps; Moody’s Investor Service; Standard & Poor’s. If you have questions about the agent or insurance company, contact your state’s insurance department. (Look under State Government in the front of your white pages telephone book.) Compare policies offered by at least two reputable and solid insurance companies. Ask the selling agent to explain the policy to you, making reference to the actual policy document during your conversation. He/she should show you where each term, condition and obligation is clearly written in the text of the policy. If you decide that you do not want a policy after you purchase it, you can cancel it and receive a premium refund, if you take action within a certain period of time. This is called the “free look” period, and is 30 days in most states. CRISIS OR COMFORT? It is virtually self-evident in most cases that long-term care insurance is a wise investment and a sound alternative to the prospect of Medicaid impoverishment. Additionally, long-term health care coverage can offer you many options that are not available using government programs. With private insurance, you can choose to stay in your own home. You may be able to provide fair payment to a friend or relative who assists you. You may structure your policy so as to keep pace with inflation in medical costs. You can maintain the right to make many personal choices which are not available to a government-aid recipient. Whatever long-term care “plan” you put into place, be it purchasing insurance or planning to qualify for Medicaid, it is important to take steps now to guarantee that your plan will be successful. Don’t delay that meeting with your insurance agent and your estate planning attorney. Their advice and assistance could save you and your family thousands of dollars and unlimited heartache. When it comes to facing “crisis” or “comfort,” planning makes all the difference. Dignity, preparation, peace of mind, maintenance of quality of life, preservation of your estate. All of these are valuable and achievable goals, which you can meet if you take steps now to anticipate a period of disability and plan now for its management. What are you waiting for?