(Note: The pdf for the issue in which this article appears is available for download: BIFOCAL Vol. 35, Issue 1.)
There is no disputing that ever-expanding life expectancy is the new normal for Americans. Data for the year 2010 shows an increased life expectancy for men of 76.2 years and an increased life expectancy for women of 81 years.1 With this “new normal” comes the increased likelihood that people will need some level of long-term care at some point in their lives. While many expect to live to the age of 75, 80, or older without the need for any long-term care assistance, the reality is the odds are against us doing so.
This article will define long-term care and discuss the importance of planning for long-term care funding for ourselves, our families, and our clients. This article will also highlight ways to fund long-term care without Medicaid. This is only an introduction, because the benefits, complexities, nuances, and strategies of each method cannot be thoroughly addressed in just one article. Moreover, it is important to note that what works for one family may well not work for another, and it is certainly not unusual for a person or family to utilize multiple strategies in tackling the issue of funding long-term care.
What is Long-Term Care?
Long-term care is an umbrella term for services needed to meet the medical and nonmedical needs of persons who, due to age or disability, have lost some capacity for self-care. Long-term care, in simple terms, refers to the assistance we need when our age or health (or both) prevents us from functioning entirely on our own. And, long-term care is not just limited to residential nursing home care. More and more people are “aging in place” and long-term care takes place wherever people are and wherever they live, be it in their own home, an assisted living facility, or some other living arrangement.
The assistance offered through long-term care may encompass a wide array of health care services such as wound care, injections, or medication assistance, as well as personal care assistance with activities of daily living (ADLs) such as bathing, dressing, toileting, feeding, and ambulation. Many people will utilize a variety of care services as their care needs change over time. The goal of long-term care is generally not to cure an illness or disability, but to maximize a person’s functioning and independence.
Why Talk about Long-Term Care?
The Department of Health and Services estimates that 70% of people over the age of 65 will need some type of long-term care at some point in their lives.2 Even without this statistic, common sense tells us that with the aging process it is normal to lose some ability to function, and that loss continues as people age. In view of the statistics and our own life experiences, the topic of long-term care planning is an important one that should be discussed and addressed as part of a normal life planning process. We like to say we help clients “plan to live.”
The Cost of Long-Term Care
The median rate for licensed personal care services and home health aide services in 2013 was $19 per hour (annual median cost of $39,326).3 The median monthly rate for an assisted living facility (private, one bedroom) in 2013 was $3,450 (annual median cost of $41,400).4 For a nursing home (semi-private room), the median monthly rate was $6,296 ($75,555 annually).5 It is not unusual for the cost of care to run significantly higher than these reported cost figures.
And what of the significant hidden cost to families where a family member or friend acts as an unpaid caregiver for a loved one? Besides the tremendous emotional and physical toll a caregiver may suffer, there is now evidence that caregivers and their families suffer a long-lasting financial setback. A Met Life study determined that caregivers sacrifice an average of $659,139 in wages, pension, and Social Security benefits over their lifetime.6
Many Americans believe that Medicare will pay for all their long-term care needs, when in fact it only provides limited coverage. Because of this broad misperception, it is worthwhile to discuss what Medicare covers.
In general terms, Medicare is a national health insurance program. Persons entitled to Social Security retirement and who are 65 years of age and older, and persons entitled to Social Security disability benefits for not less than 24 months are eligible to participate. There are other classes of persons eligible to participate, such as persons receiving railroad retirement benefits and individuals suffering from certain medical diagnoses. Those who are not otherwise eligible for Medicare, but who are over age 65, may purchase coverage by paying a monthly premium.7
Medicare should not be confused with Medicaid; unlike with Medicaid, a person’s income and assets are not a consideration in determining eligibility or benefit amount for Medicare. Medicare is a national program and procedures do not vary significantly from state to state.
Medicare Parts A and B
Medicare coverage is similar to that provided through private insurance in that it covers a portion of the cost of medical care; there may be deductibles and co-payments required of the participant. There are two substantive coverage components in Medicare coverage: Part A and Part B. Part A provides coverage for inpatient hospital care, hospice care, inpatient care in a skilled nursing facility, and some home health services. Part B is optional and covers doctor-provided medical services, durable medical equipment, and some outpatient care and home health services. Many people also use their own funds to purchase Medicare supplement policies through private insurance companies, which provide additional insurance to cover the costs of the deductibles and co-pays.8
The Medicare skilled nursing care (nursing home) benefit has a maximum coverage period of 100 days. If coverage requirements are met, the person is entitled to full coverage for the first 20 days of a nursing home stay and for days 21-100, the person pays a daily co-pay amount that is adjusted annually.
Generally, the Medicare home health benefit requires the patient to be homebound and need skilled nursing care on an intermittent basis. The physician must sign a care plan and the care must be provided by a Medicare certified provider. The approval for home care is generally for specific periods of time and can frequently be extended, based on new orders from the treating physician.
The homebound requirement can be met if leaving home requires considerable effort, as for example, the needing of personal assistance or the use of a wheelchair. Attendance at an adult day care center is not an automatic bar to meeting the requirement. There is no co-pay or deductible and home health services may include part-time or intermittent nursing care and physical, occupational, or speech therapy.
Medicare Part C
Increasing numbers of Medicare recipients are choosing to opt out of traditional Medicare (Parts A and B) and into Medicare Advantage Plans, also known as Medicare Part C. These are private insurance plans that replace Medicare and Medicare supplemental insurance. A Medicare Advantage Plan can be structured as a health maintenance organization (HMO), preferred provider organization (PPO), or private fee-for-service model. Medicare Advantage Plans receive a fee from Medicare for insuring the recipient and the plan may or may not charge an additional premium (like Medicare supplemental insurance.) Keep in mind that Medicare Advantage Plans must provide at least the same core coverage as Medicare, including limited coverage for nursing home coverage and in-home care, and may provide more coverage.9
Long-Term Care Insurance
Long-Term Care Insurance is privately contracted health insurance for long-term care expenses. The coverage is generally activated when the insured needs assistance with certain activities of daily living as defined by the terms of the policy. A long-term care policy generally will provide coverage for: home health care (beyond that covered by Medicare); care offered where one resides in assisted living, memory care, or personal care facilities; and nursing home care. Additionally, a policy may provide coverage benefits for adult day care, respite care, and hospice care (beyond that covered by Medicare).10
This type of private insurance first began gaining popularity in the late 1980s. Unfortunately, the early policies often offered limited coverage such as only covering skilled nursing care (i.e. nursing homes), implementing low daily benefit rates, or even excluding coverage for dementia-related claims. These early policies may have been more affordable than those presently available, but they were certainly not always more valuable. A good long-term care policy today, for example, will not limit coverage to skilled nursing care but also provide coverage for an in-home or an assisted living setting.
A long-term care policy can be helpful by expanding choice of providers and facilities. Such a policy may result in asset preservation and avoiding the need for Medicaid. When analyzing a long-term care policy, here are factors to be considered:
- whether family members can be paid for services;
- the number of days of disability required before benefits will begin;
how facilities and ADLs are defined;
- the amount of the daily benefit rate and whether there a cost of living increase built into the policy benefit;
- whether there is a waiver of premium when benefits are being paid out;
- annual cost and what the forfeiture provisions are in the policy;
- the total maximum benefit amount that will be paid out under the policy (i.e. the maximum benefit period); and
- the services covered.11
Before a decision to purchase any long-term care insurance is reached, a careful analysis of needs should be done; consider the person’s age and health, their assets, their expected sources of income, and the expected daily cost of care when it is needed. Long-term care insurance may not be a sound purchase for persons of modest means, who may be near the income and asset limits for Medicaid.12 It may be appropriate to purchase a limited period of coverage, such as for a period of three to five years as part of an overall plan for their care.
The limits of long-term care insurance include its cost and age restrictions, as this option becomes less affordable the longer a person waits to purchase coverage. Additionally, some people may be excluded due to certain pre-existing conditions and such policies may be oversold to those who may currently be eligible for, or very easily qualify for, Medicaid benefits.
Long-Term Care Partnership Programs
When considering long-term care insurance, one should be aware of Long-Term Care Partnership Programs. These plans are currently available in most states, though their type may vary from state to state.13 The most common provision is the insured receives asset protection to the extent of the long-term care insurance benefits: a “dollar for dollar” plan, further discussed below. Anyone purchasing a long-term care policy would be advised to make sure it is a Partnership policy.
A Partnership-qualified long-term care policy allows you to apply for Medicaid under modified eligibility rules that include a feature called an “asset disregard.” This allows a person to keep assets that they otherwise would not be allowed to keep in order to qualify for Medicaid. The basic concept of the Partnership Program is that the amount of assets Medicaid will “disregard” when determining eligibility is equal to the amount of benefits the policyholder has received under their long-term care partnership policy prior to applying for Medicaid. Further, those funds will not be subject to Medicaid estate recovery after death.
Many Partnership Programs will allow conversion of existing long-term care policies to Partnership policies as long as certain requirements are met. Generally, it is recommended that a policyholder convert to a Partnership policy, if given the option to do so.
There are numerous Veterans Affairs (VA) programs and benefits available to veterans and their family members that can help cover the cost of long-term care. This article will focus on VA health care, but will also mention or briefly touch other benefits and programs.14
VA Health Care
The first program to discuss is VA health care. To be eligible for VA health care benefits, generally the veteran must be enrolled in the VA health system, unless they meet certain requirements relating to VA disability or VA pension benefits.15
Aside from the traditional health care coverage one thinks of, VA health benefits can include Adult Day Health Care, which is an outpatient day program for veterans needing assistance with ADLs. Respite Care is a program that provides short term services to the veteran, in order to give a caregiver time off from the demands of caring for an ill or disabled veteran. A veteran may be entitled to other benefits such as home health care benefits or skilled nursing care benefits. There are also special benefits for blind veterans. All of the aforementioned programs have specific eligibility criteria.16
Home Improvements & Structural Alterations Grant
Another program offered by the VA is the Home Improvements and Structural Alterations (HISA) Grant. The grant offers up to $6,800 to a veteran with a service connected disability, or $2,000 to a veteran with a non-service connected disability, to make a veteran’s home more accessible. This may include building ramps, widening doorways, raising or lowering sinks or counters, and improving electrical or plumbing for medically sustaining equipment.17
The VA also has a Pension Program for veterans and their surviving dependents, such as a spouse or disabled child. The program pays monthly cash benefits to wartime (as defined by the VA) veterans suffering from a non-service connected disability. If the veteran is deceased, their surviving dependents may be eligible to receive a pension benefit.18
The Pension Program is a means-tested program for persons who have limited income and limited assets. Many elderly or disabled veterans are considered to have low income because their out-of-pocket medical expenses are more than their income. The cost of assisted living and similar facilities are considered medical expenses.
The VA does not provide a strict dollar amount in order to determine whether a veteran is “over resourced.” Instead, it has a guideline based on age, marital status, income, medical expenses, and other factors. Thus, the amount of assets a claimant is allowed to have and still qualify for the benefit varies.
The benefit amount varies depending on many factors, including the claimant’s income, medical expenses, and level of disability. There are three levels of disability payments. The first is referred to as the “base level” and is the actual pension. A veteran meets the base level by either obtaining a high enough disability rating through the VA, or by being at least 65 years of age. In addition to the base pension, additional amounts may be added to the benefit for special monthly compensation in the form of a Housebound Allowance or an Aid & Attendance Allowance. A claimant is homebound if he/she cannot leave home alone. A claimant is in need of aid and attendance from another person if he/she needs help performing ADLs. The VA pension benefit with an Aid & Attendance Allowance offers the possibility for the largest monthly benefit, up to $2,054 per month.19
The entire pension benefit from the VA is referred to informally by some as “Aid & Attendance,” although that is not technically correct. Keep the difference between the three levels of payments described above in mind when discussing VA benefits.
A reverse mortgage is a special type of home loan that allows someone age 62 and older to access the equity they have in their homes and defer payment of the loan until the point in time when the borrower dies, sells, or moves out of the home.20 It requires no monthly mortgage payments. The borrower is still responsible for payment of property taxes and homeowner’s insurance and the home must be a primary residence. Any existing mortgages on the home must be paid off at or before closing on the new reverse mortgage.
As there are no required mortgage payments, the interest on the loan is added to the loan balance each month. In view of this, the loan balance can conceivably grow to exceed the value of the home; however, the borrower is generally not required to repay any loan balance in excess of the value of the home. Reverse mortgages generally have higher costs associated with them than a home equity loan or line of credit. The vast majority of reverse mortgages are insured by the Federal Housing Administration (FHA) as part of its Home Equity Conversion Mortgage (HECM) Program.21
A reverse mortgage can be used as a way to supplement income and pay health care expenses. However, borrowers should be aware of risks associated with this type of mortgage. The Consumer Financial Protection Bureau (CFPB) conducted a study on reverse mortgages and its findings included that reverse mortgages are complex and difficult for consumers to understand and that borrowers are taking out loans at younger ages than in the past; in 2011, nearly half of borrowers were under age 70.22 By accessing their home equity early, a homeowner may have problems later on covering unexpected expenses or financing a move to another home.
Further, the CFPB found that borrowers are withdrawing more of their money up-front than in the past. In 2011, 73% of borrowers took all or most of the available funds up-front at closing. Many used some of the monies to pay off existing mortgages. As of February 2012, 9.4% of borrowers were at risk of foreclosure as a result of nonpayment of taxes and insurance. And, if the borrowing spouse dies or needs to move, the non-borrowing spouse must sell the home or otherwise pay off the debt.23 Spouses of borrowers who are not listed as co-borrowers may well have no idea they are at risk of losing their home.
The market for reverse mortgages has been small, but that could well change with the millions of baby boomers reaching the age of eligibility for reverse mortgages. There are concerns with the cost and complexities of these mortgages and with the trend toward persons taking out this type mortgage before age 70 and taking all available loan money up-front in one lump sum. No doubt, some of these people will outlive their monies. Clearly, there needs to be a careful analysis of the individual’s needs and past spending habits when considering this option.
Older Americans Act Support
The Older Americans Act (OAA) of 1965 is legislation with an expansive vision for helping older Americans. It was the first federal-level initiative to focus on the comprehensive needs of older adults, not just medical care.24 The OAA was designed to build an infrastructure for community-based services specifically designed to provide support and care to older adults so they can live independently in their environment of choice for as long as they can. Since 1965, the building of the infrastructure of community-based services has taken place and is indeed well developed; however, the number of people served is limited due to budget constraints. Whether this infrastructure can sustain itself is largely dependent upon future government spending.
The state units on aging under the OAA oversee the administration of statewide programs and services for seniors and disabled individuals, which may be administered locally by area agencies on aging or planning and service districts.25 These programs include a network of Senior Citizen Centers providing information and assistance, disease prevention and health promotion programs, elder abuse prevention programs, volunteer opportunities, and social services and activities for older persons. These Centers may also serve as meal sites where seniors can receive a meal up to five days a week.
The OAA also provides funding for home-delivered meals (Meals on Wheels). There is also a transportation assistance program providing transportation for seniors to get to the Senior Center or for non-emergency medical transportation needs. Other programs include the National Family Caregiver Support Program that assists families with their roles as caregivers.
These are interesting times in the world of long-term care funding. With the millions of baby boomers entering the senior population, and the 80 and older population growing by leaps and bounds, one can expect changes in the way seniors live and fund their long-term care needs. There will in all likelihood be new types of residential and assisted living communities, new programs and changes to existing programs, along with new technology and products geared to assist the senior population. An elder law attorney can be in a position to offer important guidance to clients regarding planning for long-term care funding.
 National Vital Statistics, Volume 61, No 6 October 2012.
 Executive Summary Genworth 2013 Cost of Care Survey, 10th edition, 2013. https://www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate/131168_031813_Executive%20Summary.pdf.
 42 USC Chapter 7, subchapter XVIII, Health insurance for Aged & Disabled; see also www.medicareadvoacy.org.
 Social Security, Medicare, pg 6; http://www.socialsecurity.gov/pubs/EN-05-10043.pdf.
 Long Term Care Insurance Fact Sheet, National Association of Insurance Commissioners, http://www.naic.org/documents/consumer_alert_ltc.pdf; AARP Understanding Long Term Care Insurance, http://www.aarp.org/health/health-insurance/info-06-2012/understanding-long-term-care-insurance.html.
 All benefits available to veterans can be found in Title 38 of the USC; see also http://www.va.gov/landing2_vetsrv.htm.
 See 13 above.
 38 USC § 117(a)(2)(A) and (B).
 (38 USC §§ 1521-1525); http://www.benefits.va.gov/pension.
 38 USC §§ 1521 (original amounts) and 1532 (increases with Social Security cost of living adjustments). Monthly benefit could be higher if you have two veterans married to each other or if the veteran has a dependent child.
 Reverse Mortgages: A Report to Congress, June 28, 2012, available at: http://files.consumerfinance.gov/a/assets/documents/201206_cfpb_Reverse_Mortgage_Report.pdf.
 42 USC Chapter 35 programs for Older Americans; www.aoa.gov.
A Kentucky-focused version of this article appeared in the Kentucky Bar Association's Bench & Bar Magazine, May 2013. ■