A Vital Issue Facing Seniors:
Long-Term Care

by George Sherman, Ph.D.

Dr. Sherman is the Editor of LTC News & Comment, the nation's only comprehensive source of information on private and public policy relating to the financing of long term care. He has over twenty-three years of experience in aging issues, with over eleven years in the field of long term care financing. He previously worked as Director of Training for the Pennsylvania Department on Aging, for the National Center on Black Aged, and for the National Association of Area Agencies on Aging.

Long-term care has gained national attention in the media, in Congress, and in state capitols. Hardly a week goes by without the press covering the subject of nursing homes, home healthcare, or the problems of faced by family members caring for a frail relative. Congress is currently considering expanding the tax incentives for buying long-term care insurance. What is long-term care, and why should you be informed about it?

What is the Risk of Needing Long-Term Care?

Two out of five Americans aged 65 and over today will likely enter a nursing home, for a short or long period. Of those who enter a nursing home, over 20% will be there more than five years. Women face a greater chance of using a nursing home than men. Three-fourths of people living in nursing home are women. It should be noted that the data used in this study, (Medical Care, March 1997) predate some major changes in the provision of long-term care, such as assisted living, and greater access to home healthcare.

I also caution that it is unwise to apply national averages to individual situations. Everyone has his or her own health conditions and medical history. No one can safely predict whether or not he or she will ever need long-term care.

The Future of Long-Term Care

As mentioned above, major changes have taken place, and are continuing to take place, in the provision of long-term care. The assisted-living industry has rapidly expanded the availability of assisted-living units that cater to the large numbers of seniors who need some assistance with ADLs, but do not need the intensive care provided in nursing homes. The home healthcare industry, responding to the desires of seniors to remain at home if they possibly can, has grown exponentially in the last 10 years. Adult day care centers have also stepped in to meet the requirements of people who can benefit from physical assistance and social interaction, but do not need around-the-clock supervision, and who prefer to remain at home. These centers also allow family caregivers some relief from the often tedious chore of providing long-term care to loved ones who live at home.

Recently, technology has greatly enhanced the capability of people to provide long-term care, to reduce costs and, more importantly, to help frail seniors maintain their level of functioning. Some home healthcare agencies have invested in new technology called telehomecare that allows skilled home healthcare professionals to monitor their patients with the aid of TV and remote devices that measure various health indicators, and then transmit the data to a central computer for analysis and diagnosis. This information helps care managers, nurses, home healthcare aides, family caregivers, and patients develop and update plans of care and monitor the progress of the patient. Robotics is another field that holds great promise for those receiving long-term care.

How Much Does Long-Term Care Cost?

In themselves a visit by a home healthcare aide, a day in an assisted-living facility, even a day in a nursing home are not inordinately expensive. A visit by a home healthcare aide costs about $55 now, depending on where you live. Usually long-term care of all types is more expensive in cities, and even more so in large metropolitan areas such as New York City and Chicago. Nationally, the daily rate for nursing homes, excluding specialized care such as Alzheimer's care, special diets, or supplies and medications, can run from $110 per day up to $250 a day or more. Assisted-living facilities also vary in their fees, depending on services and amenities. However, they usually cost about one-third less than nursing homes.

The kicker about the cost of long-term care is not in the daily charge. It is in the lengthy time that care is usually provided. A long-term stay in a nursing home often costs several hundreds of thousands of dollars. To receive the same type of intensive care available in a nursing home while remaining at home would cost about three times as much as the nursing-home charges.

Options for Handling Potential Long-Term Care Needs

One way to cover the risk of paying for your long-term care is to self insure, i.e., to use your own savings. To ensure that you will have enough money put away to pay for extended long-term care, you should consult a qualified financial planner who specializes in retirement planning. You will have to answer questions such as what you want done with your money and property, and calculate the likely future costs of both of home healthcare and of residential care for an extended period.

You must also consider the financial, physical, and emotional effects on your spouse and children of paying for long term care. Will paying out-of-pocket impoverish your spouse as well as you, and lower his or her standard of living for the future?

When some people say that they will self-insure, what they really mean is that they are hoping their children will take care of them. This, in truth, is a self-centered cop-out. It shifts responsibility for a person's own well being to his or her children who have families and responsibilities of their own. It may also jeopardize the emotional, physical, and financial security of these children and grandchildren.

Doesn't Medicare Cover Long-Term Care?

Some seniors think that Medicare will cover their long-term care. It doesn't. Medicare does pay a limited amount for skilled nursing care in a nursing home, but only on the condition that the patient has been discharged from a hospital, and needs rehabilitation. Medicare also only pays for home healthcare under the same conditions, i.e., to help a person get back on his or her feet, hopefully in the same physical condition as before the acute episode that caused the hospitalization. Medicare does not pay for assistance provided for chronic, i.e., long-term, conditions.

A good way to remember this is to understand that Medicare focuses on curing the patient, while long-term care focuses on caring for the patient.

What about Medicaid?

Many seniors depend on Medicaid to pay for their long-term care. Medicaid is a federal and state partnership that in reality is social insurance for the poor. As social insurance, Medicaid is subject to the fiscal and political vagaries common at both the federal and state levels. In addition, states require that people be legally poor to qualify for Medicaid, including long-term care.

Some seniors have engaged elderlaw attorneys to transfer their assets so that they can meet their state's legal requirement for Medicaid. There can be serious consequences of transferring assets to qualify for Medicaid. People who do are depending on a welfare program for their long-term care. Medicaid may pay for someone's long-term care, or it may not. Even when it does, Medicaid typically reimburses nursing homes only two-thirds of what it costs them to provide care.

The inadequacy of Medicaid's long-term care dollar is a major reason why seven national nursing-home chains have filed for bankruptcy protection under Chapter 11.

Another liability of Medicaid's long-term care program is the absence of choice of providers. Being a bureaucratic program with limited finances, the person depending on Medicaid must wait until a Medicaid bed is available in a facility of the state's choice.

Most problematic about Medicaid's long-term care program is the nationally recognized lack of quality. It stands to reason that if the program does not even cover the cost of home healthcare, it cannot guarantee quality care. In addition, Medicaid cannot, by federal legislation, pay for assisted living, and pays only limited amounts for home healthcare for a selected group of people.

Private Insurance: The Way To Go

Another, and we believe more attractive, option for paying for long-term care is with private insurance. Long-term care insurance works like other insurance: it spreads risk among a pool of insureds. Private insurance for long-term care has been sold now for 20 years. Current policies cover a wide range of services currently available such as home healthcare, adult day care, assisted living, and nursing-home care. They also usually provide a care manager to help you and your doctor develop and implement a plan of care that will be best for you.

The Current Legal Status of Long-Term Care Insurance

In 1996 a new law, the Health Insurance Portability and Accountability Act, was passed. It allowed tax deductions for long-term care insurance, as long as policies met federal guidelines.

Since that law, most of the long-term care insurance policies sold have been federally qualified ones. However, some companies sell non-qualified plans. We recommend against considering these plans because of the real risk that benefits received under them could be taxed as income by the IRS. The IRS has sent letters to people who have received benefits from their long-term care insurance policies, asking them why they did not report these benefits as income for tax purposes. Nonqualified plans are usually sold under the pretense that they have much more lenient requirements to qualify for benefits. This is not true. The vast majority of people needing long-term care easily qualify according to the federal guidelines. We do not think that this dubious margin of advantage for qualifying for benefits outweighs the risk of having those benefits taxed as income. After all, one reason why people buy insurance is to safeguard their financial future. Non-federally qualified plans fail in this regard.

This year Congress is considering a number of bills to expand the tax deductions for federally qualified private long-term care insurance. Many analysts predict that Congress and the President this year will act overwhelmingly to enact an above-the-line tax deduction for premiums for qualified plans.

What Should You Look for in a Quality Long-Term Care Insurance Policy?

A key factor in buying a policy is the scope of coverage. As mentioned above, we strongly recommend a comprehensive policy, one that covers all settings, i.e., home healthcare, adult day care, assisted living, and nursing-home care. Only this type of plan can give you the full choice of options for care to meet your needs. You will have to decide on a number of options in order to design the plan that meets your individual needs.

This is where it is to your advantage to work with a qualified agent, one who specializes in only long-term care insurance. Your agent will advise you on the scope of your coverage including length of benefit period or total amount of insurance, the deductible, or elimination period, the advisability of buying a joint plan that includes your spouse, and whether or not inflation protection is a good investment. This last option is a critical one, particularly if you are in your sixties or early seventies, since inflation has been proven to whittle down the purchasing power of the long-term care dollar. Remember, also, that elimination periods, the number of days of care for which you pay before your insurance kicks in, are also subject to inflation. So if you choose an elimination period of 100 days, and each day costs $100, in 10 years you would pay for 100 days not at $100 per day, but at $163 per day due to compounded inflation (calculated at 5%). That means that your bill would not be $10,000, but $16,300 before your insurer would begin paying. Whatever plan you and features you choose, you should be satisfied that you will have sufficient payments, both on a daily basis and for the duration of your needs.

Can You Choose Where to Receive Care?

Sometimes you can—if the policy you have chosen covers what you want. Whether a person can utilize home healthcare depends upon the type of disability they experience. If someone needs help with scheduled activities such as meal preparation or bathing, home healthcare could be viable. However, if the problem is incontinence, then clearly one visit per day from a home healthcare aide would not be adequate. So while some people progress from home healthcare to assisted living (which provides a homelike setting with care available if needed), many may need residential care from the outset.

Research shows that only about one-third of claimants of long-term care insurance policies used home healthcare before admission to their current nursing home, and about four in ten residents of assisted-living facilities did. This means that the majority of claimants did not use home healthcare before they entered their current facility. Many of these were previously in another nursing home, in an assisted-living facility, or both. It may be that people, especially those in assisted-living facilities, prefer to go there rather than have a stranger come into their home to provide home healthcare.

Most Long-Term Care Insurance Plans on the Market Today Are Designed for Today's Long-Term Care Delivery System

In thinking about which policy to buy, you should also be aware that the vast majority of long-term care insurance plans today are modeled on the federal and state system for financing health care, i.e., they do not focus primarily on the patient, but on the providers of service. Medicare and Medicaid reimburse only those facilities that are certified by them and certain health care professionals. This puts the patient in the back seat. When considering a policy, it is a good idea to look for one that puts you, the client, in the driver's seat—a plan that is primarily concerned about providing appropriate services for your condition, not about the certification of the provider.

Remember, too, that you are more likely to need and collect your benefits in the future than in the next year or two. With this in mind, you would be wise to choose a plan that is truly designed for the future. Such a policy would not be restricted by current definitions and qualifications of providers, nor by current technology employed in long-term care. You will probably need your policy to start paying in the future. Therefore, buy a plan that covers all the options currently available as well as whatever innovations the future has in store. Currently only one plan on the market meets this important criterion.

Some Plans Contain an Alternative Plan of Care. Doesn't this Cover Future Contingencies?

Not necessarily. In fact, current Alternative Plans of Care contain that weasel word, "may." They may cover care not specified in the policy. They do not say will cover. This leaves the insurance company off the hook for paying for what is not specified in its policy. Denials are particularly likely if the company starts to receive many such claims for alternate care. It is rare to find situations where companies have actually paid for services not specifically covered under their policies.

What About Plans that Cover Only Home Healthcare?

Some insurers sell long-term care policies that cover only home healthcare. Some people buy these plans because they do want to go to a nursing home. Not a good idea. The catastrophic cost of long-term care does not come from home healthcare, but from facility care, whether it be in a nursing home or an assisted-living facility. The same type of intensive care available in these facilities would cost three times as much if it were provided in someone's home. The hard reality is that you may at some time, for the sake of both yourself and your family, be best cared for in a long-term care facility. The wise choice is to buy a comprehensive policy that covers all types of care, home healthcare, home improvements, adult day care, assisted living, and nursing-home care.

Underwriting: A Necessary Step in Obtaining Long-Term Care Insurance

We mentioned above that long-term care insurance is, like other private insurance, based on risk, not certainty. Insurance companies accept only insurable clients, i.e., people who currently meet their standards for health. To determine whether prospects are acceptable risks, insurers underwrite them. Long term care insurers require applicants to answer a variety of health questions and to list their medications. It is not uncommon for them to review your physicians' records, with your permission. Sometimes insurers may even hire a professional to interview the applicant at home.

When Is the Best Time to Buy Long-Term Care Insurance?

First, let's look at this question. When is the most economically efficient time to buy long-term care insurance? The answer: the day before you need long-term care. How many seniors think that they can safely predict this event? How many people wait until the day before their house burns down, or the day before they have a car accident, or the day before they have a heart attack to buy insurance? None—because they do not know when that will be. Yet many people put off buying long-term care insurance because, in effect, they predict that they won't need long-term care, or because they just don't want to think about it.

This course of inaction brings with it two important liabilities. First is the danger that you may lose your health, or experience the worsening of a condition you already have, and thus become uninsurable. The second is that when you do decide later to buy the insurance, your cost will be higher since long term care premiums are, in part, determined by your age at the time of application. The older you are, the greater the risk of needing long-term care, and therefore, the higher the cost to insure you.

A Word to the Wise