Long term care - the alternatives

As we grow older, our chances of needing long-term care increase. When that time comes one of the first things that come to mind is the idea of self-insurance or to depend on one's own assets to meet LTC needs.

This will probably not be a problem to wealthy people. However, this option gets removed for many among us because the price requirement is simply out of reach. Consider that the median annual rate for nursing-home care is $73,000. Consider also that the one-year increase (2011 to 2012) in nursing home rate is 3.63 percent.

So we are basically left with two general categories of alternatives to long-term care coverage. These two are public programs and private financing.

The following discussion presents the different programs and options under each of these categories.

Public Programs

These are government backed programs that can help cover the cost of LTC services. Each of these programs has its own set of guidelines as to eligibility, services that are covered, the period that benefits are provided, etc.

Medicare

Medicare offers health care coverage to individuals who are 65 years old and older, individuals under 65 who have certain disabilities, and all other individuals, regardless of age, who suffer from permanent kidney failure which needs transplant or dialysis.

Medicare will cover services availed of in a facility that offers skilled nursing service under the following conditions:

  • The individual was recently admitted to a hospital for a minimum of three days prior to entering the nursing care facility.
  • The said individual was admitted to a nursing care facility certified by Medicare within a thirty day period before his admission to a hospital, and
  • The individual requires skilled services from physical therapists, nursing care providers and similar therapy services.

When the above conditions are met, the program will cover some of the expenses up to a period of one hundred days. In the first twenty days, there is full coverage of all expenses. On the 21st day up to the 100th day, the individual will cover the expenses out of his own pocket up to $137.50 per day. Any expenses left out will be covered by Medicare. After the one hundredth day, the individual is left to cover his daily expenses.

Aside from facilities that offer skilled nursing services, the program will cover the following when the physician justifies them as important in the treatment of an injury or illness:

  • Home health and health aide services
  • Skilled nursing care services that are provided intermittently or on a part time basis.
  • Speech-language services, physical and occupational therapy services ordered by a physician but these need to be only for short number of days.
  • Services that will allow the individual to deal with issues arising from a condition like medical, social, cultural, and psychological issues.
  • Medical equipment and supplies like oxygen, hospital beds, walkers and wheelchairs.

No limit is imposed on the time period that these services are availed of - the only requirement is that the physician deems them necessary and makes reorders for them every sixty days.

Hospice care services may also be covered by Medicare as long as the individual is suffering from a terminal condition and whose life expectancy is not over six months. Under this situation, the program provides coverage on medicines and services related to the individual's condition. Services may be rendered at home or in a facility.

For more information on Medicare, go to www.medicare.gov and on the search bar, type the words 'Medicare and You handbook' to get the latest downloadable information about the program.

Medicaid

This is an insurance program jointly managed by the federal and state governments. While there are federal requirements, the state governments are allowed to establish their own eligibility rules and also customize services that fit the needs of their constituents. Generally, the program serves low income individuals, children, senior citizens and people with disabilities.

With regards to LTC services, the program may cover medical expenses like hospital costs, visits to the doctor, nursing home and personal care services provided at home.

Since states have their own set of eligibility requirements and list of program services, it is best to check out how the program works at your own area. This  information can be found at www.medicaid.gov, click on Medicaid and the on "By State." Under each state there is information on "Eligible Population & Services."

Older Americans Act Programs

This program focuses on providing community and home based LTC services of qualified senior citizens 60 years old and above and their families. The program's services are channeled to communities via the Aging Network system.

The program's services include:

  • Nutrition programs like meals delivered to senior citizens' homes or meals provided under community settings.
  • Transportation services
  • Disease prevention or chronic illness management services.
  • Assistance in shopping, household chores and personal care.
  • Legal assistance.
  • Family caregiver and support services.

The program has no specific standard for eligibility, however the general focus of services are the individuals with low income, senior citizens over sixty who are frail, older adults who belong to minority groups as well as senior citizens who reside in rural communities. The program also has special funds intended for older adults who belong to tribal  Native American groups. More details can be found at www.aoa.gov.

Veterans Affairs LTC Program

The U.S. Veterans Affairs department's program covers LTC services rendered to eligible veterans. The program shoulders the cost of services in relation to disabilities acquired in the line of service. It also shoulders the cost of at-home care and nursing home services provided to aging veterans with LTC needs. The department also takes care of the LTC needs of veterans who are stricken with service-related disabilities but cannot afford the cost of care.

For veterans who suffer from disabilities, the department also has programs that provide them money for LTC needs. This money is in addition to the pension benefits due to the qualified veteran.

For further information on the program, go to the VA website at www.va.gov, click on "Veteran Services," and then on "General Benefits Information."

Private Financing LTC

The second set of alternatives to long-term care insurance are the following:

Life Insurance and LTC Coverage

A standard life insurance coverage can be customized to help cover LTC expenses via the following:

Accelerated Death Benefits - this allows the insured individual to get an advance on his death benefit even if he is still alive. This amount can be tax-free. In certain policies this feature requires additional premium payment. In others, this feature is free or requires only a small cost.

How this feature works may differ from one insurer to another. Generally, an advance on the benefit is possible if the person:

  • has a terminal illness
  • has a life-threatening condition, e.g. AIDS
  • requires LTC for an extended period of time
  • gets permanent confinement in a nursing home facility unable to carry out ADLs.

For those advances that are intended to cover LTC costs, the benefit that can be drawn per month for nursing home care is usually set to two percent of the face value of the policy. For instance, if the face value of a policy is $200,000, the per month benefit would amount to $4,000. If the individual is getting care services at home, the amount is only half at $2,000.

When considering this feature, be aware that how much benefits you get is limited by the face value of your policy. It may not be enough to cover your LTC needs. This feature may also come with no protection against inflation. Also, when using the feature, the insured individual may end up leaving little or no benefit to his survivors upon his death. Lastly, this feature may have an impact on an individual's Medicaid eligibility. Hence, it is important to consult first with the program agency in your state for further information.

Life settlement - this feature allows the policyholder to sell his life insurance at its present value for whatever purpose he or she decides. Policies with this feature are usually available to men who are 70 years old and above and women who are 74 years old and above. The proceeds may be used for LTC services. There are usually no health screenings required for this feature. The disadvantage of this feature include: a) the proceeds may be taxable, b) the death benefits left to the heirs may be little or none at all.

Viatical Settlement - this provision allows the policyholder to sell the insurance to a third party, viatical company and use the proceeds for LTC needs. This is similar to a life settlement but is only possible when the insured individual is terminally ill. When the policy is sold, the viatical company pays the policyholder an amount representing a percentage of the death benefit indicated in the policy. That company becomes the owner of the policy and assumes as the beneficiary. The company also takes over the responsibility of paying the premiums. The insured individual now has money for his or her LTC needs and the company gets to receive the death benefit when he or she dies. One advantage of a viatical settlement is that it is tax free. The downside is that the heirs will not get any death benefits.

The amount that the insured individual will get is based on the guidelines provided by the National Association of Insurance Commissioners:

  • If the life expectancy is one to six months, the payout is 80 percent of the death benefit,
  • if six to twelve months, 70 percent
  • if twelve to eighteen months, 65 percent
  • if eighteen to twenty four months, 60 percent
  • if over twenty four months, 50 percent

Reverse Mortgages

Another option under private LTC financing, reverse mortgages are a way for homeowners to tap into the equity they have on their homes. It allows them to receive money using the value of their home as security. That money can be used for a wide range of purposes to include coverage of LTC expenses. The money can be provided to the homeowner as a lump amount or as monthly payments.

There are no monthly repayments but the loan becomes due when the homeowner or his or her remaining spouse dies, moves out of the residence or sells the home.

There are a number of advantages of using a reverse mortgage as an alternative to LTC coverage:

  • the loan proceeds are not subject to tax,
  • the money received has no effect on Medicare or Social Security benefits and is not considered as income when determining Medicaid eligibility, and
  • the policyholder gets to stay in the property and remain as its owner. The downside is that it is only available to those who own homes and are 62 years old or older.

For more information on reverse mortgages as alternative to LTC insurance policies, go to http://www.longtermcare.gov/, click on "Paying for LTC," then "Private Financing," then "Reverse Mortgages."

Annuity Hybrids

This option can be a good alternative if it carries a rider that takes care of LTC needs. Under IRS rules, the money invested in a deferred annuity can be tax free if it is used for long term care.

The advantage of this alternative is that health requirements are not as strict as with standard LTC policies. In addition, the consumer gets more freedom on the utilization of the benefits and he can redeem the annuity's accumulated value when it is not used for LTC.

The disadvantages with this alternative include the $50,000 upfront premium, the money being locked up for a range of five to ten years, with high penalties for withdrawals. Also, returns on investment tend to be minimal.

Trusts

Trusts refers to an arrangement wherein the trustee holds the title to the trustor's assets allowing him to control and manage these assets for the benefit of the trustor or for that of another party. For long term care needs, there are two possible types of trusts:

  • Charitable Remainder - this trust allows for two things: to cover LTC services and to serve as a vehicle to make contributions to a selected charity thus bringing down the amount of tax due. Upon the death of the trustor, the remaining amount in the trust account will go to the charitable organization. Because it is a donation to charity, tax deductions are available on the assets that will be donated. The downside of this alternative is that if the amount available for LTC will depend on the donated amount. If the amount is not large enough, the money for LTC services may not be enough either. Also, this option may have an effect on one's Medicaid eligibility.
  • Medicaid Disability - this type of trust is only for individuals with disabilities who are under 65 years old and are qualified to enjoy public benefits. Legal guardians, grandparents, and parents usually use this type of trust to take care of the needs of individuals with disabilities. A not for profit organization controls the assets. One benefit of this setup is the exemption from regulations governing trusts and an individual's eligibility for Medicaid. Another thing to note is that when the beneficiary enjoys benefits under Medicaid, the government can recover the balance on trust in the event the said beneficiary dies.

Continuing Care Retirement Communities

These communities represent a type of living arrangement where the needs of individuals living in them enjoy health care, housing as well as social services. By being a member of a community, LTC services becomes more accessible. Members can come in as independent residents, meaning they have their own housing units, or they can move into the nursing home or assisted living units.

To be a member, one has to pay some fees which may be charged on a monthly basis and upon application. Terms and conditions may vary widely from community to another.

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