November 01, 2015

How to Fund Long-Term Care Without Medicaid

Eileen Walsh

There is no disputing that ever-expanding life expectancy is the new normal for Americans. Data for the year 2013 from the U.S. Centers for Disease Control and Prevention shows a life expectancy for men of 76.4 years and a life expectancy for women of 81.2 years (National Vital Statistics Report, vol. 64, 2013). With this new normal comes the increased likelihood of a need for long-term care in our later years. An elder law practitioner will often have discussions with clients, whether in pre-planning or crisis cases, of how to fund long-term care for themselves or family members. This article will highlight some ways people choose 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 an article of this size. Moreover, it is important to note that what works for one family may well not work for another family, and it is not unusual for a person or family to employ multiple strategies in tackling the issue of funding long-term care.

Long-term care is really an umbrella term for services needed to meet the medical and nonmedical needs of persons who, owing 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 100 percent on our own. It 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, whether it is 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 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.

What Is Medicare?

Many Americans believe that Medicare will pay for all their long-term care needs, when in fact it provides limited coverage. Because of this broad misperception, it is worthwhile to discuss what Medicare is and is not. Medicare should not be confused with Medicaid, as a person’s income and assets are not a consideration in determining eligibility or benefit amount. Medicare is a national program, and procedures should not vary significantly from state to state.

Medicare was adopted in 1965 under Title 18 of the Social Security Act (42 U.S.C. 1396 et seq.). In general terms, Medicare is a national health insurance program for persons entitled to Social Security retirement who are 65 years of age and older and persons entitled to Social Security disability benefits for not less than 24 months. 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 (42 U.S.C. Chapter 7, Subchapter XVIII, Health Insurance for Aged & Disabled). Medicare is administered by the Centers for Medicare & Medicaid Services (CMS; medicare.gov) in the U.S. Department of Health and Human Services (HHS; hhs.gov).

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, referenced as 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. Any person who has reached age 65 and who is entitled to Social Security benefits is eligible for Medicare Part A without charge. Thus, there are no premiums for this portion of the Medicare program (but there may be deductibles and co-pays). Part B is optional and covers doctor-provided medical services, durable medical equipment, and some outpatient care and home health services. Part A is largely funded by federal payroll taxes paid into Social Security by employers and employees, and Part B is funded through monthly premiums paid by participants and by general revenues from the federal government. Participants also share costs through the deductibles and co-pays required for many services under Parts A and B. In addition, many people 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.

Medicare Home Health Benefit

Generally, the Medicare home health benefit requires the patient to be homebound and need skilled nursing care on an intermittent basis, from as much as every day for recurring periods of 21 days—if there is a predictable end to the need for daily care—to as little as once every 60 days. The homebound definition can be found at 42 U.S.C. 1395n(a)(2)(F). The physician must sign a care plan, and the care must be provided by, or under arrangements with, a Medicare-certified provider. The homebound requirement can be met if leaving home requires considerable and taxing effort, which may be shown by the person needing personal assistance or the help of a wheelchair, crutches, etc. Occasional but infrequent walks around the block are allowable. Attendance at an adult day care center or religious services will not be an automatic bar to meeting the homebound requirement.

Medicare Advantage Plans

Medicare also gives one the option of receiving medical care through a private insurance plan (Medicare Part C). Such plans are referred to as Medicare Advantage plans and are generally managed care plans. Private Medicare Advantage plans contract with the federal government to provide insurance to older adults and persons with disabilities, and Medicare typically pays higher rates for those who are sicker and require more expensive care. The most common types are health maintenance organizations (HMOs), preferred provider organizations (PPO), and private fee-for-service (PFFS) plans. You may also see Medicare Advantage plans called special needs plans (SNP), provider-sponsored organizations (PSOs), and Medicare savings accounts (MSAs). The Medicare Advantage program was created by the Balanced Budget Act of 1997, Public Law No. 105-33 section 4001, 111 Statute 251,25 (1977). A person must opt out of “original” Medicare to receive Medicare coverage with the private companies, which generally receive a fixed rate per beneficiary from Medicare. The basic idea of managed care is that a health plan is paid a flat monthly fee for patients under its care.

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 particular terms of the policy. A long-term care policy generally will provide coverage for home health care (not covered by Medicare); care offered where one resides in assisted living, memory care, or personal care facilities; and nursing home care. In my state of Kentucky, state statute K.R.S. 304.14-615(2)(c) specifically states that a long-term care insurance policy “shall not provide coverage for skilled nursing care only or provide significantly more coverage for skilled care in a facility than coverage for lower levels of care.” Additionally, a policy may provide coverage benefits for adult day care, respite care, and hospice care (not covered by Medicare).

Long-term care policies have historically paid an insignificant amount of the total long-term care costs in the United States. The Centers for Medicare & Medicaid Services reported that for calendar years 2002–2007 insurance industry payments amounted to just over 8 percent of the total long-term care costs. Even the 8 percent needs to be adjusted downward as “insurance” payments utilized in the calculation included Medicare supplement policies and other types of private insurance. Despite this finding, certainly the availability of long-term care insurance can provide some financial security and help facilitate independence in many cases.

Veterans’ Benefits

The Veterans Administration was created in 1930 by President Herbert Hoover. It became known as the Department of Veterans Affairs (VA) in 1989, as set forth in 38 U.S.C.A. Section 306. Federal law establishing all VA benefits is found in Title 38 of the U.S. Code, with the federal regulations implementing and interpreting Title 38 of the U.S. Code found at Title 38 of the Code of Federal Regulations. The VA’s internal regulations can be found in the M21-1MR, which is the VA’s manual for adjudication of claims, similar to Kentucky Medicaid’s POMS. The M21-1MR and its forms are available online at benefits.va.gov/WARMS/M21_1mr1.asp. The direct website for VA forms is va.gov/vaforms.

To be eligible for VA health care benefits, the veteran generally must be enrolled in the Veterans Health Administration (the VA health system), unless he or she meets certain requirements relating to VA disability or VA pension benefits. Once veterans are enrolled, they generally are assigned to one of eight priority groups, which are used to balance demand for services. Group one is the highest priority and is for veterans with service-connected disabilities of 50 percent or more. Group eight generally encompasses veterans with incomes above the VA national average in their locality, and those veterans must agree to pay a co-pay for services. The Veterans Health Administration is home to the largest integrated health care system in the United States. There are more than 150 medical centers and nearly 1,400 community-based outpatient clinics in the country.

Reverse Mortgage

Television ads may make a reverse mortgage seem simple and send the message that a reverse mortgage can solve all your financial problems. As with most things, it is not necessarily that simple. Before people obtain a reverse mortgage, it is important they know exactly what they are getting and that they understand any ramifications pertaining to their particular situation.

A reverse mortgage is generally a special type of home loan for older home owners. Congress authorized the U.S. Department of Housing and Urban Development (HUD) to carry out a program of mortgage insurance designed to address the needs of elderly home owners who may experience economic hardship caused by increasing costs of living at a time when they have reduced income (12 U.S.C.A. Section 1715z-20(a)(1)). The program is administered by the Federal Housing Administration (FHA), which insures home equity conversion mortgages (HECM) to permit the conversion of a portion of accumulated home equity into liquid assets (38 U.S.C. Sections 1521–1525).

This type of mortgage allows people 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 they die, sell, or move out of the home. 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.

Seniors need to be cautious in deciding to go the route of obtaining a reverse mortgage. They should consider all possible alternatives to raising cash and should seek professional counseling from an elder law attorney and a financial planner before signing a reverse mortgage. Seniors need to be advised of the possible negative consequences and potential harm of a reverse mortgage product as it applies to their personal situation. With the increasing longevity of our population, unfortunately there will be seniors who will exhaust their reverse mortgage cash and have no money to live on or pay insurance, etc. Seniors will need to consider whether it is better to sell their home and take the proceeds and live somewhere else (downsize), hopefully having monies left over that could pay for in-home care assistance versus staying in their existing residence.

Life Insurance

A newer life insurance product is a single-premium whole-life insurance policy with a long-term care rider. This type of policy can provide some long-term care benefits, which, if accessed, will reduce the death benefit payable. There will be a significant premium payment and underwriting guidelines that must be met, but this type of insurance product may be an appropriate tool in planning for long-term care needs.

Conclusion

These are interesting times in the world of long-term care funding. With millions of Baby Boomers entering the senior population, and with the number of people age 80 and older growing by leaps and bounds, one can expect changes in the way seniors live and fund their long-term care needs. In all likelihood there will 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.

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Eileen Walsh

Eileen Walsh, JD (ewalsh@elderlawoflouisville.com), is a partner with the law firm Elder Law of Louisville and regularly writes and speaks on elder law topics.