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October 2, 2003 Saugus Advertiser
LONG TERM CARE INSURANCE
This relatively new form of insurance provides benefits for home care, care while at an assisted living facility, as well as nursing home care. Does everyone need it? NO. Do you need it? Read on for my advice.
There are currently two schools of thought regarding long-term care insurance. The first says that you should buy long-term care insurance so that should you need nursing home care you would be able to cover the cost of the care and be able to transfer the bulk of your assets to your children during the benefit period of the policy. Thus at the end of the benefit period, generally 3 years, you would have given away all your assets and be eligible for MassHealth (Medicaid).
The second school of thought is that you buy long-term care insurance to AVOID ever being eligible for MassHealth. Since the repeal of the Boren Amendment in the Balanced Budget Act of 1997, state Medicaid programs are no longer required to pay rates “reasonable and adequate to meet costs that must be incurred by efficiently and economically-operated facilities”. Thus a 1999 study concluded that on average, state Medicaid programs paid $9.00 per day less than the actual cost of care. That amounts nationwide to a $3.3 billion shortfall in funding below the amounts the states acknowledged was needed. Underfunding leads inevitably to understaffing. A study by the U.S. Department of Health and Human Services recommended that each nursing home resident receive a minimum of 4.1 hours of daily nursing care of which 2.8 hours be by a nursing assistant and 1.3 hours by a registered nurse. The study found that 97% of nursing facilities in this country fail to meet ALL of those standards, and only 52% meet any of them.
If the MassHealth (Medicaid) program is paying less than the cost of care in nursing homes, it follows logically that private-pay residents in Medicaid nursing homes are paying more. This subsidy, that residents paying privately incur (really a hidden tax), appears to explain the practice of many nursing homes of limiting availability of “Medicaid Beds”. The bottom line of this study implies that care at nursing homes that only accept private-paying residents is better than at a nursing home that accepts Medicaid residents.
Now, if you think you might be interested in long-term care insurance, you need to determine how much insurance you need. In Massachusetts the policy must have a minimum of a $125/day benefit to be a qualified policy. Further, the policy must have benefits available sufficient to cover at least 730 days in a nursing facility. This is a trap for the unwary. If you buy a 3-year policy and use 1 year and 1 day of home care benefits this would leave you only 729 days left for the nursing home, one short of the required minimum. This is important because if you have a qualified long term care policy, your home is an exempt protected asset. With the dramatic increase in real estate values, a long-term care policy could protect peoples largest asset.
Some cases require no sophisticated analysis. At the higher end of the economic spectrum, some individuals and couples have far more income than current expenses. Even under a worst case scenario their income would exceed the cost of long term care. At the lower end of the spectrum there are those who are barely making ends meet. These two categories do not need long term care insurance. One doesn’t need it; the other can’t afford it. To make things difficult, most everyone falls in-between.
To determine if you need long term care insurance you need to create a worst case scenario. For a married couple, the “worst case” usually is for one spouse to need nursing home care (or home care that is equally as expensive), while the other spouse is able to continue living at home. This is financially the worst case, because the expenses of maintaining a residence and the lifestyle of one spouse continue, with the long-term care costs of the other spouse stacked on top. For a single client, the full cost of nursing home care (adjusted for inflation) may be considered the “worst case.”
The next step is to do a cash flow projection based upon your worst case scenario. You will need to estimate your income as well as your total expenses. I recommend going through your checkbook to make an accurate determination of your actual expenses. You then have to make a decision as to whether you want to purchase the minimum amount necessary (remembering that $125/day is the minimum for Massachusetts) or a larger amount that will allow you to leave a legacy to your children. This is an involved process that should be worked out with a qualified insurance professional and reviewed by an attorney or CPA with experience in the field.
Next week we’ll be covering the two most important legal documents that every senior should have as well as the “Circuit Breaker Credit”. Even if you or someone you know hasn’t filed or paid income taxes because they “don’t make enough money”, read about how they can get up to a $810 tax refund.