In Simple Language
This Guide Tells You About
Types of Plans in a Changing Market

(If you would like a complete copy of this booklet, please click file and print)

Government Programs, Medicare, and Long-Term Care
Major Medical, HMO's and Medicare Supplements and Long-Term Care
Long-Term Care Insurance "Is It Right For You
Selecting the Right Insurance Company and Product
"Separating the Good from the Bad"
When Should You Purchase A Long-Term Care Policy
How Long Do Nursing Facility Stays Last
Insuring For the Risk
Determining If Your Assets Are High Enough
To Protect with Insurance
Understanding Home Health Care With
Descriptions of Home Care Service
and Much, Much More

INTRODUCTION

Since December of 1984, I have been providing seniors with Long-Term Care Insurance (LTC insurance) and helping families understand the financial aspects of Chronic Long-Term Care.

First hand experience has shown me the traumas associated with a Chronic Long-Term Illness. In 1972, my grandmother was diagnosed with Alzheimer's Disease. My family tried to provide care in our home, but we quickly learned we were not equipped or emotionally prepared to handle the type of care she required. Within the year she was admitted to a nursing facility and passed away five years later. While the family was able to provide love and support, the financial and emotional strains were devastating. Long-Term Care usually brings on such financial and emotional trauma, so it is extremely important that we all be prepared ahead of time financially to manage the situation of Long-Term Care.

Because to most people "there is no place like home," it goes without saying that the ideal situation would be for an individual needing Long-Term Care to remain in the privacy of their own home and receive the care they need. While everyone would like to believe that they will be able to take care of their loved ones, the fact is that most chronically ill persons will get progressively worse, and will eventually require 24-hour nursing care and ultimately perhaps admission to an assisted living or nursing facility. Assisted living facilities are becoming increasingly popular for those individuals who need some specialized attention but for the most part can still manage most routines of everyday living without constant supervision. These facilities are especially nice in that many offer "apartment-type" living with options of taking meals with others in dining areas or in the privacy of their own "home." Coordinated activities are available for those who wish to participate. The final option for long-term care would be entering a nursing facility where there is 24-hour supervision and immediate assistance if required. There are to be sure some poor quality nursing facilities, but they are far outnumbered by good quality facilities. To counteract the negative impressions that nursing facilities have typically exuded in the past, they are working harder to offer new and innovative methods of care giving, such as respite care, adult day care, and alternate care not only for patients, but for families and friends by providing support services.

This report will explain many facets and options surrounding Long-Term Care and hopefully will be able to put you in the "driver’s seat" when it comes to making some of the most important decisions of your life. It is composed of more than 600 hours of research and interviews with over 55 organizations having the most current information on the subject.

INSURANCE EDITOR: Gregg D. Kroman

Mr. Kroman has over 14 years experience in the Long-Term Care Industry, working as one of the leading producers for ACSIA Insurance Services, which was recently acquired by Fortis. During his tenure with ACSIA Mr. Kroman steadily climbed the ladder of success, progressing from sales to State Manager and then on to SE. Director of Sales with responsibilities for career agents in 14 states. From 1993 to the present his region produced in excess of $30 million in submitted Long-Term Care business and he is considered to be one of the top experts in his field. He currently is Chief Operating Officer for GoldenCare Insurance Services, a $100 million producer in Long-Term Care Insurance. In addition to the above, Mr. Kroman has been involved in the development of three Long-Term Care insurance products.

As stated earlier, Mr. Kroman’s vision and goals are to continue to provide seniors with Long-Term Care Insurance and help families understand the financial aspects of Chronic Long-Term Care.

TYPES OF PLANS IN A CHANGING MARKET

Tax Qualified: Beginning January 1, 1997, long-term care policies meeting certain requirements qualify for favorable tax treatment. Buyers of tax-qualified (TQ) plans can deduct the premiums if they itemize deductions on their Federal tax return. The maximum deductible is $200 if 40 or under, $375 if 41-50, $750 if 51-60, $2000 if 61-69, $2500 if 70+.

Premiums are treated like other health insurance and medical expenses, and must total more than 7.5% of adjusted gross income. If total health expenses are less than this amount, premium deductibility will not reduce your tax.

Also, benefits received from a TQ plan are not taxed, up to $175 a day, while benefits received from a non-TQ plan may be taxable.

Non-Qualified: This type of policy is not intended to meet the definition under Section 7702B(b) of the Internal Revenue Code. Benefits received under a Non-Qualified plan may have adverse tax consequences to you. Before you buy this type of policy you may want to consult with a tax advisor about these potential income tax consequences.

Pool of Money Policies: The maximum benefit is determined by the dollar amount payable for all benefits under the Policy. The days illustrated indicate how long it will take to reach the maximum amount payable under the contract.

For example, If a plan had a $150 daily benefit with a maximum of 1,460 days (4 years), the total amount payable would be $219,000 ($150 x 1,460) = $219,000.

Because benefit payments may vary from day to day, your coverage will continue beyond the minimum number of days shown in this example until the total dollar amount is reached.

These policies can also have some attractive features, such as Survivorship, Lifetime Waiver of Premium Benefit, Alternate Care, Restoration, Flexible Bed Reservation Benefits, and Care Coordination Services.

Select Policies: These allow you to add or subtract riders to give the most flexibility to your policy designs based on your individual needs.

Assisted Living Only Policies: Very new and a couple of companies are testing the water. This policy was developed because of market demand and need to cover assisted living.

Assisted Living with Home Care: Simply puts the total nursing facility risk on your shoulders. For some, this is "first-preference" type coverage.

Home Care Only: Being slowly phased out because of abuse. Short duration claims are expensive to administer. Companies have experienced heavy volumes of claims that are 45 days or less in duration. Home Care Only plans also have the unstable rates due to the administration costs of this line of business.

BENEFITS FOR YOUR CONSIDERATION

Survivorship* - Waiver of Premium Benefit. Be careful some are more fluff than substance. What you are looking for is if one spouse died while insured, coverage for the surviving insured spouse will continue and premiums will be waived following the survivor’s 10^th or sooner policy anniversary.

Lifetime Waiver of Premium Benefit: Should you be confined to a long-term-care facility of 120-180 consecutive days, policies may vary. Premiums for benefits will be waived for the rest of your life.

One-time only elimination period and/or offsetting elimination periods.

Monthly Alternative Home Health Care Benefit. Pays amounts based on care and services received during each continuous 30-day period, rather than on a daily basis.

Alternate Care provides for alternatives to keep you home. Examples would include home modification for wheel chair access (ramps, wider doorways, lower counters, etc); a Medical Alert System to be used solely for getting assistance during a medical situation; and Care Coordination Services to assess need and create, implement and periodically review forms of care that are not covered by the policy if it is considered as more appropriate for your personal condition. The plan must be agreeable to you, your physician, and the insurance company.

Strong at-home Professional Services to help meet the higher costs of professional services for nursing care, licensed therapists, and licensed specialists.

Restoration of Benefits: If your money account has not been totally exhausted and you do not receive any care from any source for 180 days, benefits will be restored to the maximum benefit amount.

GOVERNMENT PROGRAMS

MEDICARE AND LONG-TERM CARE

Medicare is a federal health care program that began in 1965 designed to pay certain medical expenses of the aged. Under the current 1998 Medicare Coverage, seniors are not necessarily covered for Long-Term Care, otherwise known as nursing facility care, i.e. the majority of all nursing facility residents and home care recipients DO NOT require what is deemed "skilled care", the only type of health care that Medicare covers. Medicare will pay Long-Term Care benefits for only 100 days a year after a three day hospital stay, provided skilled care continues to be required. Interestingly, the average length of time a patient receives skilled care is less than 28 days.

The problem is that the majority of retired Americans need coverage for custodial care rather than skilled care. The following explanations will help to clarify the difference between the two.

Skilled Care: Is care given by a specially qualified facility which has the staff and equipment to provide skilled nursing care or rehabilitation services and other related health services.

Specialized Therapy, use of a Dialysis Machine - it includes services of an RN or LPN on a 24 hour basis with medical charts being kept, being on a Life Support System, Intravenous Feeding, Urinary Cauterization. The majority of your care must be skilled; the patient must show improvement.

It is important to note that most nursing facilities in the United States are not skilled nursing facilities, and are not certified by Medicare. In the past, Medicare paid for less than two percent of all nursing facility stays.

Now, let's define Custodial Care.

Custodial Care: Is care that is given when someone requires assistance with getting in and out of bed, bathing and dressing, walking and eating, receiving oral medication (by LPN or RN), and assistance with everyday living activities, including supervision. An aide who does not possess nursing skills or nursing training usually performs these services.

There is another level of care you and your family should become acquainted with. It is called Intermediate Care.

Intermediate Care: This is a level of care between skilled and custodial care and it also is not covered by Medicare in nursing facilities. However, Medicare will and can pay for certain selected intermediate services in your home such as: Physical Therapy, Occupational Therapy, Medical Social Services, Durable Medical Equipment (80% of approved costs), Speech Therapy, Home Health Aide (not homemakers), and Medical Supplies.

Medicare stipulates in order to receive Intermediate Care at home, you must comply with these four conditions:

1. Your needs must include intermediate or skilled nursing care, physical therapy, or speech therapy.
2. You are confined to your home.
3. A doctor determines that you require home health care and sets up a home health plan for you.
4. The home health agency providing services must be a participating Medicare Agency.

Home care for most people is a temporary situation. Home care through Medicaid and Medicare Supplements provides only for visiting nurses. If the patient requires only custodial care, Medicaid and Supplements provide NO coverage.

ADL’S ARE ACTIVITIES OF DAILY LIVING

Nursing facilities, home health care agencies and Long-Term Care Insurance Policies have adopted descriptions of care by using an ADL’s system to determine functional capacity by measuring the ability to perform Activities of Daily Living. Professionals in nursing and social work have done this for over 28 years, and this approach is used in a number of state and federal programs to determine the need for Long-Term Care services. Likewise, it is recognized by the National Association of Insurance Commissioners as appropriate for Long-Term Care Insurance.

Cognitive impairment is also included as a basis for eligibility. Even though many who suffer from impairments such as Alzheimer’s Disease or similar disorders are capable of performing all Activities of Daily Living without assistance, they may still depend on someone else for continual supervision to avoid behavior potentially dangerous to themselves or others.

In policies based on ADL’s, a physician, nurse, case manager, gerontologist, or other health care professional certifies that a policyholder needs "hands on" help, supervisory "stand by" help, or directional "reminding" of help to perform everyday living activities.

ADL’s are as follows:

• Bathing The ability to wash oneself in the tub, shower or by sponge bath.

• Dressing The ability to put on and take off all garments and medically necessary braces or artificial limbs.

INSTRUMENTAL ACTIVITIES OF DAILY LIVING (IADL’s)

A definition of IADL’s include the ability to do heavy housework, laundry meal preparation, grocery shopping, getting around outside, getting to places outside of walking distance, money management using the telephone, and taking medications.

COGNITIVE IMPAIRMENT

Cognitive Impairment is a deterioration or loss of intellectual capacity that requires continual supervision for protection of the patient or others. Such loss in intellectual capacity can result from Alzheimer's disease or similar forms of senility or irreversible dementia. Cognitive Impairment is NOT necessarily accompanied by a loss in ability to perform ADL's.

It should be noted that Medicare pays for less than two percent of all nursing facility stays. The remaining 98% is paid for by families and friends until the patient becomes indigent and qualifies for Medicaid (a state and federal welfare program).

Q. Why is Medicare set up this way?

A. Medicare was never designed or funded for Long-Term Care. It was designed to address medical concerns as opposed to "custodial" concerns. In 1997, Medicare spent $214 billion on health care. There are 72.6 million Americans over age 50.

As you can see, there is an increase in the elderly over 85 years of age. This is due to advances in modern medicine and to a health-conscious society.

Our population will continue to enjoy longer, healthier lives, but we cannot ignore the growing costs of health care in this country. At this point you're probably asking yourself, "What are my chances of needing some form of Long-Term Care?" The Department of Health and Human Services Executive Board on LTC Insurance discovered that a person over 65 is estimated to have more than a 43% risk of entering a nursing facility during his/her lifetime, however, the financing of LTC is not simply a problem for the aged. In the year 2000, 40% of all functionally dependent (requiring some form of care) Americans will be less than 65 years old. Married couples have a 70% chance that one of the spouses will require care. Besides the high cost of institutional care, disabled and older persons living in the community will also need LTC Services in their own home where they retain their independence.

Clearly the U.S. Government cannot afford the high costs of Chronic Long-Term care anytime in the near future. The question posed is whether it is fair to place the cost of this care on the shoulders of individuals under the age of 65.

Americans often feel deceived by what politicians tell the public to gain the public vote. Chameleons adapt to their environment. Until the government gets serious and honestly informs the American people on how it will be financed and what section of the American public will pay the greatest share of the cost, enacting a program like this will take years to implement, even if it could be funded. Hence it is imperative that today's senior Americans plan ahead and do not plan for the future based on unrealistic hope for government programs.

MEDICAID AND LONG TERM CARE (MEDICAL IN CALIFORNIA)

The Medicare Catastrophic Coverage Act of 1988 (MCCA) mandated special Medicaid eligibility rules for couples when one member needs nursing home care. The rules protect income and resources for the other member of the couple. These rules are known colloquially as the protections against spousal impoverishment, or simply spousal impoverishment rules. They apply in all fifty states and the District of Columbia.

This memo answers some common questions under the laws. We will refer to the person on Medicaid in the institution as the beneficiary and to the other person as the spouse.

1. What is the rule for property division?

   All non-exempt resources owned by either spouse are taken into account as of the first day the beneficiary becomes institutionalized. This is true regardless of whether the beneficiary is eligible or Medicaid at that time. The spouse may keep $16,152 or one-half the resources up to $80,760 (these are 1998 figures. They are adjusted each year in January by a cost-of-living factor).

   The federal law allows states to raise the $16,152 minimum, and several states have enacted a higher minimum level. Some states use only the maximum and thus avoid application of the "one-half" formula. (Check with your state Medicaid agency for the level in your state.)

2. Are there any times when the spouse at home can keep more assets?

   The amount of assets preserved for the spouse can be raised (1) by a showing in a fair hearing that a larger amount is necessary to generate income needed to raise the spouse’s income to the maintenance needs allowance (discussed below), or (2) by a court order for the support of the spouse.

   Example: Husband/beneficiary has $800 monthly income; spouse/wife has $300 monthly income and $25,000 in resources. The combined total income, $1,100, is less than the $1,326 minimum protected income that the law allows for the spouse. The spouse could demonstrate that she needed the entire amount of resources protected (instead of only the $16,182 the formula gives her) to generate interest that would help to raise her income closer to the $1,326.

3. What is the effective date of the property division rule?

   The federal law was effective September 30, 1989. Some states, however, had a waiver to implement the law later. Prior division of asset rules used in your state apply before the effective date.

   People who entered a nursing facility September 30, 1989 or after have the new rules applied to them regardless of when they apply for Medicaid.

   The resources provisions do not apply to people who entered a nursing facility before September 30, 1989. The income provisions do apply to the spouses of persons already in a facility on September 30, 1989.

   The farther in time we move from the September 30, 1989 date, the less relevant it is. It is unlikely that many people are affected by the old rules any longer: they would have had to pay at private rates (averaging about $36,000 per year) for more than eight years (since before 9/30/889) and be just now applying for Medicaid.

4. Are agreements made before he effective date of the new rule effective?
   
   Property division agreements allowed in some states will be effective only for people who entered nursing homes before the effective date of the new law. For persons who enter a nursing facility after the effective date, the agreement will have no effect (unless it is ratified by a court, and fits into the court order exception to the federal law.)

5. Are exempt resources included in the pooling of the spouses’ resources at the time of institutionalization?
   
   No. Only non-exempt (as defined by the federal Supplemental Security Income Program—SSI) resources are counted. A house, personal and household effects, a car, a burial plot, and a burial fund (or small amount of insurance) are excluded. Moreover, the SSI limits on the excluded value of household goods, personal effects and one automobile do not apply under the law. All of these items are exempt, regardless of their value.

6. Does property from a prior marriage or inheritance count?
   
   Yes. All property held by either spouse regardless of its source (separate or community) is considered available under the law on the data of institutionalization. If the property is excluded by a court order, however, it will not be considered.

7. What happens to resources acquired after the date of institutionalization?
   
   The law does not explicitly direct how to count resources acquired by either member of the couple after institutionalization (the date or determining the protected resource amount for the spouse) and before application for Medicaid. A reasonable reading of the intent of the law is that all additional resources should be protected for the spouse until the maximum spousal resource allowance has been reached. Beyond that, resources might be considered separately, depending on whether they are in the name of the beneficiary or the spouse. In practice, however, many states (and the federal Health Care Financing Administration, HCFA), consider all resources acquired between institutionalization and determination of Medicaid eligibility as available to the beneficiary. The law is clear that resources acquired by the spouse at home after the institutionalized spouse has been determined eligible for Medicaid cannot be considered available to the institutionalized spouse.

8. What are the income protections?

   The law allows the spouse at home to keep; "a community spouse monthly maintenance needs allowance." The federal law requires a minimum of 150 percent of the poverty level for a two person household, plus an excess shelter allowance if shelter costs (rent, mortgage, taxes, insurance and/or utilities) exceed 30 percent of the first amount. The maximum allowed under this formula is $2,019. (This is a 1998 figure, adjusted in January of each year by a cost-of-living factor.)

   The spouse receives a contribution from the beneficiary’s income if that is necessary to bring his or her income up to the amount of the maintenance needs allowance.

   The maximum allowance of $2,019 can be exceeded only by court order for the support of the spouse, or as a result of a fair hearing.

   Income of the spouse’s own name is not considered available to the beneficiary from the date of institutionalization, and there is no limit to this income.

9. What is the effective date of the income provision?
   
   The income provisions apply to all persons in a nursing facility (with a spouse at home) or entering one after the effective date of the statute. The federal law became effective September 30, 1989.

10. What is institutionalization for purposes of this law?
    
    An individual entering a nursing facility or hospital likely to be there for at least 30 days is considered institutionalized under this law. Also included, at state option, is an individual likely to receive home and community based services under a federal waiver program for at least 30 days.

INCOME RULES

Income also effects eligibility and it is defined as all income received from any source. Income can be derived from any one, or any combination of, the following: Social Security, interest, investments, trusts, rental property, assistance from family members, pensions and annuities.

If your income is over a specified amount (which changes every year) you can be denied public assistance. Keep in mind Medicaid was designed for the poor and indigent, it was not funded for all. Even if you do qualify for Medicaid it is imperative that you understand that Medicaid beds are acquired by space availability, this means that you may NOT get to choose which nursing facility you go to.

Transferring assets, setting up trusts, using the 60 month disqualification period, and gifting assets, are subjects too complicated to be explained in this booklet they should only be addressed with professional help from an Elder Law Attorney.

MAJOR MEDICAL, HEALTH MAINTENANCE ORGANIZATIONS AND MEDICARE SUPPLEMENTS COGNITIVE IMPAIRMENT

All of these medical plans are designed to take care of doctor and hospital costs, not Long-Term Care. All three normally offer some coverage for skilled care but do not cover custodial and intermediate care. Some HMO's (Health Maintenance Organizations) will offer a minimal amount of custodial care, but currently they remain very experimental. The simplest method for finding out if you have any custodial care is to check your policy exclusions page. If your policy/contract or HMO does cover custodial care, it can cover the elimination period of a Long-Term Care Insurance Policy, which would in turn lower the premiums for the insurance, to pay for care to begin when your other benefits expire.

LONG-TERM CARE INSURANCE – IS IT RIGHT FOR YOU?

Let's begin by stating that, by no means, is Long-Term Care Insurance a cure all; nor is it for everyone. However, if you qualify for coverage on a good policy, it can be an excellent alternative and strategy to protect your assets, income and lifestyle from the high costs of Chronic Long-Term Illness. Long-Term Care Insurance can also pay for your care until you would qualify for Medicaid after a 60-month waiting period from divestment of assets. The benefits of using insurance are: (1) To preserve your independence and assets; (2) To ensure financial security for your surviving spouse; (3) To provide capital and freedom of choice in selecting your Long-Term Care options; and (4) To secure your family's future preservation through inheritance.

WHEN SHOULD YOU PURCHASE A LONG-TERM CARE POLICY?

The younger and healthier you are, the more favorable the premium. Most companies offer policies to people between the ages of 40-79 and a handful of companies will cover the 80+-age bracket. Many only offer standard underwriting, which means reasonably good health is required to qualify for coverage. Companies that have the best chance of remaining stable and not being forced to raise premiums will check medical records or provide a physical exam before they issue a policy. This protects the policyholders from the company's inability to pay future claims. Avoid companies who practice post-claim underwriting, checking on your health AFTER a claim is filed.

There are companies that take substandard risks, those with health conditions and charge a higher premium. (e.g., heart problem, diabetes, etc.) This works like car insurance; if you have speeding tickets, you pay higher rates than a driver with a clean record; however, you are still eligible for coverage. Companies writing substandard risks sometimes have longer pre-existing waiting periods ranging from three months to 24 months before a condition is covered. Be careful and ask about the exact length of the waiting period.

It should also be noted that if you have already been diagnosed with Alzheimer's Disease or similar dementia or active cancer, for example, no company would offer coverage. It would be like trying to insure a house that is already burning. That is why it is important to sit down with a qualified LongTerm Care Insurance Agent and disclose your health information. If you have a concern in this area, there are many fairly serious health conditions that may not necessarily disqualify you for insurance; also, some companies may not charge for conditions, so do not assume that you are uninsurable. You should also demand that the company contact your doctor before they issue coverage so that you will not have any roadblocks when filing claims. It is also in your best interest that your application states EVERY health condition in detail.

Long-Term Care Insurance Policies were first introduced to the public in the 1970's but the majority began marketing in the ‘80's. In 1984, there were less than 20 companies in this market. Today, there are over 140 companies offering policies and we can expect more in the future.

Today's policies have improved greatly since their inception and have an extensive menu from which to choose. Nursing Facility Care, Adult Day Care, Home Health Care, Home Hospice Care, Respite Care, Alternate Care, Benefit Increase Options, Paid Up Provisions, Return of Premium, Bed Reservation Benefits and Restoration of Benefits. Innovation will continue to present even more benefits, but it is important to remember that for every dollar of benefits there is also a cost attached to that benefit. For example, "Restoration" has an added cost and is almost always explained improperly. Here's how it is explained and how it really works.

Agent John tells Mrs. Johnson that if she stops collecting on her policy for six months and pays for her own care for six months, the company will completely restore previously used benefits as if she had never used the policy

Unfortunately, that is not how the benefit works. The benefit is only accessed if Mrs. Johnson had recuperated and DID NOT require any care from anyone (whether a charge was made or was not made) for 180 consecutive days. Only then will any benefit be restored.

Having a lot of benefits attached to your policy can be wonderful and give you better alternatives in a time of need, however, they can also increase the premium and some will provide you with a false assurance. It is not how much you spend that determines whether you have a good policy; it is what you get for your money.

HOW LONG DO PEOPLE STAY IN NURSING FACILITIES?

The average length of time an individual spends in a nursing facility is less than three years, 90% never need more than four years and only 9% need more than five years. There are always exceptions to every rule; Alzheimer's and senility or other forms of Cognitive Impairment can last for many years. For the majority of people, a three to five year benefit period is more than adequate.

INSURING FOR THE RISK

DO I NEED A HOME CARE BENEFIT?

Yes, most of us, given the opportunity, would prefer a home setting to a nursing facility. As in the case of the author's grandmother, the family simply was unable to provide or perform the type of care she required. Home health care was too expensive and the only alternative for providing proper care was in a nursing facility. If you do add a home health care benefit, make sure that it is a strong daily benefit to cover the higher potential cost of home health care. Home health care policies and nursing facility policies that offer only one half of the daily benefit offer some minor assistance. The problem is that home health care agencies can be very expensive. Assisted Living Facilities are good alternatives today because they offer custodial care in a more pleasant atmosphere.

DETERMINING WHAT TYPE OF POLICY YOU NEED

Here are some rules of thumb when choosing Long-Term Care Insurance as a vehicle for protecting your assets. First, determine what type of policy you need based on financial consideration, not on emotional bias. Because there is always a cost associated with a benefit, not all benefits are properly suited for everyone.

Do not over insure; allow the Long-Term-Care policy to pay for 3/4's of the cost or more. Here's an example of how it can work:

Mr. and Mrs. Johnson are faced with an Assisted Living bill of $3,600 a month. The policy they took out pays a $3,000 a month benefit. This means they will have to use $600 a month from their income.

The higher amount of spendable income you have the lower the Long-Term-Care benefits you need from an insurance policy. If you are fortunate financially to have an abundance of assets and income, consider this option:

Mr. and Mrs. Thomas have an income of $7,000 a month and their living expenses run $3,200 a month, leaving the Thomas's a balance of $3,800 a month of spendable income. The Thomas's may want to simply put inflation protection on their spendable income, using a smaller daily benefit than if they were more or less totally dependent on insurance to pay for the Long-Term Care. This approach would make the insurance premiums very attractive.

Higher daily benefits may be desirable should you want to have a private nurse, or private room. Your family may want to provide a companion for two or three hours a day to make your stay as comfortable as possible.

What we are considering here are alternatives. The lower the income, the higher the daily benefits you will want to consider, such as:

Mrs. Anderson, age 75, has a monthly income of $1,800. The facility she is in costs $3,600 a month, leaving her an unpaid balance of $1,800 a month. A good benefit for Mrs. Anderson would be $100 a day, or $3,000 a month for her care. Mrs. Anderson would only have to use $600 of her own funds each month for her care, leaving her additional funds to make her stay comfortable. She would also be hedging against inflation for care later in life when the cost for care will be higher.

The same rules apply with home care. It may be more difficult in this area to maintain insurance premiums to cover 3/4's of the costs; however, this author recommends enough for at least 1/2 of the cost if at all possible.

BENEFIT INCREASE OPTIONS (also known as inflation riders)

(Click Inflation Protection Protection on this Site)

DETERMINING IF YOUR ASSETS ARE HIGH ENOUGH TO PROTECT WITH LONG-TERM CARE INSURANCE

Insurance should always make financial sense and the premium should be manageable through the upcoming years. To determine affordability, figure your net worth including income. If you have a spouse, do not include your home. If you do not have a spouse, include your home as a liquid asset because it is not exempt from consideration as an eligible asset by Medicaid. Once you've figured out your net worth, adjust to the nearest hundred. This will enable you to easily calculate the percentage of your assets to be spent on policy premiums.

Mr. and Mrs. Smith are ages 68 and 66, with total liquid assets of $200,000 and their spendable income is $2,400 a month. The insurance policy they have selected will cost $2,102 for a three-year plan that pays $2,700 a month with a Benefit Increase Option, after a 20-day deductible. The percentage of assets necessary for insurance premiums in this case is calculated as follows:

Spendable income of $2,400 x 12 = $28,800, plus $200,000 brings the Smith's total net worth to $228,800. Dividing $228,000 into $2,102 relinquishes 9/10th's of one percent. This means that the Smiths would be using less than one percent of their entire estate each year to preserve what has taken them 30-40 years to accumulate.

If Mrs. Smith becomes a widow and her spendable income is reduced due to her husband dying, effectively reducing her net worth to say $190,000, she would only have to pay the premium on one policy (premium of $941.22 a year). Using the same formula, dividing $190,000 into $941 relinquishes 4/10th's of one percent. This means Mrs. Smith will be able to continue her insurance coverage and be able to manage future premiums. Married couples can also take advantage of policies that contain survivorship benefits, which would eliminate future premiums.

If you are single, widowed, or divorced, use the same formula to determine affordability. The only difference is that you must add your home to your total net worth.

The policies in these examples are affordable. The author views it from this perspective.

1. If your Long-Term Care Insurance costs more than four percent of your net worth, do not buy a policy.

2. If you are married and have less than $75,000 in assets with less than $15,000 in income, do not buy a policy, unless your family or friends are helping you pay the premiums. A Final Expense Policy may be a better alternative to preserving a portion of the Estate.

3. If you are single, widowed or divorced and have less than $50,00.00 in assets including your home, with less than $15,000 in income, again do not buy a policy, and as above consider a Final Expense Policy.

4. If assets are less than $100,000 for married couples and $50,000 or less for single, widowed, or divorced, you may want to consider purchasing a nursing facility policy that will only pay for one or two years of care.*

If only one of the spouses is insurable and your assets and income meet the guidelines, absolutely insure that person. There are some alternatives available if a health condition is detected early, and if you realize the future difficulty involved. The uninsured spouse should also consider a Final Expense Policy to relieve spend-down amount as well as having funds set aside for funeral expenses.

LONG-TERM CARE INSURANCE ELIMINATION PERIODS (DEDUCTIBLES)

Long-Term Care Insurance Policies are set up with elimination periods, i.e., days you must pay for your care before the insurance pays. The longer the elimination period, the lower the premium. Most companies offer 0, 7,10, 20, 30, 60, 90, 100 and even 180-day elimination periods. Some states allow longer elimination periods. If you are 65 or younger, I recommend a 60 or 90 day elimination period for Facility Care and a shorter elimination for Home Care. This means that the policy will not begin to pay benefits until the 61st day of care in a Facility. You would be responsible for the first 60 days. The premium difference is not that great between a 60 or 90 day waiting period versus a 180-day waiting period at these ages.

Remember that Medicare pays for less than two percent of nursing facility stays. Therefore, do not rely on Medicare to take care of these costs as even when the average length of time someone requires skilled care is less then 28 days, the maximum medical coverage still remains at just 100 days.

^* A 90 or 100-day elimination period may be beneficial for any age:

1. If you are financially comfortable and are not worried about the cost of one, two or three months in a Facility, but are concerned about years in a Facility, a 90 or 100-day elimination would be beneficial, because premiums are lower. Furthermore, if you never use the policy you save money over the years versus using a lower deductible that has a higher premium.

2. If you had a stroke, broken hip, heart attack or cancer treatment, extended hospital stay or any form of skilled care. Generally people have coverage under Medicare and Medicare supplements for from one to 100 days. Those patients that go in for temporary care, recuperation or rehabilitation services are the ones most often covered by Medicare and Medicare supplements. The majority of nursing facility patients DO NOT go in and out for continuous care.
   
   Remember that if you develop Alzheimer's Disease, senility, any form of cognitive impairments, or any other form of need for custodial care, you will be responsible for the first 100 days. The first 100 days can cost anywhere from $8,000 to $12,000. If you have Alzheimer's Disease or senility you must realize two things: one, is you will NOT be coming out of the facility; and two, because of needing continuous care and supervision, your stay will be for a longer perineal of time than for recovery from accident or illness.

3. First day coverage is more expensive but it can be a good choice if you are under age 59 and in good health. The premiums for other elimination periods do not differ by much. You may still be better off taking a higher daily benefit despite the extra cost, because premiums are so low at that age.

4. Notice the premium difference for a lower elimination periods versus the 90 or 100 day waiting period, with a $3,000 per month benefit. You would be in a better position if you took out a 90 or 100-day wait, with a $4.000 a month benefit, giving more money for your care over the years.

Higher deductibles should only be used if you can afford the first 100 days. If you cannot, I would question whether or not you should have Long Term Care insurance at all! The question that remains is: "lf you were only worried about three months of Long Term Care, would you ever consider or buy Long Term Care insurance?"

LONG-TERM CARE INSURANCE THAT OFFERS CASH BACK IF YOU NEVER USE THE POLICY - & - ANNUITIES AND LONG-TERM CARE –& - LIFE INSURANCE AND LONG-TERM CARE . . .

Companies are always looking for ways to attract customers. Some are more imaginative than others. Some gimmicks can appear to give you more, when in reality they give you much less. Until the cost of "Return of Premium" benefits come down, this author would not feel comfortable selling it to my best friend, or my worst enemy. It adds an additional 35% to 45% to the policy premium on the majority of the policies on the market. The reason for the additional premium is due to the fact that the insurance carrier takes out insurance on the premiums they would lose.

Return of Premium on Non-Qualified Plans - Riders work in this manner: (Policies may vary slightly but the general concept is the same.)

If you maintain your policy in force for a specified number of years, (the most common is ten years), you can get back 80% of all premiums you have paid, less any claims. The policy rider will automatically renew for another ten years, however, if claims paid exceed 20% of the total premium paid during the ten-year period, NO REFUND WILL BE MADE. . . AND once you request a refund, your policy is no longer in force. Now we have to look at what this benefit "Return of Premium" can end up costing you. For example purposes, we'll use a policy that returns 80% after ten years if no claim is filed.

Mr. Bradly, age 65, purchases a "Return of Premium Policy" that provides first day coverage, no prior hospital stay required, two year benefit limit, $65.00 daily benefit (= $2,000 per month), with a Benefit Increase Option that will increase the daily benefit by 5% per year for the first ten years only (which means at age 75, Mr. Bradly would receive $97.50 per day for care). The daily benefit will not go any higher. Total cost of policy = $842.32.

His first ten year cost is $842.32 x 10 = $8,420.32. If Mr. Bradly never uses the policy, at age 75, the company will give him hack 80% of the total premiums paid. So, if there were no claims, Mr. Bradly gets back $6,736.26; however, if Mr. Bradly receives care for 26.9 days he gets back absolutely nothing.

That means Mr. Bradly, for the most part, financed his own care and paid the insurance company 39% more in premium over a ten year period. Mr. Bradly's risk of needing care is much greater at age 75 than it was at age 65. The problem here is, what if Mr. Bradley requires care at age 75 or in later years.

His cash outlays can be staggering. (As he gets older, the cost of care continues to rise.) For example: Mr. Bradly does enter the Long Term Facility. The cost for care is $3,600 a month and his policy at age 75 will provide $2,925 a month for care, his cash outlay of spendable income is $675 a month for 24 months ($16,200). If he needs care for 36 months this care will cost Mr. Bradly $59,400; 48 months' of care would cost his estate $102,600.

This rider becomes far too expensive as daily benefits and benefit limits are increased. To choose "Return of Premium" instead of higher benefits can be disastrous if you eventually require care for a long period of time. The question is? Are you buying Long-Term Care insurance because you might need care, or because you won't need care? The key is not to try and beat the system (investments are the place to do that), but to have enough protection to keep up with the rising cost of care and that, at a lower premium and at lower out of pocket expenses. There are more suitable ways to finance the cost of your Long-Term Care Insurance, where you have more control.

ANNUITIES AND LONG-TERM CARE

One way to do it is to buy an annuity or any other type of tax deferred savings vehicle. For our example purposes we will use an annuity. Here's how it can work: Same person at age 65 deposits a single premium of $16,800. He/she lets the annuity grow for three years. In the fourth year, withdraw $971.00, the amount of the Long-Term Care Insurance Annual Premium. With annuities, you only pay taxes on the amount you withdraw and most annuities allow you to withdraw ten percent per year without penalty. Using a printout illustration, we can see what would happen.

SINGLE PREMIUM: $16,800

The result of the above illustration is that at age 85, you are guaranteed five percent interest compounded daily. So in the worst situation, from the $16,800 that you deposited at age 65, your Long-Term Care Insurance Premiums would have been paid from your annuity earnings for 17 years and you would still have $22,174 left over. If the annuity met its projection of eight percent, instead of $22,174, you would have accumulated $42,929 net. This means you would have more than doubled your principal and had your Long-Term Care Insurance completely paid for.

There is another benefit with an annuity; i.e., when you die your family will receive the money without going through probate. Keep in mind that annuities are only a good idea if you can afford to set the funds aside (and not need the money to live on).

I can only stress Long-Term Care Insurance is no different than automobile, disability, or fire insurance: if something happens, you want to be protected.

There are no free rides. "Return of Premium" can work in favor of the insurance company, especially when you need care, simply because with it, your benefits are lower and they are paid out for a shorter period of time.

Before we continue, we must keep in mind what we started with in this section - "creative packaging". Some companies have already seen the benefit for themselves in this concept and have begun marketing annuities for this purpose. At this juncture this author would suggest extreme caution, for a few reasons.

1. The annuity product may be more favorable to the insurance company in terms of interest rates or limitations.

2. Their Long-Term Care Insurance may not be shaped to your particular situation and needs and it may be priced too high versus other available programs.

3. You're locked into their program because they control the premium payments coming out of your annuity.

Today there is a wide range of different types of annuity products. Some are better suited for your personal situation than others. It may be better for you to keep these two items separate, i.e., it may be best to work with someone who can offer many types of annuities and does not work under a conflict of interest. This author recommends that you design the program around your needs and goals. When you control the money that you have set aside it can be planned to be flexible when funds might be needed for something else. With today's economic uncertainty, liquidity is vital to a well-rounded portfolio.

When you buy an annuity, base your decision on the guarantees, NOT the projected rate, because it tells you what the worse case scenario will be, so if you come near or close to the projected rate, you will welcome it with open arms.

LIFE INSURANCE AND LONG-TERM CARE

Some life insurance programs permit you to use one half of your death benefit for Long-Term Care. (Policies may vary.)

For example: If you had a $100,000 death benefit, you could use $50,000 for Long-Term Care Benefits sometimes can be paid out in monthly increments. They work like this: You are entitled to two percent of your death benefit each month until the maximum of $50,000 has been paid. Two percent of $100,000 gives you $2,000 per month of taxable income. The only problem can be if the nursing facility charges you $3,000 or $4,000 and if your care continues beyond 17 months. Your personal funds could be wiped out in a very short period of time.

Policies are improving, and for people under age 40 this could be a good vehicle in retirement planning, as long as they use a high enough death benefit to keep up with the cost of care.

MORTALITY VS MORBIDITY

It is important to understand what risk Long-Term Care Policies insure. It is NOT a mortality risk related to a person's death. More accurately, it is morbidity risk, related to a person's health Disability insurance, medical expense and dental expense insurance are examples of morbidity risks. A person who requires assistance with Activities of Daily Living may require care for many years. Most insurance carriers that offer life insurance with a Long-Term Care provision approach Long-Term Care from principally a life insurance perspective. Life insurance carriers are familiar with underwriting mortality risks. As a result their Long-Term Care coverage became what is known as "Living Benefits" riders to conventional life insurance policies

The true intention of life insurance is to create an immediate estate upon death and it may also be used to pay estate taxes. For someone close to, or enjoying their retirement, their estate should already be in place. At this stage they are looking to protect it.

There is another important consideration: Premiums for life insurance are expensive in the upper age brackets. In the long run, a good Long-Term Care Insurance Policy will make more sense and be less expensive than a life insurance program at those ages. Life insurance has been used in low death benefit amounts (Policy's Face Value) to replace the premiums that were spent on the Long-Term Care Insurance upon death.

BENEFITS TO LOOK FOR WHEN SELECTING A LONG-TERM CARE POLICY

1. Ask specifically if the company will contact your attending physician to get your medical background or require a physical exam before issuing a policy. If they do not, ask how they check medical history. If the Agent is evasive or if you really are not sure about his answer, call the insurance company directly and ask for the underwriting department. Pose the same question. Write down the name of the person you spoke with at the insurance company and ask them to send their response to you in writing. You may also want to find a new Agent. The purpose of this step is to prevent denial of claims or having your policy rescinded later for medical reasons. If you already have a policy, call the company direct and ask them if they did get an Attending Physician's Statement from your doctor before they issued your policy. If they did not, it may be a problem when you need to file a claim.
   
2. No prior hospitalization. This gatekeeper has been removed on tax qualified plans and the market has also eliminated this clause. The reason is that 61.3% of all nursing facility residents enter nursing facilities directly from their home; 38.7% enter from a hospital.
   

3. Guaranteed renewable - so company cannot cancel policy in the future as long as you continue your premium payments.

4. Be Careful of Group Policies. Group coverage does not always mean that the policy offers less expensive or better coverage. In fact, some companies file for group because their policy would not be approved as an individual policy because the requirements are much stricter on individual plans.

5. Policy must cover all levels of nursing facility care, as well as cover Alzheimer's Disease and other related demonstrable organic illnesses, with no prior level of care requirement to become eligible for custodial care benefits.

6. Waivers of Premium while you are receiving benefits.

7. Home care benefits that cover any and all necessary services through any qualified home health care agency that is licensed and has a Registered Nurse supervising the staff. Watch out for policies that require one day of primary care per week on your home care benefit. This provision could work to deny your custodial care benefit.

8. Your policy should cover any skilled, intermediate or custodial care nursing facility in the U. S. as well as non-Medicare approved facilities. It should NOT require pre-certification by the insurance company; otherwise, it could limit your choice of facilities and possibly reduce the payable benefit on your coverage.

9. You should carry an inflation rider if you are under the age of 70. Generally, over age 70, inflation riders favor the insurance company and add about 40% to 56% to your premium. (See Benefit Increase Option on this Site.) If you are over the age of 70, you may be better off to take out a higher initial benefit, as explained in an early section of this booklet, as a hedge against future inflation. Remember the income rule.

10. Right of Cancellation - Any insured should be entitled to a thirty day trial period when you receive your policy. If not 100% satisfied, you should receive a full and complete refund.
    
    All sales material and contracts should be in an easy to read form. At time of sale make sure you have received an outline of coverage, a receipt for your check (make your check out to the insurance company only, NOT to an Agent OR an agency) and a sales brochure listing the benefits you applied for.

11. Companies offering Long-Term Care coverage should have no less than an A Excellent rating by A. M. Best Company - (independent analyst of the insurance industry), to ascertain their financial stability. If you have health problems and you have been declined by A or A+ company, you may need a substandard company. In that case you do not want to use a carrier that has less than a B+ rating.

12. Determine how long the insurance company has been in this line of business. This is one way to judge the company’s commitment and strength to weather fluctuations in the economy and to adjust to claims and its own business planning to effectively serve its policyholders.

UNDERSTANDING HOME HEALTH CARE

Home health care can be defined as this: Caregivers in your home to help you maintain an optimal level of health independence and to provide assistance to the main care providers, i.e., your spouse or other family members.

Some of the required home care services.

Medicare and most major medical insurance policies provide home health care only for skilled nursing care, intermittent care and specialized therapy (see Medicare sections for exact guidelines).

Most supplementary services are provided by volunteers, or are privately paid services. Check your senior citizen community agency for more information on supplementary services and where they can be located. Supplementary services are:

ChildCare - helps a parent if they are ill, or unable to find someone to supervise their children, or provides relief to a parent who has an ill or disabled child.

Pastoral and rabbinical counseling - gives comfort and solace to individuals and families during times of illness.

Transportation and escort services - provides transportation to and from medical services, as well as encouragement to venture out into the community.

Friends in need - provides a once a week visit to someone who is homebound. They converse, write letters, read, or just gives companionship to the homebound person.

Household chores - provides help with household maintenance, lawn, outside cleaning, snow removal, and minor household repairs, etc.

Telephone reassurance - offers a friendly voice when the resident is alone and helps in moments of loneliness, depression or emergency.

DESCRIPTIONS OF HOME HEALTH CARE SERVICES

Registered Nurses - Are licensed in the state in which you reside. The duties they perform include administering drugs, care of wounds, intravenous feeding for nutrition or medication and other direct nursing services. They may also supervise nursing assistants. In order for a Registered Nurse to provide service in your home, your physician must provide approval to the home health care agency.

Licensed Vocational Nurses/Licensed Practical Nurses - Are also licensed in the state where you live. LPN's/LVN's handle monitoring of medications, patient assessment, injections (except IV's), wound care and other therapeutic treatments.

Home Health Aides or Certified Nursing Assistants - These people receive formal training and are certified in the state in which you reside. The most common services provided are bathing, meal preparation, helping patients in and out of bed and tending to personal needs. Home health aides may not administer medications, however, they may remind patients to take their medications. Home health aides should be supervised by a Registered Nurse on a regular basis.

Homemakers - Services include companionship and light housekeeping services. Formal training is not required and they are not certified to assist clients with personal care. They should, however, know CPR.

Sleepovers - Provide home health aid for patients who want someone to remain overnight. The shift is normally for ten hours (it can vary) and includes approximately one hour of assistance in the evening and in the morning. The home health aide is entitled to sleep through the evening and respond twice if needed. If the aide is awakened three times or more, the shift will automatically be billed at the hourly rate for home health care. Patients must provide adequate sleeping facilities for home health aides.

Live Ins - Are designed for those who need assistance over the course of the day. Home health aides and homemakers are available on a live in basis. (See job description for both.) This service may be a more economical choice for those clients who do not need extensive assistance. A 24-hour live in must be given time to eat, sleep and leave the home on a daily basis. People requiring intensive service and care every hour of the day cannot use live-ins. They would use hourly services.

In most cases, live ins and other home care services are more expensive per day (see rates below) than care in a nursing facility

Keep in mind that home care is designed to allow proper care and treatment in a home environment. Home Care is more expensive than nursing facility care. In addition people on home care usually need to move on to the more advanced resources of institutional care within seven months. (There are always exceptions). We also do not hear of many people ever being financially destroyed due to home care; we do hear of hardships due to nursing facility care. This is because families realize early on that they do not have the staff or facilities to provide long periods of continuous care at home. Also, when you hire an agency or licensed nurse, you become an employer! It is very hard if you are single and require care, as there is no one to oversee the care you need. Remember also, these are complete strangers coming into your home. Home care coverage is really intended to assist caregivers at home (the spouse or other family members), to prevent their own health from deteriorating, in addition to furthering the caregivers' lifestyle with some normality. Home care riders, attached to a nursing facility policy are excellent options.

Fees for a Registered Nurse or Licensed Practical Nurse range from $22 to $45 per hour and most agencies require a three-hour minimum. Fees for home health aides range from $11 to $16 per hour with a three-hour minimum. Homemakers usually charge from $9 to $14 per hour with a three-hour minimum. Sleepovers receive $70 to $130 per day and live ins can cost $110 to $175 per day.

As an example, if you need assistance with basic everyday living activities and you hire a home health aide to provide eight hours of service, the average cost for this service will be approximately $112 per day. We must realize that if a person requires eight hours of care, it is probable he/she will also need assistance for the remainder of each day. If you were afflicted with Alzheimer's Disease, or senility, or any other custodial issue, it would be necessary for you to contract live in services through a home health care agency.

Mrs. Walker has a cognitive impairment and requires continuous care. Her family hires Ames Home Health Care Agency and the Agency sends over a live-in health aide at a charge of $145 a day. Mrs. Walker has a Long-Term Care Policy that will provide $60 a day for care, which means that Mrs. Walker still have to spend $85 a day from spendable income. The family will soon learn that even with a little help at home they will not he able to continue this type of care for a long period of time.

Most Stand Alone home health care policies offer up to $200 per day with a benefit limit ranging from one to an unlimited number of years. Most DO NOT pay for homemaker services. They also require that you go through a licensed home health care agency or licensed nurse. Be very careful when looking at Stand Alone home health care policies.

There is a new generation of Long Term Care Policies (known as "Pool of Money") that are designed to meet the needs and expenses of care at home or in assisted living. These types of policies pay 50%-100% for community-based services or the actual cost up to the daily benefit of the Long-Term Care facility you selected, whichever is less. Today you can have a policy that has extensive home health care benefits, which means you can receive substantial benefits for care received in the comfort of your home. Daily benefits range from $50 to $300. Benefit limits range from a three-year limit to unlimited lifetime. This type of policy can also offer Adult Day Care, Respite Care and Hospice Care. Some carriers currently on the market also double your daily benefit if the care required is primary care. For example, if the daily benefit is $100 it will pay $200 for an RN, LPN, LVN or licensed specialist in such areas as Speech, Respiratory, etc. The carriers recognize the fact that trained professionals charge more.

Companies are creating as many new or better-defined benefits to improve the flexibility of Long-Term Care Policies. ALWAYS REMEMBER:

It’s not what you spend that makes a good deal on a Long-Term-Care Policy.

It’s what you get for your money!

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