The U.S. is on the brink of substantial growth of its elderly population as baby boomers are approaching their retirement years. Not only will the population over age 65 increase significantly during the next 30 years, but they will live longer than any generation before them, bringing the country's 85 and older population to a record high. While living longer is good news, the elderly face increasing odds of needing long term care---the physical, mental and social care given to those who have a severe, chronic impairment.

Today, the average life expectancy is 76 years---an increase of almost 30 years since the beginning of the 20th century, according to the U.S. National Center for Health Statistics. And, with growing longevity come increasing odds of needing long-term care. Nearly 50 percent of all Americans who reach age 65 are projected to spend time in a skilled nursing facility, a American Association of Retired Persons National Nursing Home Study found.

Long-term care, however, is much more than nursing home care. It also includes home healthcare, assisted living facilities and adult day care centers. It can come in the form of skilled care, which is the most intensive; intermediate care, similar to skilled care except that it is provided on a periodic basis; and custodial care, which involves assistance with the normal activities of daily living such as bathing, dressing and eating.

Most people are surprised to learn that long-term care services are not covered---or covered only on a limited basis---by Medicare or Medicaid. Medicare handles only short-term stays after hospitalization and does not cover nursing home stays beyond 100 days. That's not much help for chronic situations, considering the average stay in a nursing home is 2.5 years, according to the October 1997 Consumer Reports.

Medicaid pays only after the person has "spent down" his or her assets. In other words, recipients must demonstrate poverty to qualify. Poverty levels vary by state, but can be as low as $2,000 in net assets, excluding your home, if married. Furthermore, Medicaid only pays for care in assigned participating nursing homes.

Long-term care insurance is a financial tool you should consider. Many of us spend nearly 30 years of our lives saving for retirement, yet we fail to insure against the possibility of long term care depleting or exhausting that nest egg.

According to the American Council of Life Insurance (ACLI), one out of every 7 citizens will be over age 85 by the year 2030. As a result, the number of these people needing nursing home care could increase by 250% by 2030, placing an extraordinary burden on the already strained Medicaid and Medicare programs.

In the state of New York, for example, in 1995, total spending on nursing home care for New York residents reached $8.7 billion. By 2030, total nursing home expenditures are expected to rise to $39.4 billion (adjusted for inflation), notes ACLI. Medicaid pays for half the state's nursing home costs, while Medicare pays for 2 percent of short-term nursing home stays. Individuals pay out of pocket for the remainder. Furthermore, Medicaid nursing home spending in New York alone is expected to rise form $3.9 billion today to &17.7 billion by 2030, an increase of 353 percent!

Approximately 70 percent of the working population can afford to purchase long term care insurance, similar to national trends. If those who could afford long term care insurance purchased a policy, state Medicaid expenditures could be reduced significantly. National estimates show that Medicaid could save more than 20 percent of its expenditures.

1. What is long - term care? Long - term care is the day-in, day-out assistance you need when you have a serious illness or disability that lasts for a period of time and you are not able to take care of yourself. Long term care refers to a wide range of services delivered in your own home, adult day care centers, assisted living facilities, continuing care communities and in nursing homes. The level of care may be skilled or intermediate, but most frequently is at a custodial or personal level of care. 95% of the people who reside in nursing homes are receiving custodial care. The need for custodial care may be the result of an injury, illness, chronic condition or the frailty of aging where a person requires assistance with activities of daily living (ADL) such as bathing, dressing, feeding, transferring, toileting, or continence.

2. What are the chances that you will need long - term care? 70% of people over age 65 will require long - term care at some point in their lives. At age 75 the probability is greater. The older you are, the greater the probability that some form of long - term care will be required. Of those entering nursing homes, half will stay less than three months, many of these requiring care as part of a convalescing process. The average stay of the other half entering nursing homes will be approximately 3 years.

3. How much does long - term care cost? The current cost of nurses aides or home health aides ranges from $10 to $27 per hour. Home health care can amount to over $29,000 per year or more. The cost of nursing homes average about $188 per day - that's an annual cost of $68,620. Downstate costs range from $80,000 - $100,000 per year.

4. What is the future cost of long - term care? Assuming a 5% inflation rate, the annual cost of a nursing home stay:
in 10 years will amount to $110,076
in 20 years will amount to $180,424
in 30 years will amount to $293,892

In 30 years, assuming an inflation rate of 5%, the average cost of a 5 year nursing home stay will cost a total of $1,469,460.

5. Doesn't my Medicare Supplement Policy or my catastrophic policy cover long - term care expenses? Coverage is very limited. After at least a 3 day hospital stay, if continuous skilled care is required in a skilled nursing facility, then Medicare may pay in full up to 20 days and the excess amount after a significant deductible per day up to a maximum of 100 days. Some Medicare supplements will reimburse this daily deductible of Medicare approved expenses in a nursing home. Less than 2% of nursing home income is derived from Medicare and Medicare Supplements. In certain situations, if skilled care is required at home, Medicare may pay. It is estimated that Medicare paid only 11% of home health care costs last year.

 

6. Who pays for long - term care?
Medicare, Medicare Supplements, conventional health policies	3%
Catastrophic Care Policies	0%
Medicaid and state programs	46%
Your savings or Private Health Insurance	51%

8. Do you need long - term care insurance? Not everyone needs long - term care insurance. If you have limited assets, then Medicaid and community based programs may effectively meet your long - term care needs. If you do have assets to protect, then you probably would not qualify for Medicaid or community based programs. If you want to maintain your independence, if you want to have the most choices as to where, when, and how care is provided, then long - term care insurance may be your best answer. Financial professionals and legal advisors know the important role that a properly structured long - term care insurance policy fills.

9. What provisions are included in long - term care policies?

Provisions that Affect the Annual Premium

9a. Benefit Period A policy should provide sufficient coverage for a long stay with minimum coverage of 3 to 4 years. With a lifetime benefit period there would be no limit to the total benefits paid. The longer the benefit period, the higher the premium.

9b. Daily Benefit Amount An adequate daily benefit should be selected so that assets do not have to be invaded to pay for LTC. Generally, we are recommending a minimum between $150-$200/day. This is based on average nursing home costs in Upstate NY. The amount you choose may vary based on the amount of income you have available to pay for LTC expenses. The higher the daily benefit amount selected, the higher the premium.

9c. Home Health Care Most people prefer to receive care at home for the longest possible time. Proper coverage can delay or even eliminate the need, in some situations, for nursing home care. The amount of the daily benefit and the length of the benefit period selected for home health care affects the premium. For most policies, home health care coverage is available through a rider to the policy. Some policies integrate home health care into the core policy and you can choose a home health care benefit that is 50% or 100% of the nursing home benefit. Adult day care is generally included as part of home health care coverage. Assisted living may be a part of either the nursing home or home health care provisions depending upon the policy.

9d. Inflation Protection It is important that policy benefits keep pace with increasing nursing home and home health care costs. For an additional premium, a number of nursing home policies include inflation protection, with benefits increasing at 5% annually. At National Long-Term Care Brokers we usually recommend this additional protection to those under 75 years of age. For those 75 and up, depending upon the insurance company selected, it may be more cost effective to choose a higher daily benefit amount without the Inflation Protection Option. Be cautious about policies offering inflation protection by permitting you to buy additional coverage every one, two or three years. If you want to protect against inflation, make certain that your premium includes an automatic inflation provision where premiums stay level while your daily benefit increases each year.

9e. Elimination Period (Deductible or Waiting Period) The elimination period choices vary from one policy to the next -- generally from 0 to 100 days. The longer the elimination period you choose, the lower the premium will be.

Financially Stable Company It is important to make certain that the insurance company you select will be capable of paying benefits when they are needed. A.M. Best, Duff & Phelps, Standard and Poor's, Moody's and Weiss Research are companies which specialize in evaluating the financial condition of life and health insurance companies. High ratings from at least two of the above rating services are recommended.

Guaranteed Renewable As long as the premium is paid on time, the insurance company must renew the policy annually, even if the client's health has deteriorated. Premiums will stay level for the life of the policy and can change only if the state insurance commissioner approves the change for everyone who has a policy in that state.

No Prior Hospital Stay is Required You do not need a prior hospitalization to be eligible for benefits. This is particularly important since only half the people entering nursing homes have received care first in a hospital. Many people are admitted to a long term care facility following a period of care at home.

There are 2 ways to access benefits:

Activities of daily living - your physician certifies that you require help with bathing, dressing, mobility, toileting, continence, or taking medications. Access to policy benefits is based on your failure to perform at least 2 or more activities of daily living.

Cognitive impairment - you physically may be able to perform the activities of daily living, but need to be reminded to do so because of organically based dementia such as Alzheimer's.

The Kennedy-Kassebaum Bill passed by Congress in early August 1996 and subsequently signed by President Clinton set standards for LTC products. To meet the benefit trigger under a tax-qualified policy, the policyholder needs to meet the law's definition of a "chronically ill individual." A "chronically ill individual" is someone who has been certified within the preceding 12 months by a licensed health care practitioner as:

There are three levels of care in a nursing home: Skilled, Intermediate and Custodial. Since fewer than 1/2% of the residents in a nursing home receive skilled care, it is important that the nursing home policy pay benefits no matter what level of care the person qualifies for. Most people in a nursing home (95%) receive care at the custodial care level.

If a person purchases a policy that includes home health care, the policy should stipulate that home health care benefits be paid without having to enter a nursing home first. Many people require home health care assistance after leaving a hospital. Usually, people enter a nursing home only after the home health care arrangements have become unsatisfactory.

The waiver of premium benefit says that you no longer need to continue premium payments under certain policy provisions when you are receiving benefits. This feature can vary greatly, depending upon the company. The best waiver of premium benefits waive the premium when you are receiving either home care or nursing home care. Some are limited to just nursing home care benefits. Be sure that you understand how you waiver of premium benefits work in your policy, BEFORE you buy it!

10. How do I know which coverage I should choose or which company I should select? Evaluate the new information you have received based on your particular requirements. Talk with an insurance or financial professional who understands long - term care, and can properly evaluate and meet your needs by looking at several different carriers. When appropriate, this professional can work with you, your family, and your financial or legal advisors to provide you with effective protection at an affordable premium.

11. Why do people buy long - term care insurance?

12. Planning ahead makes a difference! Planning ahead will keep you financially sound, while providing you with more choices and more control should you require long - term care. The secure retirement you and your family have been looking forward to can be assured, but only if you act.

Q. What is the NYS Partnership for Long - Term Care?

New York State has been authorized to establish a Partnership for Long - Term Care. The (Partnership) program designed to assist the residents of NY in planning for the cost of long - term care. This program, funded in part by a grant from the Robert Wood Johnson Foundation, promotes the availability of Partnership - approved, long - term care insurance policies issued only by participating insurers to residents of NY State. These policies can be identified by the Partnership logo that appears on the front of all materials related to the Partnership program. Partnership long - term care insurance policies contain unique features and must be approved under the Partnership program by the Insurance Department of the State of NY. Under the NY State Partnership for Long - Term Care, many people will be able to afford their own care, without the need for impoverishment and dependency on Medicaid. The goal of the Partnership is financial independence for consumers through shared responsibility. This means that NY State will share with you in planning for LTC expenses. You can meet your responsibility by purchasing a Partnership LTC insurance policy and keeping it in effect. The State will do its share by protecting you against the costs of extended-care situations through its Medicaid program. See the next question for further details.

Q. How Can You Benefit by Purchasing a Partnership Policy?

As a participant in the program, you are entitled to certain benefits beyond the benefits provided in the Partnership LTC insurance policy. The most unique advantage is that if you exhaust the benefits of your policy, you are eligible to apply for Medicaid without regard to the type or amount of assets you may have; there is no limit to the assets you may keep and still receive Medicaid. However, you are required to contribute your income toward the cost of your care in accordance with regular Medicaid rules. Again, to receive Medicaid under this program, you must first exhaust the minimum benefits (three years of nursing home care or six years of home care or a combination of the two) under your Partnership policy. As your private insurance benefits near exhaustion, you or your designee must file an application for Medicaid at your local district department of social services. If your income does not exceed the cost of your medical care, you will be eligible for all Medicaid benefits including the prescription drugs, medical equipment, dental care, eyeglasses, doctors and hospital services, as well as LTC services. New York's Medicaid extended coverage commitment to you will continue for as long as you meet the conditions of the Partnership program and the Medicaid program. This means that you must maintain your Partnership policy so that your coverage at the time you begin to use your benefits equals or exceeds minimum Partnership standards, and you must comply with Medicaid application and eligibility requirements.

NOTE: Although your Partnership policy may be used outside NY State, the special Medicaid eligibility is available only if you apply for it in NY as a resident of NY.

Q. What Makes a Partnership Approved Policy Different from Other Long - Term Care Insurance Policies?

The most significant difference is the asset protection offered through Medicaid extended coverage, but a Partnership policy also has other important advantages:

a) Required Minimum Standards: The minimum standards for Partnership policies are described in the next question. They are among the highest standards applied to LTC insurance policies. All insurers participating in the program must offer policies that meet these minimum standards.

b) Extended Grace Period: You will have the option of designating someone to be notified if the policy is about to terminate (lapse) due to nonpayment of premiums. If it is necessary for your insurance company to contact your designee, an additional 30 days will be permitted to pay your premium beyond the regular grace period of 31 days usually allowed. Selecting this option will protect you in case you are not able to manage your finances, so that you will not lose your coverage at the time you may need it most.

c) Denied Claims: Any claim denied by the insurer will be reviewed by the Partnership. For anyone entering a NY State nursing home, the review will occur automatically. If you apply for home care benefits or are in an out-of-state nursing home, you may request a review if you feel your claim for benefits has been denied incorrectly.

d) Arbitration: If you disagree with a claim denial, at any time you may use the court appeal process guaranteed under the insurance laws of New York State. However, if you are notified by the Partnership that your claim was possibly denied in error, you will also have the right to select arbitration. Although you will be responsible for half the cost of arbitration and for an additional independent assessment, if needed, arbitration is less expensive and a great deal faster than court action. In addition to the advantages noted above, policy sales and use of services will be monitored by the Partnership to ensure that the program is meeting the needs of participants. Of course, all information that is collected and reviewed by the Partnership will be strictly confidential and will not be disclosed without your permission.

Q. What Are the Minimum Required Standards for a Partnership Approved Policy?

The benefits described below meet the minimum required standards. A policy meeting these standards represents "basic coverage" under the Partnership program. You do not need to protect yourself for a longer duration or for coverage amounts greater than the minimums in order to participate in the Partnership program to become eligible for Medicaid extended coverage. However, you may wish to purchase a policy that exceeds basic coverage.

a) Duration: Each policy will cover you for a minimum of three years in a nursing home or six years of home care, where two days of home care equal one nursing home day. You may use nursing home and home care services in any combination to satisfy the requirement that minimum policy benefits be exhausted in order to be eligible for Medicaid extended coverage. For example, two years of home care and two years of nursing home care would equal three years of nursing home care under the program on the basis of two days of home care equaling one nursing day.

b) Coverage Amount: Partnership policies are required to pay minimum daily benefits of $171 for nursing home care and $86 for home care. These are minimums for 2004. These minimum daily benefits will increase each year on January 1.

c) Elimination Period: The elimination or waiting period for basic coverage is 100 days, but insurers may offer shorter elimination periods for an additional premium.

d) Services: Each policy must cover the following services:

e) Other Coverage Features:

INTRODUCTION

This is intended as a summary of the Long Term Care Insurance provisions of The Health Insurance Portability and Accountability Act of 1996. The final version of the legislation, also referred to as the Kennedy-Kassebaum Bill, was passed by Congress in early August 1996, and was signed into law by the President that same month.

The new law is an amendment to the Internal Revenue Code. It is an attempt to set standards and promote sales of LTC insurance products through the use of the tax code.

TAX QUALIFIED LTC POLICIES

Policies Issued Prior to January 1, 1997

All policies issued prior to 1/1/97, are automatically treated as tax qualified LTC insurance policies.

Policies Issued On or After January 1, 1997

LTC policies issued on or after 1/1/97, will need to conform to standards outlined in the new law to qualify for Federal tax-preferred status. Those standards are described later in this section of our guide.

FEDERAL INCOME TAX IMPACTS

Deductible Premiums for Tax Qualified Policies

Individual Limits

Within the limits shown below, policy premiums may be itemized as deductions for medical expenses - the same as other health insurance premiums. Medical expense deductions are currently limited to the excess over 7.5% of a taxpayer's Adjusted Gross Income.

The maximum tax deduction for LTC insurance premiums will be limited according to the taxpayer's age at the end of the tax year as follows:

These are individual limits. Taxpayers filing a joint return can each deduct up to their individual limit. Also, these limits will grow with each year's increase in the Medical Care component of the Consumer Price Index.

Qualified LTC Benefit Payments Are Non-Taxable

The following rules regarding the exclusion of benefit payments from taxable income apply to all of the benefits a taxpayer receives under one or more policies (from any number of companies). Payments are excluded from Federal taxable income for 1997 returns filed in 1998, and beyond, as follows:

FEDERAL STANDARDS FOR TAX QUALIFIED LTC POLICIES ISSUED ON OR AFTER JANUARY 1, 1997

LTC policies issued on or after 1/1/97, will need to conform to standards outlined in the new law to qualify for Federal tax-preferred status. Some of these standards still need clarification, and will be subject to yet to be developed Federal regulations. However, the following requirements are clear.

Qualified LTC Services

Tax qualified policies will provide coverage only for "qualified LTC services." As defined by the new law, those services are:

Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services, which are required by a chronically ill individual, and are provided pursuant to a plan of care prescribed by a licensed health care practitioner.

Note: The need for a plan of care applies to facility as well as home care benefits.

Benefit Trigger (Chronically III Individual)

To meet the benefit trigger under a tax qualified policy, the policy holder needs to meet the laws definition or a chronically ill individual. A chronically ill individual is someone who has been certified within the preceding 12 months by a licensed health care practitioner as:

One who will be unable to perform without substantial assistance at least two activities of daily living (ADLs) for at least 90 days due to a loss of functional capacity. The 90 day requirement is an indicator of the severity of the condition; it is not a policy elimination period. OR One who requires substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment. OR One having a similar level of disability as determined under regulations developed by the Secretary of the Treasury in consultation with the Secretary of Health and Human Services. (Our carriers believe that it is highly unlikely that a medical necessity or injury or sickness benefit trigger will meet the intent of these regulations.)

The six possible ADLs are eating, toileting, transferring, bathing, dressing and continence. The policy must use at least five of these.

Also please remember that benefit eligibility requires certification by a licensed health care practitioner. The term "licensed health care practitioner" means any physician and any registered nurse, licensed social worker, or other individual who meets such requirements as may be prescribed by the Secretary of the Treasury.

Medicare Coordination

Benefits under tax qualified policies can neither duplicate Medicare payments nor fill in Medicare deductibles or co-insurance. (Most Medicare Supplement policies pay these expenses.)

Non-forfeiture

Tax qualified plans must include a mandatory offer of a non-forfeiture option. This non-forfeiture option shall provide at least one of the following:

Note: There is no requirement that the applicant purchase a non-forfeiture option.

Consumer Protection Standards

Tax qualified policies must include certain consumer protection standards as outlined in the 1993 NAIC Model Act and Regulation. Our carriers products generally meet these standards.

Prior Tax Years

The law does not address how LTC premiums paid or benefits received prior to 1/1/97, will be treated from a tax perspective.

Reporting Requirements

Individual receiving any LTC benefits will receive a written statement from the insurer showing the amount of LTC benefits reported by the insurer as paid to them. The written statement will not indicate whether the benefits paid are excludable from taxable income.

Retirement Accounts

As Congress considered various versions or this legislation, it was proposed that penalty-free withdrawals from IRA's would be allowed to pay for tax qualified LTC insurance policies. However, this proposal was removed and such withdrawals are still subject to a 10% penalty.