Partnership Long-Term Care Policies

Chapter 4

Financial Planning for LTC

The National Clearinghouse for Long-Term Care Information is a website developed by the U.S. Department of Health and Human Services to provide information and resources for consumers. Their goal is to provide sufficient information to encourage purchase of long-term care insurance products. This site is provided to help individuals and their families plan for future long-term care (LTC) needs. To access this website go to www.longtermcare.gov.

The Importance of Planning

No one wants to believe they will ever need to be in a nursing home, but the facts tell us it is not only possible, but likely. At least 60 percent of people over age 65 will require some long-term care services at some point in their lives.  As we know, Medicare is not designed to cover long term care needs. There are three levels of care in a nursing home: custodial (also referred to as personal care), intermediate and skilled. Only Skilled nursing care is covered by Medicare in the nursing home, which is the least likely level of care to be needed. Most people will require either intermediate or custodial nursing care, neither of which is covered by Medicare. Skilled care is the type requiring the most technical services while custodial care pertains to basic living needs, such as help getting in and out of bed, help with bathing and bathroom function, and so forth.

  No website will tell an individual whether or not they will actually end up in a nursing home or if they will be able to receive help at home (avoiding institutionalization). Each of us has our own unique situation, but it is important to realize that as we age and become frail, it is likely that long-term care will be part of our lives in some form. It simply makes sense to plan for an eventual need of long-term care services, and then hope it was useless planning (since we all really want to die with our boots on as they say).

The National Clearinghouse for Long-Term Care Information is primarily intended to offer information with the hope that individuals can make an informed decision. It provides information and planning resources for individuals who don't yet require long-term care, but realize that day might eventually come.

Long-term care can include multiple types of services that are necessary to meet health or personal needs of daily living. The words, long-term, mean care for an extended period of time. Most long-term care is non-skilled personal care assistance, such as help performing everyday Activities of Daily Living (ADLs), which include:

The goal of long-term care services is to help an individual maximize their independence and functioning at a time when it may not be possible to remain fully independent.

Not everyone will need long-term care; some people will die suddenly, or soon after an illness or injury occurs. Some people have the good fortune of living independently during their lifetime, dying at home without ever needing health care assistance. However, this will not be the case for many other people. Long-term care is needed when a person has a chronic illness or disability that causes him or her to need assistance with the Activities of Daily (ADL).  Some types of illness or disability involve cognitive impairment, which would include such things as memory loss, confusion, or disorientation.

Approximately 9 million Americans over the age of 65 will need long-term care services. By 2020, that number will increase to 12 million. Surprisingly, 40% of people receiving long-term care are adults between the ages of 18 and 64 years old. As some types of illnesses continue to spread, such as AIDS, this figure could rise. Even so, most people who need long-term care are those age 65 or older. [1]

Approximately 60 percent of individuals over age 65 will require some type of long-term care services during their lifetime, with 40 percent needing care in a nursing home. Factors that increase your risk of needing long-term care include, but may not be limited to:

While it may not be possible to predict how much or what type of care an individual will require we can look at averages to base our decisions on.  We know from statistical information than an individual who is age 65 today will need some form of long-term care services during his remaining lifetime. Furthermore, these statistics tell us they will need around three years of care.  Service and support needs vary from one person to the next and often change over time. Women need care longer than men do (on average 3.7 years for women versus 2.2 years for men).  Twenty percent of today's 65-year-olds will need care for more than five years.

There are many types of services available. We are fortunate to have a greater variety of care services available today than our parents had access to. Many of these types of care have been developed to prevent institutionalization. Services might include:

Medicare does not necessarily pay for an individuals long-term care needs. If Medicare will pay, there is a specific criterion that must be met. The service is often paid for by the patient or his or her family if no insurance is in place. Medicare is designed to pay hospital and physician expenses; it was never designed to cover long-term care needs.

If major medical insurance is in place, that too is designed to cover hospitalization and physician charges, not long-term care needs.

Some people will enter a nursing home for a relatively short period of time while they recover from a sudden illness, surgery, or injury; they may then be able to receive care at home. Others may need long-term care services continually. Some people may begin care at home, but eventually require a nursing home or other type of facility-based setting for more extensive care or supervision. Such things as assisted-living facilities have enabled many people to get the supervision and care they need without going to a nursing home.

An important part of planning for long-term care is deciding how to pay for services. Medical care in general is expensive and services dealing with long-term care needs are no exception. Current figures were not available as of this writing, but 2006 figures show the following:

Since we have not listed all states, this is only a general overview of nursing home costs. Since costs can also change rapidly it is always important to check local costs prior to needing a nursing home, especially if an individual is deciding upon the benefits of a nursing home policy being considered for purchase.

While some people may qualify for Medicaid, the major payer of long-term care services, many won't. There are other federal public programs, such as the Older American's Act, and state funded programs that pay some long-term care services. However, virtually all programs have some criterion that must first be met, such as poverty status. Like Medicaid they help those people with the most pressing financial need. Before Medicaid will pay a single dollar towards long term care expenses the applicant must have spent down all their personal assets. He or she will also be required to contribute at least a portion of any income they have access to. The amount of income contributed will depend upon several factors, including a spouse that might be partly or wholly dependent upon that income.

Paying for long-term care from personal income and resources can be challenging. Even modest home care is expensive. Based on 2006 average costs, an individual requiring assistance with personal care at home three times a week would pay an average cost of about $16,000 per year.

Some types of extended care can be provided by family and friends. For example, a daughter may be able to assist her mother several times a week with personal needs, such as bathing or housekeeping duties. Family and friends might be able to prepare meals that the individual can heat up in a microwave if they are unable to cook for themselves. LTC includes a broad range of health and support services that do not necessarily require employing a person or accessing a facility. The majority of services provided by family and friends involve personal care, such as assistance with activities of daily living. But, as care and support needs increase, paid care is usually needed to supplement family provided services and supports, provide respite to family caregivers, or to pay for more extensive services in a facility, such as a nursing home or assisted living, when individuals can no longer be cared for in their homes.

Costs will always vary based on the extent of the services received. Home health and home care services, provided in two-to-four-hour blocks of time referred to as visits, are generally more expensive in the evening, or on weekends or holidays. The costs of services in some community programs, such as adult day service programs, are often provided at a per-day rate, but vary based on overhead and programming costs. Many care facilities charge extra for services provided beyond the basic room-and-board charge, although some may have all inclusive fees.

The average costs in the United States (in 2006) were:

Where Payment Comes From

Individuals who have sufficient income and assets are likely to pay for their long-term care needs personally, from private resources.  If the person meets functional eligibility criteria and has limited financial resources, or has already depleted all their personal resources, Medicaid may pay for their care.  Those requiring skilled nursing care for a short time may receive coverage under Medicare (if all criterion is appropriately met).  The Older Americans Act is another Federal program that helps pay for long-term care services.  Some people use a variety of payment sources as their care needs and financial circumstances change. 

Receiving payment for long-term care services can be a confusing topic for many senior citizens. It is best not to expect much payment from Medigap policies, which are not designed for long-term care services, or from public programs that require spend-down of assets prior to benefit qualification.

Medigap policies, also called Medicare Supplemental policies, supplement the payments made by Medicare (thus the name Medicare supplemental policies). If Medicare denies a claim, the supplemental policy will deny it also because there is nothing to supplement.

Even if Medicare might pay some portion of a nursing home stay, the stay must qualify under Medicares guidelines. For example, Medicare requires that the individual first be in a hospital for the same condition that caused the nursing home confinement.

The following chart gives a basic overview of how long-term care services might be covered financially. If a person has long-term care insurance coverage, this is not addressed in this graph. In that case, he or she would want to refer to their specific policy for payment of benefits.

Long-Term Care Service
Medicare
Private Medigap Insurance
Medicaid
You Pay on Your Own*
Nursing Home Care Pays in full for days 0-20 if care is in a Skilled Nursing Facility following a recent hospital stay. If the need for skilled care continues, may pay for days 21 through 100 after a daily co-payment is met by the patient. May cover the daily co-payment if the nursing home stay meets all other Medicare requirements. May pay for care in a Medicaid-certified nursing home if the patient meets functional and financial eligibility criteria. If the patient needs only personal or supervisory care in a nursing home and/or has not had a prior hospital stay, or if the patient chooses a nursing home that does not participate in Medicaid or is not Medicare-certified.
Assisted Living Facility (and similar facility options) Does not pay Does not pay In some states, may pay care-related costs, but not room and board. Patient pays for this except as noted under Medicaid if eligible.
Continuing Care Retirement Community Does not pay Does not pay Does not pay Patient must pay for this type of care.
Adult Day Services Not covered Not covered Varies by state, financial and functional eligibility required Patient pays for this (except as noted under Medicaid, if eligible).
Home Health Care Limited to reasonable, necessary part-time or intermittent skilled nursing care and home health aide services, and some therapies that are ordered by the patients doctor and provided by Medicare-certified home health agency. Does not pay for only on-going personal care or custodial care needs (help with activities of daily living). Not covered Pays for home health care, but the individual states have the option of limiting some services, such as therapy. Patient pays for personal or custodial care, except as noted under Medicaid, if eligibility standards are met.

On an aggregate basis, the largest share of nursing home expenses, 48 percent, are paid for by Medicaid following the patients asset depletion.  On an individual basis, it may feel to the patient and his or her family as though they are paying the major portion. Even if Medicaid ends up paying $100,000 in comparison to the patients $50,000, when asset depletion occurs it may still feel unfair. Anyone with reasonable income and assets will pay at least a portion of their nursing home and other long-term care services.

Medicare pays only under specific circumstances.  If the type of care required does not meet Medicare's rules, Medicare will not pay, leaving the patient and their family on their own to some way to cover the required or desired services. It should also be noted that neither Medicare nor private LTC insurance will pay for a service just because it would be convenient for the patient or their family. The service must be medically necessary and requested by the attending physician or some other qualified medical organization.

The publics understanding of how long-term care expenses will be paid is an important step in the sale of long-term care insurance policies. If the public does not realize how much they will pay out-of-pocket they are not likely to have any interest in the Partnership program.

The following shows spending for long-term care costs:

47% Medicaid
21% Out of Pocket
18% Medicare
9% Private Insurance
5% Other public/private
End of Chapter Four
United Insurance Educators, Inc.

[1] National Clearinghouse for Long-Term Care Information, 5/25/2007