Long-Term Care: Myth or Reality?
Who Knows? The fact is that if you have a serious health problem or accident or simply live long enough, you’ll need assistance to stay safely in your own home, and when this happens, what would the consequences be to you and your family?* Catastrophic Depletion of Assets* Unprofessional Care Management* Lack of Access to Quality Professional Care Givers* Tremendous Burden of Responsibility Falls onto Family
With the Baby-Boomer “graying” effect and the increasing quality of our healthcare systems, thousands of people are becoming Senior Citizens every single day and more are living longer. Continuously growing numbers of them need Long-Term Care (LTC) and because the majority has not planned for this eventuality, they face catastrophic consequences.
Trust the governement to handle this for you? Why this should worry you now!
The likelihood of needing LTC benefits is: 400 times greater than needing your homeowner’s insurance benefits; 125 times greater than needing your auto insurance benefits; 10 times greater than needing your major medical benefits.
Yet most Americans are currently trusting the government to handle this risk for them through Medicaid and Medicare. The Government has made it very difficult for people with assets to go onto the Welfare Program, Medicaid, and Medicare will only provide up to 100 days of Skilled Care (nursing or therapy only) after a 3-day hospital stay. States like NY, CT & CA and many others have realized that to have residents relying on the government for protection from this risk is not a viable option, so they have all developed “State Partnership Plans for LTC” (explained later) to encourage an affordable solution to this catastrophic crisis. So we now have a majority of states showing you a real, viable way to protect yourself from this risk.
The questions that should worry you NOW, while you’re still healthy, are tough. 1) Who will be there to care for you, everyday, when you can no longer care for yourself? 2) Would that burden fall onto your spouse or children? 3) What would the impact be on them, emotionally, physically and financially? 4) How would this affect your Retirement Goals and the Promises you’ve made? 5) Are these consequences acceptable to you? 6) Will the Government bail you out of this crisis (see above)?
Because the longer you wait to buy LTCi, the cost to buy it increasesthree-fold: 1) The older you are when you buy, the higher the premium you will have to pay each year; 2) You’ll have to purchase more coverage to keep up with the increases in the cost of services (i.e. inflation); 3) The risk increases that you’ll have a health problem and become “rated” or uninsurable.
This means the younger you are when you buy coverage, the less you’ll have to buy. This will save you thousands of dollars over your entire lifetime. You will pay less money for greater coverage and you will never have to worry about a health change or accident.
What is Long-Term Care… & What does it cost?
LTC is made up of three general categories of care:A) Skilled Care Facilities – 24 hour a day, medically skilled care (i.e. acute) that is administered by licensed Nurses and Therapists in Extended Care, Rehabilitation facilities or Nursing Homes. On Long Island, the average cost is $125,000 /ear or $350/day. Skilled Care accounts for Less than 5% of all LTC needed in America.B) Assisted Living (or Alzheimer’s) Facilities – Custodial Care is needed and skilled care may be needed on an intermittent basis. These are “Apartment living” facilities with communal eating and recreational areas. Average cost:$65,000/year or $175/day. This type care accounts for about 5% of all LTC needed.C) Home Care – Custodial Care (assistance with Activities of Daily Living – ADL’s). Traditionally provided by family members at home. The 6 ADL’s that people need assistance with are: Bathing; Dressing; Eating; Toileting: Transferring; & Continence. Average cost:$55,000/year or $150/day. This accounts for more than 90% of all LTC needed.
LTC does not fit neatly into any one category but can be comprised of different combinations of care. The most important fact is that Custodial Care is by far the most prevalent type of care ever needed. This is true even in Nursing Homes and Assisted Living Facilities, where Custodial Care is the dominate type of care – not Skilled Care as one may think.
How does a long term care policy work?
LTC insurance pays up to a maximum amount of money for each day the policyholder needs care. This is called the Daily Benefit (DB), and can be any amount from $100 to $500. A typical DB is $230/day. A Benefit Multiplier (BM), expressed in days, is then used as a multiplier to determine the Total Benefit Pool (TBP or “pool”) or total amount of money available over the life of the policy. For example, 3 years has a BM of 1095 (1,095 days = 3 yrs). Multiply the DB by the BM to determine the TBP of $251,850 (230 x 1095 = 251,850). This policy would pay a total of $251,850 towards the LTC costs of the policyholder.
If the policyholder withdrew the maximum DB each day, the policy would last exactly 3 years. If the policyholder only needed half that amount (i.e. $115) each day, the difference, or $115, remains in the Pool for future use and it would take 6 years to use up the Pool. If $250 was needed each day for care, the policy would pay the DB of $230/day and the policyholder would have to pay the difference, or $20/day, out of their own pocket. This is referred to as a co-pay. The bottom line is that a policy will continue to pay benefits for as long as there is money remaining in the Pool. Even though plans may be referred to as “3-yr, 4-yr, or 6-yr ” plans they can last much longer than that. Many policies allow for an upgrade to a monthly benefit, making more money available to the policyholder. The most comprehensive type plan has a “Lifetime Benefit Period”, meaning the BM and Pool are unlimited and therefore benefits can never be exhausted.
Inflation Protection is an important part of a policy in that it allows for automatic increases to the DB and TBP each year to keep pace with the increases in cost of services (i.e. inflation) over time. It is built into the policy and there are three basic types: 1) 5% Compound – benefits increase each year 5% over the previous year’s benefit; 2) 5% Simple – benefits increase by 5% of the original benefit each year; 3) None – benefits remain the same over the life of the policy. Some policies allow for periodic increases of benefits called CPI or GPO, which increase premium costs when exercised over time.
Policies will also have an Elimination Period (EP – a/k/a deductible) which is a number of days a policyholder must pay for care themselves before benefits are paid by the policy. The higher the EP, the lower the premium.
Additional riders can be added to include Survivorship, Return of Premium, Indemnity (i.e. cash), and Waiver of HHC EP.
New York State Partnership for LTC
Since the Government cannot afford to increase Medicare Benefits, nor continue to fund Medicaid at present rates, something had to be done. In response, The “NYS Partnership Plan” was designed in conjunction with Private Insurance Companies and NYS Medicaid to significantly reduce initial reliance on Medicaid. It offers a combination of Private Insurance (PI) benefits for the first few years of a LTC problem, and then 1) LifeTime LTC Benefits and 2) either “Total” or “Dollar-for-Dollar” Asset Protection; both guaranteed by NYS.
Medicaid’s “non-transferable income” requirements still apply, but only when entering into the latter NYS coverage period. You are allowed to protect all “transferable income” by gift or transfer without restriction and the usual “look-back” periods would not apply. This allows you to protect as much income as possible after the initial PI Benefits are exhausted.
The “front-end” PI comes from one of the authorized insurance carriers and the “back-end” protection comes from “NYS Extended Medicaid”, which has been set-up just for Partnership participants.
The “front-end” PI benefits must provide for:
1) 2 to 6 years of Home Care/Assisted Living Facility benefits and/or 1.5 to 6-years of Nursing Home benefits
2) 5% Compound Inflation Protection
3) A minimum $230/Day Benefit (you can purchase more if you want)
The PI coverage can be used anywhere in the country, but at this time, until the National Reciprocation Model is completed, the extended Medicaid coverage can only be accessed in NY.
This State-subsidized plan has been designed to give participants and their families’ comprehensive, lifetime coverage and is one of the best values available in LTC insurance. The official NYS Partnership website is www.nyspltc.org.