Medicaid and the DRA of 2005
A speeding ticket site may seem like a strange place for this article and it is. However, if you are a member of the Baby Boomers this has some important information the government is not providing until it is too late. Nothing new about that! If you have elderly parents or are approaching retirement age, you need to consult with an elder care attorney. Contact us and we will give you some references.
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A FAILURE TO COMMUNICATE: LONG-TERM CARE FOR THE BABY BOOMERS
L. Wayne Patterson
TABLE OF CONTENTS
II. ITS REALITY TIME FOR THE BABY BOOMERS!
A. Just Who are These “Boomers” Anyway?
B. The Boom in Long-Term Care
1. What is Long-Term Care?
2. Who is Likely to Need Long-Term Care?
3. How Much Does Long-Term Care Cost?
III. THE GOVERNMENT WILL TAKE CARE OF ME-NOT!
A. Social Security
` 1. I’m From the Government and I Want Your Property.
2. Will Your Children Have to Pay?
3. The Deficit Reduction Act of 2005
a. The Nursing Home Bankruptcy Act of 2005
b. Just Leave My Home Out of It!
d. The Rest of the Story
IV. IS LONG-TERM CARE INSURANCE THE BABY BOOMER’S ANSWER?
A. Is Margie Eligible for Long-Term Care Insurance?
B. The Decision to Purchase Long-Term Care Insurance
C. How to Choose a Long-Term Care Insurance Policy
C. Private Long-Term Care Insurance
D. The Long-Term Care Partnership
V. CONCLUSION: A FAILURE TO COMMUNICATE
The Government is taking the home Mary and Marshall Brandenburg worked for all their lives. Mary and Marshall poured all of their assets into realizing the American dream of home ownership. Now they are among the thousands of seniors who are having that dream extinguished by the estate recovery provision of Medicaid. Mary has lived in a nursing home since 2001. When she dies, the state of Georgia will collect the cost of her long-term care from her estate, wiping our any inheritance for her family. Like Mary and Marshall, many Americans
think the money taken out of their paychecks every week for Social Security, Medicare and Medicaid will cover their long-term care. This is simply not true.
This paper explores the misconception held by a significant number of people that Government programs will pay for long-term care. This paper also discusses the way Congress altered the role of Medicaid through passage of the Deficit Reduction Act of 2005. The policy changes of the DRA substantially affect estate planning and increase the need for long-term care insurance. Also included is a discussion of the provisions a long-term insurance policy should provide. The two main delivery methods of long-term care insurance are purchasing a policy through a private carrier or a state sponsored Long-Term Care Partnership Program. The conclusion advocates immediate nationwide implementation of the Long-Term Care Partnership Program coupled with a campaign to educate Americans of their need for long-term care insurance.
II. ITS REALITY TIME FOR THE BABY BOOMERS!
Americans are living longer than ever and the first members of the Baby Boom Generation will reach 65 in four more years. The reality of old age is now staring them directly in the face. As one recent blogger lamented: “I was cleaning the bathroom yesterday, wiping down the mirror, when it happened. It stopped me in my tracks, mid-swipe, and I couldn’t believe my eyes. I blinked hard, took another look, but there was no denying the truth. I have become my mother.” Many of them are, or have been, care givers for their parents. Now they are facing the probability of needing long-term care for themselves or their spouses.
A recent study by AARP shows over 50% of people over the age of 45 think Medicare will pay for nursing home or assisted living costs. Nearly half think the same for Medigap/Medicare Supplemental Insurance. Only a few can estimate the cost of long-term care services within 20%. A significant number (29%) stated they have purchased long-term care insurance. However, estimates of the number that actually have long-term care insurance are in the 10% range. The implications of the survey are clear. A majority of Americans are unaware of the need to plan for the potentially catastrophic costs of long-term care.
A. Just Who Are These “Boomers” Anyway?
The U. S. Census Bureau defines Baby Boomers as the 78 million Americans born between 1946 and 1964. They comprise approximately 30% of the total population and are more numerous than any other generation. Boomers transformed America into what is now
the wealthiest and strongest nation on the planet. Along the way, they also transformed our culture. Boomers are the driving force behind the emphasis on individual rights, from civil rights to gay rights. They started out by challenging authority but now control almost every major institution. Now they are facing retirement but the majority of them have not done any type of estate planning. According to a recent study, 60% of Americans between the ages of 21 and 64 have neither an IRA nor a 401(k). According to Cheryl Russell, a well-known demographer, most Boomers “haven't faced retirement planning yet, but when they do, it will come as a shock."
B. The Boom in Long-Term Care
At birth, a Boomer could expect to live to the age of seventy. Now Americans reaching 65 have a life expectancy of 20 more years. This trend of more of us getting older and living longer will continue. The longer you live, the more likely you are to need some type of long-term care. For some it may be only for a short period, for others it may be for many years. Individuals 85 and older, the group with the greatest need for long-term care, are the fastest growing portion of our population. At age 65, there is a 44% lifetime risk of entering a nursing home. According to the U.S. Department of Health and Human Services, approximately 15 million Americans paid a health care provider for long-term care in 2000. They estimate this figure will practically double to 27 million by 2050. The trend is clear, more and more of us will need long-term care.
1. What is Long-Term Care?
Long-term care encompasses a broad range of services needed by people who are unable
to care for themselves because of illness, disability or aging. Long-term care is the assistance needed to perform the essential activities of daily living (ADLs). The term, activities of daily living, means activities that people generally do by themselves on a daily basis. These are
dressing, bathing, transferring (getting into and out of bed or a chair), walking, eating and toileting/continence. Individuals may receive this assistance at home, in an assisted living facility, adult day care center or skilled nursing home. Medicaid eligibility or payments from a long-term care insurance policy usually require the person be unable to perform two or more of the ADLs or have a severe cognitive impairment.
However, long-term care encompasses more than just meeting the chronic health care needs of an individual. Maintaining your quality of life and lifestyle preferences are also important components. Providing assistance in a traditional facility is usually more efficient and cheaper than assistance provided at home. Yet most people prefer to remain in their home and maintain control over their daily activities. Whether this is possible depends on the individual’s financial situation and the availability of support from the family or community.
2. Who is Likely to Need Long Term Care?
A debilitating illness or accident can strike anyone, at any age. The need for long-term care is not restricted to the elderly. Approximately 40% of the long-term care population is under the age of 65. However, the elderly face a greater risk of needing institutional long-term care with women living alone facing the greatest risk. According to a 1999 survey, 46% of all nursing home residents were over the age of 85. The breakdown by sex was 72% women to 28% men with over 75% of all residents single, widowed, or divorced. Women have a longer life expectancy than men have and are more likely to suffer from a debilitating illness. Men just die while women linger. As a result, the odds of a man over 65 needing nursing home care are one in three while the odds for a woman are one out of two.
3. How Much Does Long Term Care Cost?
Long-term care is not cheap. For those with modest incomes, the cost can be financially devastating. The national average for a semi-private room in a nursing home is $67,000. The national average for home health aides is 19 dollars per hour and home companions is 17 dollars per hour. John and Emily are a typical example. Although they never owned a home, they did have assets in the form of CD’s, stocks and IRAs. Confined to a wheelchair, Emily suffered from numerous health problems including Parkinson’s disease. John worked as a sales representative for a homebuilder and cared for Emily in the home with the assistance of nursing aides. Eventually the deterioration of John’s health, coupled with the inability to find qualified workers, forced Emily into a nursing home. Between 1999 and 2003, John and Emily spent over 165,000 on long-term care.
Discounting the value of their homes, most people over the age of 65 do not have sufficient resources to pay for one year of nursing home care. Only 20% have enough assets to pay for three of more years care. The enormous costs of medical expenses, drugs, at-home care, assisted living, and nursing home care can quickly deplete the nest egg of even those with substantial assets. As the Baby Boomer surge hits retirement age, the demand for long-term care will dramatically increase. How to pay for this increase will continue to be a critical issue for families. Current government policies make it clear that only those of very limited means can expect to receive help.
III. THE GOVERNMENT WILL TAKE CARE OF ME – NOT!
We take our paycheck home and look at the stub. Under the deductions column we see listed Social Security (FICA), Medicare, and Medicaid. Our employer makes sure we know they are paying a matching sum to the government. Most people know a little about Social Security and think they know about Medicare and Medicaid. Many have paid into these programs all of their working lives and expect these public programs to cover their long-term care. The reality is quite different from their expectations.
A. Social Security
Although Social Security encompasses several social insurance programs, the largest is the payment of retirement benefits. The Social Security Administration keeps track of a worker’s earnings throughout their lifetime. Then Social Security pays the worker a monthly benefit based on his earnings record and the age at which he chooses to begin receiving benefits. Spouses and minor children of a worker may also be eligible for benefits. A worker retiring today at age 65 with maximum taxable earnings since age 22 will receive a monthly check of $2121. However, few receive the maximum benefit amount. The average 2006 monthly benefit for a retired worker was $1,044 and the average for a worker and spouse was $1,712. The average benefit for a widower living alone, one of the high-risk categories for long-term care, was $1,007 dollars. Without other income, these amounts are not enough to pay for basic daily needs, much less long-term care.
Social Security is a “pay-as-you-go” system with 3.3 workers currently supporting each retiree. Estimates are this number will fall to just two workers per retiree by 2040. As the Boomers enter retirement age, the number of people receiving benefits will increase. Unless Congress acts, Social Security expenditures start to exceed revenue by 2027 and completely exhaust the Trust Fund by 2040.
Some of the options to maintain the solvency of Social Security are increasing the payroll tax, decreasing benefits, or extending the retirement age. A payroll tax increase reduces take-home pay. A decrease in benefits reduces the money available for seniors to pay their daily expenses. An increase in the retirement age results in seniors dying before becoming eligible for benefits. Any of these options reduces the assets available to an individual should they require long-term care. The future for Medicare is even bleaker.
Medicare is health insurance for those 65 and older. Most people do not have to pay for basic coverage since they paid Medicare taxes while working. Basic coverage only pays for hospital expenses. Additional coverage for doctor visits and medicine requires the payment of a monthly premium. In addition to a monthly premium, there are also co-payments, deductibles and other health care expenses payable out-of-pocket. A 65-year-old couple needs about $215,000 to cover these additional costs over the rest of their lives. This estimate does not include any long-term care expenses such as assisted living or nursing home costs.
Medicare is also in a squeeze. On one side is the yearly increase in the number of people receiving benefits and on the other is the yearly increase in the cost of health care. Estimates project exhaustion of the Medicare Trust Fund by 2018. Seniors can expect their benefits to dwindle and health care providers can expect a reduction in reimbursements. Medicare beneficiaries will have to use a growing share of their income in order to receive quality health care.
This increase in out-of-pocket expenses will reduce the assets available for long-term care. Many people have the misconception that Medicare will pay for assisted living or extended nursing home care. It doesn’t. Neither does the supplemental Medigap/Medicare Supplemental Insurance. Medicare only covers a stay of 100 days in a skilled nursing facility after discharge from a hospital. The purpose of the stay is rehabilitation and there are strict requirements in order to qualify. You must be in the hospital for three days immediately prior to admission to the nursing home, the facility must be Medicare certified, the bed must be Medicare certified, and you must need daily skilled care certified as medically necessary by your physician. Then Medicare will only pay 100% for the first 20 days. From day 21 to day 100 Medicare pays everything except for a co-payment of approximately $120.00. Medicare stops all payments after day 100. The only government program that does pay for extended nursing home care is Medicaid.
Medicaid is a health insurance program for the poorest and sickest Americans. Funding comes from each state’s general fund with matching dollars from the federal government. Significantly, it does cover long-term care and currently pays almost 50% of the total cost for all long-term care. However, Congress intended for Medicaid to provide benefits only for low-income individuals with few resources. To qualify for assistance, you typically have to spend down your assets to $2,000 not including your home and car.
In order to meet the Medicaid requirements, individuals and their attorneys utilized numerous ways to “give away” assets. Fewer people paying for their own long-term care increased the Medicaid burden on state budgets. States responded by actively pursuing the recovery of assets from Medicaid recipients or their children. The DRA also contains a wide array of measures aimed at reducing the ability to transfer or shield assets and still qualify for Medicaid assistance.
1. I’m From the Government and I Want Your Property.
Delores and Francis Barg married just after Word War II and later acquired real estate, holding it as joint tenants. In 2001, Delores’s health declined to the point she needed nursing home care and she transferred her share of the property to Francis in order to qualify for Medicaid benefits. Between 2001 and her death in 2004, Medicaid paid over $100,000 for her long-term care. When Francis died, the state filed a claim against his estate. The Minnesota Court allowed the claim up to one-half of the total value of the property.
In 1999, Michael Demartino similarly transferred his interest in their New Jersey home to his wife Anne. Michael then entered a nursing home and began receiving Medicaid benefits. Anne died in 2000 leaving Michael’s elective one-third share of her estate in a testamentary trust. Upon Michael’s death, the assets in the trust were to pass to their children. Michael died in 2001 and New Jersey placed a Medicaid recovery claim against his estate. Transfers of assets to an inter vivos trust are excluded when determining eligibility for Medicaid provided Medicaid is named as the primary beneficiary of the trust. The estate claimed this provision did not apply to a testamentary trust but the New Jersey Court disagreed holding: “The fact that Michael did not have complete legal and beneficial ownership of the trust assets at the time of his death is of no consequence.”
Congress mandates that states implement estate recovery laws as a measure to mitigate the increase in the demand for Medicaid benefits. Courts have interpreted this mandate to give the states “wide latitude” in going after the estate of a Medicaid beneficiary. When preparing a will or trust for a client, attorneys need to consider and make their client aware of the possibility of Medicaid recovery. One common approach, especially if there is a second marriage, is for the husband to will the family home to his children with a life estate to his current wife. Since the statute allows states to include the value of a life estate, the children are finding out they are getting less than what they anticipated.
A life estate may also prevent an individual from qualifying for Medicaid. In Cook v. Ohio Department of Job & Family Services., the court upheld denial of benefits where Mrs. Cook reserved a life estate in two lots transferred to her son. Although the son subsequently sold the two lots for $13,000, the Department valued Mrs. Cook’s life estate at $7,583.42 using the life estate table in the Ohio Administrative Code. There is also the possibility of recovery from the children of a Medicaid beneficiary.
2. Will Your Children Have to Pay?
Asset transfer to adult children may cease to be an issue in the near future. Although rarely enforced, twenty-two states have enacted civil “filial responsibility statutes”. The policy behind a filial responsibility statute is that children are responsible for the care of their parents. Society should not be responsible for the care of a parent when there are children financially able to pay. In Swoap v. Superior Court of Sacramento County, the Court upheld the constitutionality of a statute requiring the child of a welfare beneficiary to reimburse the state. In Pennsylvania, the Superior Court held Elizabeth Budd responsible for the nursing home bills of her indigent mother. Although the mother would have qualified for Medicaid, Ms. Budd failed to follow through in filing an application with the County Assistance office. The elder Mrs. Budd died owing the nursing home approximately $68,000. The nursing home filed suit against Elizabeth on a variety of claims including breach of contract and duty of support. Since Elizabeth never signed the nursing home contract, the Court dismissed the breach of contract claim but found for the nursing home on the duty of support cause of action. Pennsylvania recently revised the statute by adding a provision allowing a public agency to sue for reimbursement of assistance provided to the indigent parent. The implication is the state will now actively seek reimbursements from children. Significantly, these statutes do not apply to assistance received from Medicaid.
Once a patient qualifies for Medicaid, Federal law requires a nursing home to accept the payments from Medicaid as payment in full. The home or the state cannot go after the child for any additional charges. When the parent does not qualify for Medicaid as in the Budd case, the child may have liability under one of these state statutes. Planning for long-term care may soon become of equal importance to seniors and their children especially considering the policy implications of the DRA. The policy behind the DRA is to require more people to pay their own way. A Federal “filial responsibity statute” eliminating the Medicaid exclusion is a logical extension of that policy. The message is children need to plan for the long-term care of their parents since they may be the ones footing the bill through either estate recovery or filial responsibility.
3. The Deficit Reduction Act of 2005
The DRA includes provisions designed to stem the rising cost of Medicaid by ensuring that people needing long-term care spend their own income and assets before resorting to Medicaid. Supporters claim the new law will save the Federal government 6.9 billion dollars over the next five years with similar savings to the states. Opponents claim the Act will prevent many older Americans, especially those with Alzheimer’s, from receiving needed long-term care.
The debate is not over and the future of the DRA is uncertain. Constitutional challenges remain in the courts and the fight in Congress is far from over since the Democrats are now in the majority. Current House Speaker Nancy Pelosi specifically pointed to the Medicaid revisions when she called the DRA “immoral”. Regardless of the future, seniors, children, health care providers and elder care attorneys have to deal with current reality of the complex set of Medicaid eligibility rules set down by the DRA. The following discussion covers the main revisions to Medicaid mandated by the DRA but is only a general overview. Medicaid is a state run program and the eligibility rules vary dramatically from state to state. Exceptions and additional provisions apply if there is a community spouse, minor child, disabled dependent or special hardship. Each individual case is fact and state specific and may involve complex calculations. For the purpose of this paper, the examples provided assume none of the exceptions apply and there is not a community spouse.
a. “The Nursing Home Bankruptcy Act of 2005”
The most significant change mandated by the DRA is the increase in the look-back period for asset transfers. The look-back period and transfer of assets eligibility penalty discourages an individual from disposing of assets in order to qualify for Medicaid benefits. Transfers within the look-back period trigger a penalty delaying the date the individual becomes eligible for assistance. The DRA increased this period from three years to five. It also changed the start of the penalty date. Previously, the penalty date started when you made the transfer. Now the penalty period starts when the person has spent down his assets and then becomes eligible for Medicaid. According to AARP’s CEO Bill Novelli: “This would mean that a lower income stroke patient could be prevented from entering a nursing home, even if there were no alternatives, simply because she had helped a grandson with college tuition years earlier. A private-pay nursing home resident could be forced out of the home for a period of time, even after all her assets were exhausted because she contributed to a hurricane victim.”
For example, assume Mary is a nursing home patient and is paying for her care out of her own bank account. In December of 2007, she gives her grandson $25,000 to attend law school. After spending down her assets to $2,000, she applies for Medicaid assistance in December of 2010. The state may declare Mary ineligible for a certain number of months based on a complicated formula. The problem is who will pay for her care during her period of ineligibility. Mary has already spent down all of her funds to the $2,000 minimum required for eligibility so she is unable to pay. The DRA contains a provision preventing the state from paying. Unless Mary’s family is able to pay, the only option for the nursing home is to absorb the cost or put Mary out on the street.
b. Just Leave My Home Out of It!
Previously, Medicaid did not take into account the value of a person’s home when calculating their eligibility for benefits. Now, for the first time, the DRA sets a limit on the amount of equity a person can have in their home and still be eligible for assistance. The exclusion applies if your home equity is above $500,000 but a state does have the option of increasing the limit to $750,000. Since the National Governor’s Association is proposing reducing the limit to $50,000, the attack on the homestead exemption is likely to continue.
An individual creates an annuity by giving financial company money, which may grow tax deferred, and the financial company distributes the proceeds back to the individual in a variety of ways. There are two types of annuities. One is a qualified annuity such as an Individual Retirement Account or Keogh fund. The other type is a non-qualified annuity which is purchased by the individual outright and is not part or a retirement plan. The DRA included changes discouraging the use of non-qualified annuities to shelter or transfer assets in order to qualify for Medicaid. To avoid any penalty, an applicant must now declare any annuities and name the state as the primary beneficiary up to the amount of Medicaid assistance provided.
d. The Rest of the Story
The DRA contains a number of other provisions. The Family Opportunity Act allows states to provide Medicaid benefits to families with disabled children. The Money Follows the Person Demonstration will use grants as an incentive for states to increase funding for home and community based (HCBS) services, the State Option to Provide HCBS Services removes the requirement of a waiver before the states can furnish HCBS services to qualifying individuals. The Cash and Counseling Option allows states to pay any capable individual, including a relative, for HCBS services. In general, these programs reflect a policy change to focus Medicaid away from nursing home care and toward services in the community. The DRA also provides for the extension of Long-Term Care Partnership Programs (long-term care insurance) to all fifty states.
IV. IS LONG-TERM CARE INSURANCE THE BABY BOOMER’S ANSWER?
With the average cost of a year in a nursing home approaching $70,000 , an extended stay will completely exhaust the resources of the average American. Although the Baby Boomers are the wealthiest generation, even they might face selling the family farm or business to pay for long-term care. Consider a fictional small farmer in the low country of South Carolina. Joe has a few cows, raises soybeans and works in the local factory. He retires at age 65 and turns the family farm over to his son Joe Jr. Junior immediately expands the farming operation and starts making a modest profit. Joe Sr. dies leaving everything to his wife, Margie. Margie transfers the farm to Junior retaining a life estate. The next year Margie suffers a stroke and moves into a nursing home. A year in the home completely depletes her bank account and she decides to apply for her Medicaid benefits. She knows about Medicaid because Joe’s employer always deducted it each week from Joe’s check. Joe told her it was for their long-term care health insurance.
Under the DRA, Margie will not be eligible to receive Medicaid assistance for another three years. If she applies before the expiration of the five-year look-back period, the exclusion is for a longer period. Junior has a dilemma. Does he bring his mother home where she will not receive the proper care or does he attempt to pay for the three years in the nursing home out of his pocket? He is already paying for Margie’s out-of-pocket expenses under Medicare. Even if Margie does qualify for Medicare or Medicaid, the cuts in these programs are reducing the availability of quality care.
Health care providers participating in the Medicare and Medicaid programs receive reimbursement for services based on certain limits. The American Academy of Family Physicians calls the physician Medicare reimbursement system “inadequate and flawed.” Fewer and fewer medical students are choosing family medicine as a career at a time when more and more Americans will need their services. The Academy states the Medicare system fails to provide adequate compensation for physicians. The recent cuts in Medicare will force doctors to either retire early or limit the number of Medicare patients. In the future, it will be harder to find a doctor accepting Medicare while the number of people seeking appointments will increase.
Medicaid is not much better. In 2004, it cost a nursing home almost $13.00 per day more per patient than the reimbursement received from Medicaid. Nationwide this shortfall amounted to approximately 4.4 billion dollars. This places the nursing home industry in serious financial straits. In order to cover this loss many nursing homes limit the number of “Medicaid beds” available. Then they increase the amount the private patients pay in order to cover the loss from Medicaid. The Medicaid beds may also be in a less desirable portion of the home with fewer staff members.
A Medicaid patient may not be able to return to the same nursing home if he or she has a condition requiring admission to a hospital. There is no requirement for a nursing home to hold open a bed for a patient. Upon discharge from the hospital, the patient may be unable to find a suitable nursing home with an open bed. In order for Margie to receive the type of care Junior wants her to have, private pay may be the only option. One way to have the necessary funds for Margie’s long-term health care is through a long-term care insurance policy.
A. Is Margie Eligible for Long-Term Care Insurance?
You cannot crash your car and then purchase collision insurance. Insurance operates on probabilities. Enough people pay premiums and never have a claim to cover the cost of those who do. Long-term care insurance has medical underwriting requirements similar to those for life insurance. If you have a disability or a serious health problem, you will probably not be able to qualify. The longer you wait to purchase long-term care insurance the greater your risk of needing care and the higher your premiums. Consumer Reports recommends assessing your need for long-term care insurance around the age of 60 and purchasing no later than 65.
Here, Margie would probably have qualified prior to her stroke. By purchasing a long-term care insurance policy, Junior would have the money required to provide an appropriate level of care for her. Attorneys need to be alert to their client’s needs. A will or a deed may seem like a simple transaction but may actually have far reaching consequences. Here, the attorney handling the deed from Margie to Junior should advise them of the need to provide for Margie’s long-term care.
B. The Decision to Purchase Long-Term Care Insurance
Food, rent and electricity are more important than long-term care insurance. If you do not have the financial resources to continue the premium payments, you should not purchase long-term care insurance. Likewise, if your assets and income make you close to eligibility for Medicaid benefits, you should not purchase a policy. Your first step is to evaluate the goals you are trying to accomplish. In the Junior and Margie example, their goal is to preserve the family farm for future generations. Junior can achieve their goal by using a portion of the profits from the farm operations or even mortgage the farm in order to pay Margie’s monthly long-term care insurance premiums.
For an individual approaching 60 with sufficient assets, the decision to purchase long-term care insurance requires little analysis. Your goal is probably to preserve assets so a long-term care policy makes good sense. If you are an individual with modest means, you may require the services of an accountant to determine if your finances are sufficient to pay for foreseeable long-term care needs. This analysis is required not only to determine if you actually need and can pay for long-term care insurance but also to determine how much insurance you should purchase. The decision to purchase long-term care insurance requires a through examination of the individual’s goals, age, health, and financial status.
When shopping for a policy some of the major considerations are the financial stability of the insurance company; a reasonable benefit trigger; coverage for assisted living and home care; inflation protection; a waiver of premium provision; waiting period; benefit period and benefit rate. Several companies rate the financial strength of insurance carriers. The two major ones are Weiss Ratings and A.M. Best. Consumer Reports recommends only purchasing a policy from a company rated B+ or higher. An online search at the A.M. Best site shows a rating of A+ for many of the companies offering long-term care plans. Since you are purchasing a policy you do not expect to use for twenty or thirty years, there is no reason not to purchase from one of the higher-ranking companies.
The term “benefit trigger” refers to the level of care needed before payment of benefits under a long-term care insurance policy. The policy should only require a person be unable to perform two of the ADLs. Since bathing is the most common ADL for which individuals need assistance , be sure bathing is a triggering ADL. Most people prefer to receive long-term care in their home whenever possible. Their next choice is a continuing care retirement community or an assisted living facility. A policy that covers only nursing home care offers a high probability of the insurance company claiming there is no medical necessity for admittance to the nursing home. Selecting a policy providing home care and assisted living benefits allows the individual to choose the most appropriate delivery method for their long-term care.
Most policies offer an inflation protection rider. While this provision will drastically increase your premium, nursing home rates are increasing at over 5% per year. It is reasonable to assume government will continue to restrict payments to Medicare and Medicaid providers. In turn, they will have to pass on their increased costs to their private-pay patients. The best option currently available only offers a 5% inflation protection rider. Since even this may not be enough to cover the actual cost twenty years in the future, purchase the most protection you can afford.
One of the worst things that could happen is to pay for a policy for years and then allow it to lapse because you are unable to pay the premiums. This risk is greatest during the period when you need the policy the most, while you are disabled. A waiver of premium provision requires the insurance company to suspend premiums during any period you are eligible for benefits under the policy. The elimination period is the length of time from the beginning of the disability to the time the policy begins payment. Typical periods are 30, 90 and 180 days. Consumer Reports recommends a 30-day elimination period. The benefit period is the length of time the policy will pay benefits. The average nursing home stay is 2 1/2 years with only 10% of those entering a home staying more than five years. Based on these statistics, Consumer Reports recommends a four-year benefit period. An individual needs to compare the cost of premiums versus their reason for purchasing long-term care insurance. For individuals with substantial financial means, they may want to consider the longer elimination period of 180 days with a lifetime benefit period. For individuals with modest means, the Consumer Reports recommendations are sufficient.
A long-term care insurance policy should provide the ability to pay for quality health care. Since nursing home care is the most expensive, contact several of the better nursing homes in your area and be sure the benefits paid under the policy are sufficient to cover their rates. There are two main ways to purchase long-term care insurance. One is through a private insurance company and the other is through a state sponsored Long-Term Care Partnership Program.
D. Private Long-Term Care Insurance
Numerous insurance companies offer traditional private long-term care insurance policies. You can purchase a policy from an insurance agent, through the mail, over the internet or through a group policy at work. Associations, such as the AARP, also offer private long-term care insurance to their members. These policies may be very different from one company to the next so a careful comparison of the various plans is necessary. Long-term insurance protects an individual from the catastrophic costs associated with long-term care. So why are so few people purchasing long-term care insurance? Probably the main reason is the lack of knowledge about the costs of long-term care coupled with the misconceptions surrounding the benefits paid under Medicare and Medicaid. Long-term care insurance policies also carry high premiums relative to the probability of the need for long-term care. For Americans of modest means, they simply are not affordable. Once the benefits under the policy are exhausted, you still have to “spend down” all of your assets in order to qualify for Medicaid.
Another problem is the failure of some private insurers to pay the benefits due under a long-term care policy. A private insurance company is in business to make money. If they can make it practically impossible for a policyholder to qualify, the company makes more money. Jean Yoder paid her long-term care insurance premiums to Conseco faithfully for ten long years. In 1998, Jean entered a nursing home but did not require prior hospitalization. Conseco denied coverage based on the “prior institutionalization exclusion” provision in the policy. This exclusion required a 3-day hospital stay within the thirty days before the policyholder entered a nursing home. The Pennsylvania Court upheld the exclusion and the denial of benefits.
According to the New York Times, the number of long-term policyholders denied coverage due to bureaucratic obstacles and bad faith is in the thousands. Mary Beth Senkewicz, a past senior executive with the National Association of Insurance Commissioners stated: “They’ll do anything to avoid paying, because if they wait long enough, they know the policyholder will die.” California reports insurance companies denied one out of every four claims in 2005. Depositions reveal a pervasive system designed to delay or deny claims. One adjuster testified his instructions included withholding payments until receipt of documents not required under the policy. Another adjuster denied claims because of missing records but the company prevented her from requesting the policyholder’s physician or nursing home to furnish the needed documents. One possible solution is a Long-Term Care Partnership Program supervised by the state.
E. The Long-Term Care Partnership Program
The Long-Term Care Partnership Program is a partnership between private insurance companies and state government. Unlike private plans, Partnership policies contain a provision allowing the purchaser to avoid the spending down of assets in order to qualify for Medicaid and provide protection from Medicaid estate recovery. The public policy behind the Partnership Program is to encourage the purchase of long-term care insurance thereby spreading the cost of long-term care between the private and government sectors. Initially only four states implemented the Partnership Program before Congress imposed a moratorium on new programs. The DRA lifted the moratorium and laid down model standards the states must adopt.
The Robert Wood Johnson Foundation initiated the concept of the Partnership Program in 1987. The Foundation subsequently provided grants and leadership resources enabling the states of California, Connecticut, Indiana and New York to implement a Partnership Program. The goal of the Program is to reduce the state’s Medicaid cost by providing quality long-term insurance at rates attractive to middle income Americans. Sales have not met expectations and Partnership polices in force as of 2006 total only about 200,000.
One of the problems hindering sales may be the lack of reciprocity between states. Asset protection from Medicaid is the main selling point of Partnership policies. While you are entitled to the insurance benefits regardless of where you live, the same is not true for asset protection. Take for example a person who lives in New York, purchases a Partnership policy and subsequently moves to Indiana. He subsequently uses up the benefits of the policy and applies for Medicaid. He may fail to qualify for benefits since Indiana will not honor the asset protection feature of the New York policy.
After the enactment of the DRA, twenty-two additional states began the planning necessary to implement the Partnership Program. State programs must include model standards including inflation protection and dollar-for-dollar asset protection with no cap on the amount of assets that protected. The DRA also requires the Department of Health and Human Services to establish a method for a state to honor the asset protection provisions of a Partnership policy if the individual moves.
Let us assume Junior and Margie from the previous example live in a state participating in the Partnership Program. If Junior purchases a Partnership policy for Margie with a maximum benefit payout of $250,000, the policy will pay for Margie’s long-term care in a setting of her choosing. If her care exceeds the $250,000 policy limit, she can qualify for Medicaid retaining $250,000 in assets to pay for services not covered by Medicaid. The asset protection provision of the policy will still apply if she moves from New York to be with family in Indiana. Depending on the exact numbers, this will likely prove to be a win-win situation for both of them.
When a person is healthy, it is unlikely they will be willing to relinquish control of their wealth. However, this is when they are more likely to qualify medically for long-term care insurance and have the resources to pay the premiums. Here, Margie may be unwilling to transfer the farm to Junior. Even if she does, Junior will be liable for gift taxes and the state may attach the farm for the value of the life estate. If the value of the farm is $150,000, Margie can retain control of the farm plus another $100,000 and still qualify for Medicaid benefits. Upon her death, she can leave the farm to Junior without fear of estate recovery and he has at a stepped-up value in the property for income tax purposes.
It is too early to evaluate whether Partnership policies will actually mitigate the cost impact of the Baby Boomers on Medicaid. The four states with Partnership Programs claim they are seeing savings for Medicaid. On the other hand, critics argue that too few Americans can afford the premiums. Currently only the wealthier American’s are purchasing Partnership policies. Estimates are that only 10 to 20 percent of seniors can afford the monthly premiums. As a result, it will be difficult to sell enough policies to significantly effect Medicaid. While qualifying long-term care insurance premiums enjoy favorable tax treatment , additional government subsidies of premiums are necessary to bring these policies within reach of the average household. However, as that great country philosopher Aaron Tippen would say, “You Gotta Start Somewhere”.
Numerous organizations support the concept of the Long-Term Care Partnership Program. The National Association of Elder Law Attorneys, The National Association of Health Underwriters, the American Council of Life Insurers, and the Kaiser Family Foundation to name a few. AARP, the organization the most able to promote and inform seniors of the benefits of the Long-Term Care Partnership Program, is not supporting the Partnership Program. This is not surprising since the Partnership Program is in direct competition with the long-term care insurance offered by the AARP. Although the AARP claims it is dedicated to promoting the needs and interests of seniors, this is not the first time they have placed profit above the welfare of their members.
V. CONCLUSION: A FAILURE TO COMMUNICATE
The Baby Boomers are now starting to enter their retirement years, a time when the likelihood of their need for long-term care will increase. The U.S. Department of Health and Human Services estimates an increase from the current level of nine million people receiving long-term care to twelve million by 2020. The total cost of long-term care will also grow. In 2003, Americans spent approximately $183 billion on long-term care for persons of all ages. The Government Accountability Office estimates that by 2050 the cost of long-term care for the elderly alone will approach $380 billion in current dollars. At the same time the number of workers supporting Social Security, Medicare and Medicaid will decline. It is increasingly important for Americans to make choices about their future but most lack the information needed to make those choices.
Neither the Federal government nor the local state governments will be able to afford the long-term care cost of the huge numbers of Baby Boomers entering the health care system. The result will be a tightening of eligibility requirements while reducing the services available for those who do qualify. Their will also be reductions in the amount of reimbursement to the health care provider while the provider tries to cope with the growing long-term care population.
The DRA and the policy changes necessary to assure that Social Security, Medicare and Medicaid remain solvent will substantially affect all health care providers including physicians and community service providers. In the past attorneys and health care providers have usually been on opposite sides of the courtroom. Health care providers will now need to turn to experienced elder care attorneys to assure that their patients make the right choices in order to have the ability to pay for health care.
Governments will also become more aggressive in recovering the cost of long-term care assistance from the estate of the recipient or even from their children. Medicaid will continue provide for those actually needing help but the quality of that care will suffer. There will be a division of those needing long-term care. On one side will be those who can afford to pay for it themselves and on the other will be those dependent on the system.
It will be necessary for the Baby Boomers to pay privately if they want quality long-term care. Savings and investments may not be enough. They need to consider purchasing long-term care insurance to avoid being dependent on Medicaid. Unfortunately, Americans with modest means cannot afford a private long-term care insurance policy. The Long-Term Care Partnership Program offers the best option to reduce the cost by allowing the individual to protect assets and still qualify for Medicaid. The purchase of long-term care insurance protects the economic well-being of the individual’s family and helps maintain the availability of Medicaid assistance for those in the greatest need.
There is a looming crisis in long-term care facing the nation. Elder care attorneys, politicians, and health care providers can see this crisis on the horizon. However, the public either is in denial or is misinformed. Averting this crisis requires immediate action. Nationwide implementation of The Long-Term Partnership Program will be a start. However, unless Americans are educated on the need for long-term care insurance, the resulting crisis will force the liquidation of the nation’s small farms and businesses in order to pay for their owner’s long-term care.
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