Shifting the paradigm of long-term care

April 5, 2009
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Amazing medical progress has occurred over the last century. We can now expect to live well into our 80s or even years beyond. Through those years, most of us desire to be comfortably retired. We would like to keep up with the cost of living, continue our lifestyle, and provide for the cost of our care. All this we hope will come true because our financial foresight will have provided sufficient funds to retire and do all those “things” retirees do.

In spite of this, we still need to ask, “Are we going to outlive the income from our assets which support our retirement as well as the additional cost of any long-term care?” Financing our long-term care is an important component in retirement planning. It is often overlooked.

In order to understand our choices around long-term care, we need do the following: define LTC as it is today; understand how LTC is financed; realize the cost of LTC; and understand LTC insurance.

We need long-term care when we are no longer able to perform the “activities of daily living.” These include bathing, toileting, transferring, eating, continence and dressing. Also included in the list is cognitive impairment or Alzheimer’s disease. When examining what long-term care is today, it is necessary that we abandon the paradigm that long-term care means only “nursing home” or “facility” care. Remaining in our home is the top priority with most of us when we need long-term care.

While most people know something about long-term care, misconceptions still exist. Take a look at these:

  • Medicare will pay for long-term care. Medicare pays for skilled nursing care only after we are discharged from the hospital after a three-night stay. Medicare pays for skilled nursing care as long as we continue to get better. After 20 days, there is a co-payment of $236 per day. Even though Medicare can provide up to 100 days of skilled nursing care, the average claim is between 11 and 23 days. If after this time we are no longer improving, the care changes from skilled care to custodial care. Medicare does not pay for custodial care.

  • Medicaid will pay for long-term care. Although Medicaid is an amazing safety net for long-term care costs, it comes with stipulations. It cannot be used for home care; it only pays for nursing home care. Our assets must be less than $2,000. One mistake people make is trying to get rid of assets by gifting (to children, charities, etc) to reduce their assets to the $2,000 maximum. Think again! On the day we apply for Medicaid, there is a five-year look-back period. This means that money gifted during the previous five years will need to be returned to cover the cost of LTC before qualifying for Medicaid. An interesting consideration concerning second marriages is that Medicaid can legally ignore prenuptials. Thus, before one can qualify for Medicaid, the spouse must spend down his or her assets as well.

  • My spouse will take care of me. Yes, our spouse will take care of us if he/she is willing and able. Family members and friends serve as sole caregivers for 70 percent of our elderly population who have no LTC insurance. Despite this, the consequences of spouses caring for you can be devastating. It is not unusual for the care-taking spouse to become chronically ill. Long-term care is overwhelmingly a women’s issue. Women often live longer than men and become the caregivers. In the end, they are the primary recipients of long-term care.

  • My children will take care of me. It may be comforting to believe that our children will take care of us but who really wants our children to be so burdened? I want to “bite a rock” when I hear people say, “My children will take care of me; they owe it to me.” Yes, our children will probably take care of us because it is the right thing to do, not always because they are able or have the desire. When we need care, our children may be in their 40s, 50s or 60s and in the middle of careers and grandparenting. It takes a great toll on children and families when they try to provide long-term care.

  • I have invested wisely and have enough assets to provide for my long-term care. We only need to consider today’s economy to see what is can happen to our investments. We can acquire professional advice to see how long our income from assets will last, particularly when we need long-term care. Also we need to know the cost of long-term care. Families who have experienced caring for loved ones over a long spell understand this. Although it varies from community to community, the national average daily cost of a private room in a nursing home is $203, or $74,095 per year. The average hourly rate for a home health aid is $19.

  • I will purchase LTC insurance to cover the cost. Insurance is, of course, risk protection. In this case, it helps protect you and your caregivers from the consequences of living too long. Long-term care planning should be discussed with your financial adviser. As part of your retirement portfolio, LTC insurance can keep you in your community without financial devastation.

My goal is not to convince you that such insurance is the best answer for everyone. It is simply to let you know how it protects you, your family and loved ones from devastating loss.

Prior to 1996, LTC insurance policies were “pretty crummy.” Policies were sold to people who often could not afford them. Underwriting was too liberal and created losses that caused many carriers to “bail out” of the business. Policies were not tax qualified. Carriers often made claims difficult. In 1996, HIPPA stepped in with a velvet hammer to establish specific rules to govern all tax-qualified policies. These tax-qualified policies now followed stringent rules. One could include eligible premiums (established annually by the IRS) as medical expenses. Itemized deductions include medical expenses, eligible long-term care insurance premiums, as long as they totaled at least 7.5 percent of adjusted gross income. In addition, the benefits received from your policy are tax-free.

Each LTC insurance policy offers its own specific features. Some are included in the base policy and some are in the form of riders at an extra cost. Most solid carriers include care coordinator services, bed reservation benefits, hospice care, respite care and international travel benefits. All offer home care as well as facility care. The benefit amount for home care should be the same as the facility benefit. Home care is NOT less expensive. Even though premiums for home care will be higher, stick with the same coverage amount. The shared care rider is a great option for couples who wish to share years in their policy with each other if needed.

Jerilee Bouma has earned the designation Certified in Long-Term Care, a rigorous multidisciplinary certification focused on the profession of long-term care. She also is certified in Partnerships agreements.

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