Knowledge Base

What Is Long Term Care?

To better understand long-term care, let’s take a look at a typical day in most of our lives. We are able to get out of bed, use the commode, shower, groom, dress, prepare meals, shop for essentials, care for loved the ones, drive to work…and the list goes on….I think you get the picture.

The medical community defines the human ability to function as the Six Activities of Daily Living (ADLs) which are:

  • Bathing
  • Toileting (getting to commode on time, lift yourself on and off)
  • Eating (including preparation of meals, shopping, feeding ourselves)
  • Dressing
  • Transferring (carry yourself from one place to another)
  • Bowel and Bladder control
    OR
  • If we develop a cognitive impairment such as dementia or Alzheimer’s

LTC Insurance is a relatively new product when compared with life insurance or other related products. Life insurance was developed back in the late 1700’s. LTC insurance was first developed in 1974 and the basic premise was to cover people that were required to reside in Nursing homes. It has developed over the years into policies that cover you while you reside in your own home, an Assisted Living Facility or a Skilled Care Facility also known as Nursing Homes.

Over the years, there have been a lot of growing pains for the industry. When policies were first developed, there were no claims experience to draw on to determine whether policies were priced properly. Probably the biggest issue was determining how many people would actually lapse their policy. Insurers that were underwriting policies in the 1980’s and 1990’s assumed that 5-10% of policyholders would ultimately voluntarily lapse their policies. In reality, the lapse rate has been less than 2% and, in some cases, less than 1%. It turns out that most people do not want to lapse their policy. They understand the need that could occur unexpectedly anytime.

In the early 2000’s additional laws were established to regulate how much an insurance company could increase policy rates. These regulations have been accepted by some 41 states. They do not, however, affect policies that were issued prior to the time a particular state accepted the new regulations. The result is that when an insurance company today offers a “new model policy”, the likelihood of substantial rate increases is less likely. It does not mean that there will not be increases. For older policies, that is not the case. People having older policies should consider having them reviewed to be sure that they cover all your needs. We are happy to work with you in this regard.

Should an insurance company offer a rate increase, they will provide options should you decide that you do not want to accept those increases. Should this occur, you should feel free to give us a call so that we can work with you so you are able to make an “informed” decision regarding what you action you want to take.

A couple of items to keep in mind, when a company does have a rate increase, it must be approved by all the states in which it does business. So, you may hear that XYZ Company has raised its rate, it may not actually be a “new” increase but one that has not been approved by that particular state.

The other item to keep in mind is that these regulations apply to individual policies, not to group policies. Group policies are based on the experience factors (ie claims) of that particular group. As a result, a group, such as the Federal Government, is likely to experience a lot more claims than a much smaller group, thus they may experience a higher rate increase.

One of the first places that people envision care being given to someone who is in a long term care crisis is a “Nursing Home”; that’s not where most people actually receive care. Have you thought about where you would want to receive care should you need it? Believe it or not, most people receive care in their home. What part of the country do you live in? Do you live in a large metropolitan area, a suburb or rural area? What is the difference in cost for care in various locations?

This is one of the issues that we discuss with our clients as it can make a difference in the monthly benefit they may need to meet their expenses. Genworth Life Insurance Company has been a leader in research regarding long term care statistical information. Note the chart below. This chart indicates where care is generally provided for claimants as well as the national average for cost of these facilities.

Where Care Is Provided

HOME HEALTH
CARE
$3-5,000
/ month
68%
ASSISTED LIVING
FACILITY
$4-6000
/ month
13%
SKILLED NURSING
FACILITY
$6-8,000
/ month
18%

These figures are fine should you have a need for care now, but what will the cost be 25 years from now? Like everything else in life as a result of inflation the price seems to go up rather than down. Insurance companies are perfectly aware of this trend and price their policies accordingly. Companies usually have an “inflation protection” rider available to clients which will assist by increasing the monthly benefit you receive each year based on the type rider and inflation protection percentage you select. We highly recommend that our clients include this rider in their plan.

Based on the figures listed above, the chart below indicates what the cost would be for each of the types of facilities listed above. The figures reflect what the cost is now, and what it is anticipated to be in 25 years. We have broken down this information to reflect the different areas of Virginia. Should you want to know costs for other areas, please give us a call.

Median Cost of Care Virginia

  Home Health Care Adult Day
Health Care
Assisted Living
Facility
Nursing Home Care
  Homemaker
Services
Home Health
Aide
    Semi-Private
Room
Private
Room
National Median
2018 $4,004 $4,195 $1,560 $4,000 $7,441 $8,365
2043 $8,323 $8,783 $3,266 $8,375 $15,580 $17,514
Blacksburg
2018 $4,004 $4,185 $1,203 $4,695 $7,148 $7,711
2043 $8,323 $8,762 $2,519 $9,830 $14,966 $16,145
Charlottesville
2018 $4,385 $4,481 $1,733 $4,577 $7,239 $7,908
2043 $9,181 $9,382 $3,629 $9,583 $15,157 $16,558
Harrisonburg
2018 $3,527 $3,527 $1,224 $4,100 $8,578 $9,642
2043 $7,385 $7,385 $2,563 $8,584 $17,960 $20,188
Lynchburg
2018 $3,956 $3,995 $1,408 $3,695 $6,385 $7,161
2043 $8,283 $8,365 $2,948 $7,737 $13,369 $14,994
Northern Virginia
2018 $4,290 $4,458 $1,972 $5,000 $10,539 $11,718
2043 $8,982 $9,334 $4,129 $10,469 $22,066 $24,536
Richmond
2018 $3,813 $3,813 $1,452 $5,048 $7,917 $9,216
2043 $7,984 $1,984 $3,010 $10,569 $16.576 $19,296
Roanoke
2018 $3,384 $3,766 $1,571 $4,138 $8,030 $9,003
2043 $7,085 $7,885 $3,289 $8,664 $16.813 $18,850
Stauton Area
2018 $4,004 $4,004 $1,733 $4,250 $7,330 $8,213
2043 $8,383 $8,383 $3,629 $8,899 $15,347 $17,196
Virginia Beach Area
2018 $3,623 $3,623 $1,560 $4,676 $7,772 $8,425
2043 $7,586 $7,586 $3,266 $9,791 $16,273 $17,640
Winchester
2018 $3,670 $3,861 $1,322 $4,613 $10,129 $10,631
2043 $7,684 $8,084 $2,768 $9,659 $21,208 $22,259
Rest of Virginia
2018 $3,337 $3,384 $1,235 $3,238 $6,692 $7,579
2043 $6,987 $7,085 $2,586 $6,780 $14,012 $15,869

Listed below are some typical costs for long term care.

Home Health Aide $22/hour & up
Homemaker Services $20/hour & up
Adult Day Care $79/day & up
Assisted Living Facility $4,250/month & up
Nursing Home $250/day & up

These figures are average and may vary according to region. If dementia care is required, cost increases. The more intense care, the higher the cost of care!

  • It is much easier on everyone if a long term care plan is put in place before an incident occurs. Just like it takes a village to raise a child, it takes a village to care for an infirm adult.
  • It is much easier to pay an insurance premium than it is to write a daily/monthly check for the above amounts.

Many people are under the illusion that Medicare will pay for their care should they experience a Long Term Care event. Not True. Medicare provides very limited benefits. What about Medicaid? Let’s check out these two programs.

Medicare:

Medicare is an entitlement program primarily for people who are 65 and older. Medicare will pay for a limited amount of services that must meet certain criteria. In order to receive care in a Skilled Nursing Facility you must first have spent three full days of care in a hospital setting. This means a full 24 hour for each day and none of that time can be considered for “observation”.

The patient must enter the Skilled Nursing Facility (Nursing Home) within 30 days of the hospital stay and be for the same condition. You must be receiving skilled care, not custodial and you must show signs of improvement.

How much will Medicare Pay? A very limited amount. They do pay in full for the first 20 days. After that, there is a co-pay up until day 100. After that time, Medicare will no longer pay for any coverage. The average Medicare claim pays for 17 days of coverage.

Here’s what the “Medicare and You 2019” pg 50 published by the US Department of Health and Human Services has to say about Medicare:

“Paying for long-term care Long-term care (sometimes called “long-term services and supports”) includes non-medical care for people who have a chronic illness or disability. This includes non-skilled personal care assistance, like help with everyday activities, including dressing, bathing, and using the bathroom. Medicare and most health insurance plans, including Medicare Supplement Insurance (Medigap) policies, don’t pay for this type of care, sometimes called “custodial care.” You may be eligible for this type of care through Medicaid, or you can choose to buy private long-term care insurance. Long-term care can be provided at home, in the community, in an assisted living facility, or in a nursing home. It’s important to start planning for long term care now to maintain your independence and to make sure you get the care you may need, in the setting you want, in the future.”

Medicaid:

Medicaid is a means-tested program rather than an entitlement program. It is managed by individual states rather than the Federal Government. It does cover custodial care but primarily in a Skilled Nursing Facility.

Because Medicaid is a means-tested program you need to qualify for it, but not in the manner that most people would think. The information here is not meant to be a total description of the Medicaid Program but only to let you know how it might affect your decision making process in designing your Long Term Care plan. The bottom line is that you will have to spend down most of your assets in order to qualify for Medicaid Services. There is a “lookback” period of five years to determine if you have distributed some of your assets below Fair Market Value. If you did so, you are penalized on when you are able to start the program.

Partnership Program:

The Partnership Program is a Federally supported state operated initiative which allows individuals who purchase a qualified Long Term Care Insurance Policy to protect a portion of their assets that they may typically need to spend down in order to qualify for Medicaid benefits. It is the government’s way of saying “thank you” to individuals who have thought ahead and made plans should they incur a long term care crisis. It should be noted that the Partnership Program is only available with Traditional or Stand Alone LTC Insurance Policies.

A simple explanation of this program is that you protect the amount of your personal assets in the same amount of the funds that you have purchased and expensed for your long term care costs. Let’s use the example of a person who has an estate valued at $500,000. This person, or couple have thought ahead and purchased a LTC policy valued at $300,000. Let’s say that they use all those benefits but still require care. In that case, they may have to turn to Medicaid for assistance. What they will be required to do in this case is to spend down only $200,000 of their assets rather than all $500,000. This will enable them to retain $300,000 of assets that they will be able to use or pass down to family heirs.

Veteran’s Aid and Attendance:

If you have served in the Armed Forces during “wartime” and have a honorable discharge and are in a position where you require long term care services, you may qualify for a Veteran’s Aid and Attendance Pension. The term “wartime” is rather liberal. This benefit is based on combined income and saved money, bank/investment accounts assets of the veteran and spouse. The VA limit for available total net worth of assets is $123,000 at the time of application. Be sure to check with the VA for additional information regarding this pension.

If you don’t have a plan established and funded for a Long Term Care crisis, you are automatically self-funding. How long can you pay for care at the rate of $4,000 a month? If you have to do that, what is going to happen to the portfolio that you have built for your retirement? Requiring long term care assistance doesn’t mean that you stop living – it just means that you have to make accommodations for the activities of daily living that you have issues with. What about your loved ones – do they stop living? No, instead they are placed in a position where they need to care for you. Unless you actually have the funds already available and not allocated for something else, you won’t be able to self-fund. Check out the charts below to see if you really do want to “self-fund” or transfer some or all of the risk to an insurance company, then let us know how we can assist you.

There is no such thing as "self-insuring"

  1. Many wealthy people plan to "self fund"

  2. By definition……..

    INSURANCE = IMMEDIATE LEVERAGE OF DOLLARS

    On DAY ONE
  3. Clients can’t immediately leverage their own money

  4. Clients can only self-fund by saving

  5. How well will “saving” work if you need a stream of income for LTC sooner than later?

"Self Funding"

Dedicate $100,000 of assets to pay for LTC
If LTC is needed
Pay for care using the $100,000 Ease of use – flexibility
But when that runs out
Client uses more of their own income/assets to pay for additional LTC bills

vs.

"Transfer the Risk" to an Insurance Company

Reposition $100,000 $541,257 available for LTC coverage
If LTC is needed
Policy pays benefits first from premium $100,000 Ease of use - flexibility – cash indemnity
If LTC is still needed – "stop loss"
Additional monthly LTC benefit available $441,2571  

Types of Long Term Care Insurance Policies

Stand Alone or Traditional Long Term Care Insurance

This is the type of coverage that most people think of when they think of long term care insurance. It is much like your auto insurance, homeowners insurance, health insurance, and pretty much every other type of insurance. You purchase the insurance “just in case”.

There are numerous ways to customize a plan from something that would pay for a portion of your care for a short period to something that would likely pay for all or most of your care costs for an extended period of time. There are discounts for spouses and for those in good health.

If care is never needed, there is no return of the money that was spent. If care IS needed, it doesn’t take long to recoup the amount of money you have paid over the years.

The premiums for these policies may be tax-deductible. If you have a Health Savings Account (HSA) you may be able to pay all or some of your premiums from the pre-tax HSA dollars. This type insurance generally is a Partnership qualified policy.

Advantages:

  • Generally has Partnership Protection
  • Tax Qualified

Disadvantages:

  • Use it or Lose it!
  • Rates are Not Guaranteed
  • You can add a Return of Premium but generally this is not cost effective
Stand Alone or Traditional Long Term Care Insurance

Knowing your options can make a difference in most situations. Those who are already in need of care will not be eligible for any of the options already listed. However, a program called “Life Care Planning” allows those who are receiving care who have life insurance plans in place to convert those life insurance plans into cash flow to pay for care services. While not right for everyone, this provides an option to use an available resource to pay for private care services and also qualifies as an appropriate Medicaid spend-down. Contact us for more information.

Products Linking Life Insurance with LTC

Linked/Hybrid policies are policies that “link” LTC to a life insurance or annuity policy. Often it is possible to roll over the cash surrender value of an existing policy into one of these policies and obtain the additional benefit of being able to use the policy for long term care costs if needed.

While there are several varieties of these policies, the typical policy provides a multiple of the death benefit if long term care services are needed. Conversely, if you never need care, the death benefit is paid to your beneficiaries.

It is essential that any accounts that are rolled over or investments used to pay for this type of policies are NOT funds that are needed for income in the future or needed to provide for someone else at your death because that death benefit could be depleted if you were to need care before your death.

In some circumstances it is possible to fund this type of policy using an IRA or other qualified funds. Please be aware that many life insurance policies now are promoting a “chronic care rider”—these riders are far more limited in scope than a true long term care rider or true hybrid or linked policy. Please refer to Myths/Facts and FAQs for additional information regarding “chronic care” versus “long term care”. (Provide link to that location)

  • If you never use the LTC benefits – the funds will pass to your heirs

Disadvantages:

  • Tax Qualified
  • When receiving benefits, you will receive a 1099 annually for funds that you have used. Usually these can be deducted as a medical expense.
  • May require an initial lump sum payment
Stand Alone or Traditional Long Term Care Insurance

Sometimes a long term care policy isn’t a good fit—either because of health conditions or for financial reasons. A Short Term Care policy may be a good option in those circumstances. The health requirements to get a policy are not as stringent. The policies provide more services but more limited in scope and duration and thus are more affordable than a long term care policy.

Myths/Facts & FAQs

People think that Long Term Care crisis events only happen to senior citizens. Accidents and illnesses can strike anyone at any age. They may be temporary or permanent situations, but they do happen. 42% of the 12 million people in the United States receiving Long Term Care are under the age of 65.

This might have been a reasonable expectation 150 years ago, when children lived near their parents and women stayed at home. That’s not the case today. Adult children may live thousands of miles from their parents. The rising cost of living may mean that both spouses are working, sometimes with two or more jobs. Women are a major part of the workforce. They have families of their own. There’s never time to get everything done in today’s society let alone care for other family members. Don’t confuse Long Term Care assistance with residing in a Nursing Home! When LTC Insurance first started, that may have been the case, but a LTC policy has come a long way from that point

I’m Too Young – Older is not wiser when it comes to long term care planning!

just as medical care has evolved. Of course, no one wants to go to a Nursing Home, but

My Family Will Take Care of Me

LTC is Nursing Home Insurance

unfortunately, it could become a necessity. Most LTC assistance takes place in the home. In fact, 68% of care takes place there. Care may also take place in an Adult Day Care, Assisted Living Facility or the Skilled Nursing Facility (aka Nursing Homes).

Long Term Care Insurance is Too Expensive

Premiums are based on your age, marital status, health and what features that you purchase. So, like most things in life, the younger you are when you purchase a policy the more affordable it will be. In most cases, the cost of care will far outweigh the amount of the premiums that you have paid for your policy. We work with you to design a policy that will be affordable and appropriate for your situation.

What Determines My Premium

Besides your age, marital status, and health status the major factors that determine your premium are the following.

  1. Daily or Monthly Benefit: the amount your policy will pay on a daily or monthly basis.

  2. Benefit Multiplier or Period: the length of time over which you will be entitled to collect benefits.

  3. Elimination Period: how many days you must wait before being entitled to collect benefits.

  4. Inflation Protection: this rider allows your monthly benefits to increase each year to account for inflation in the cost of living. The monthly benefit will increase by a specified percentage that may be either “simple” or “compound” rate – compound is the preference.

Changing these factors will cause your premiums to increase or decrease. When we discuss your situation, we will review the typical costs that you can expect in your area. We take these factors into account when we are designing your plan.

Do Rates Go Up Every Year?

Rates are designed to remain constant. The company cannot change any of the terms of your contract on its own. It can, increase rate by the same percentage for all policyowners in your rate class. Should this occur, you will be offered options by the company as to how you would like to handle your situation. Should this occur, we will work with you to make an appropriate decision should we need to make any changes. We do represent an insurance company that guarantees it’s rate for your lifetime!

If I Buy a Policy in Virginia, Will It Be Good If I Move to Another State?

Yes, policies usually pay for care in all 50 states. Should you be planning to retire in another country, it is important that you let us know this. Companies have various rules for what they will pay for someone overseas.

Do Long Term Care Insurance Policies Let You Choose Where You Receive Care?

Yes, when you own a LTC Policy, you control your care! That is a terrific advantage when you require care. Your loved ones will be able to “manage” your care rather than being the “care giver”. Should you require care, you will have a Care Coordinator who will be there to assist you. We also work with Agencies that will be able to assist you in selecting a Facility should you require one.

I’ll Wait To Purchase LTC Insurance - Older is not wiser when it comes to longterm care planning!

Let’s say it for what it is – procrastination! We all do it, but it can be costly to wait until later to purchase insurance protection. Most of us expect to live a long life and all the medical advances have put us in the situation that we are likely to do so. Waiting to purchase a policy will not save you money. If your health declines, a policy will be more costly, if you can qualify for a policy at all. Should that happen, you will be “self-funding” which will be costly both financially and devasting to your personal relationship with your loved ones.

What is the difference between “Chronic Illness”, Critical Illness and “Long Term Care” Riders?

People will sometimes purchase a “Chronic Illness” policy when what they really wanted to have was a “Long Term Care” policy. We don’t want you to be confused, so let’s take a look at the description of each type.

Chronic Illness: For IRS requirements, this is referred to a Section 101(g). This type of rider generally provides benefits for permanent claims that are likely to last for the balance of one’s life. It could possibility offer benefits for a temporary claim although this is not as common. The amount of benefit cannot be determined until the time of need. The benefits are paid on an “indemnity basis” which is the full benefit regardless of the actual expenses. A 101(g) cannot hold itself out as offering a long term care benefit.

Long Term Care: For IRS requirements, this is referred to as Section 7702B. This type of rider provides benefits for temporary or permanent claims that will last more than 90 days. The benefits that you will receive are determined up front when you purchase the policy. These benefits are generally paid under a “reimbursement” model. You must provide receipts for the funds that you receive so you are only being reimbursed for your actual expenses, therefore your benefits are likely to last longer. The other important things to remember are that a 7702B must comply with HIPPA requirements and the person working with you designing your plan has had to complete extra training in order to offer the product.

Sample: To clarify an example between the two let’s say that you required a hip replacement and as a result you required assistance in your home for several months after your surgery. A 101(g) would not pay any benefits since your condition is not permanent. Instead, let’s say that a condition put you in a wheelchair for the rest of your life, your condition is now “chronic” and the rider would pay you your benefits.

Critical Care: This is an indemnity type policy. The policy pays a lump-sum benefit in the event of a first-time diagnosis from a defined list of illnesses such as a heart attack, stroke, invasive cancer, or kidney failure.

Who Should Consider LTC?

How do you know if you are going to need Long-Term Care Insurance. Well... you don't. Any more than you know you'll need homeowners insurance, or car insurance. But Long Term Care Insurance plans can offer you peace of mind and the knowledge that no matter what happens, a plan is in place.

When most of us hear the words " long-term care" we think of nursing homes, Medicare, Medicaid, and generally speaking "older adults." Well, long-term care has nothing to do with age. Yes, the possibility of needing long-term care increases with age but needing long-term care can happen at any age due to an illness, surgery or accident.

There is a long-term care plan for everyone which may or may not include a long-term care policy.

I’m never going to need care!

Are you planning on living a long life? Are you aware that there is a 70% chance for people over age 65 that they may need coverage? Do you not think that if you do expect to life a long life that there might be a chance that you would actually need care at some point along the way? Are you a “large” man with a “petite” wife? Should you become impaired, do you think that she would be able to lift you up or move you around?

What are the consequences if you don’t have a plan in place?

First, we have the personal relationship consequences. It may not be you who is suffering, but those loved ones around you who need to care for you. Will it cause a spouse to become stressed out and physically impaired as a result of caring for you? Or an adult child who has a family of their own who may have to work less or give up time with their own family in order to care for you? Or what about the adult siblings where one person lives close by and the others live at a distance – guess who gets to be in the front lines of care. This can result in destroying family relationships.

Second, we have the “financial consequences”. If you don’t have a plan set up then you are automatically “self-funding”. What does that mean? Do you have money in the stock market or a 401K plan? What is going to happen when you have to use those funds – what if the market is down? If you have to take money from your 401K will you have to pay taxes as well as penalties for early withdrawal. Are your assets liquid so that you have access to them or are they invested in real estate in a “buyers” market?

These are all the things that you need to consider when you think that you will be part of the 30% that won’t have a need for care and that it’s never going to happen to you! Be real, let us assist you in preparing and funding a plan for you.

Do I have to use my Full Benefit every month?

Not necessarily depending upon the company. What you need to be concerned with is the total “pool of benefits” that is available. For most policies, you will have to substantiate the amount of funds that you receive each month. Let’s say that you have a policy that is going to pay you $5,000 per month for 36 months – that is a pool of benefits of $180,000. If you actually need only $2,500 per month what happens? What happens is that those funds remain in your “pool of benefits”. The result is that your benefits will last longer than the original 36 months. It will last as long as you have funds in your “pool of benefits”. You just cannot use more than the amount of monthly benefit provides indicated in your contract, in this case, $5,000.

Some companies provide a “cash benefit”. You can use this benefit in lieu of the monthly benefit and you do not have to substantiate what the funds are used for. So, you might be able to pay a family member for caring for you even if they are not fully qualified to do so by a health care agency. We do recommend that you track where the cash benefits were spent so that you have a record in the event that you are audited by the IRS.

What is the difference between ‘indemnity’ and ‘reimbursement’policies?

The terms ‘indemnity’ and ‘reimbursement’ refers to the manner in which a policyholder receives their funds in the event of a claim for a long term care policy.

An ‘indemnity’ payment means that the claimant will receive their funds as a ‘cash’ payment. This is usually associated with a life insurance policy with a long term rider. In some cases, a Traditional policy will offer a ‘cash payment’ versus receiving a monthly ‘reimbursement’ payment.

A ‘reimbursement’ payment means that the claimant needs to substantiate with receipts what he is receiving funds for. This is primarily used with Traditional policies although it is also used with some hybrid policies. This substantiation usually takes place through a Home Care Agency or Assisted Living Facility as appropriate.

In either case, some type system should be initiated by the caretaker/guardian of the claimant so that the use of funds can be accounted for in case you are audited by the IRS. One way of doing this may be having a separate checking account. It is just as important that family members who may be paid for any services that they provide should be included as income. Please refer to your accounting representative for specific guidance as to how you should account for funds received.

What is the difference between ‘service days’ and ‘calendar days’?

The long term care policy has an elimination period which generally is 90 days. To meet the 90 period, you need to qualify using either ‘service days’ or ‘calendar days’. This will depend upon the policy that you have purchased.

Calendar Days: The claimant does not need to show that any care was received, only that he was benefit eligible. This is the simplest way to go through the elimination period.

Service Days: In this case, you only receive elimination period credit when the claimant receives at least one covered compensable service in a day. Compensable services are services the company will pay for. Using this method will generally take longer to meet your elimination period.