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Who Is Paying for Your Long-Term Care?
By
Michael A. Piekarz
Staff Writer
Many
Americans assume that Medi-care, supplemental policies or standard
health insurance policies will cover their long-term care expenses — an
assumption that often leads to severe financial hardship down
the road.
Many people do not plan ahead financially to provide for their care in the event
of frail health. Depending on the long-term care required, costs easily can exceed
$50,000. Paying for long-term care involves multiple considerations, according
to the U.S. Department of Health and Human Services (DHHS).
The chief consideration is whether or not the funding source can only be used
for long-term care costs. Also of concern is the impact on heirs, the rate of
asset accumulation, any eligibility requirements and the risk that the funds
will be insufficient to meet long-term care needs. Additionally, some programs
require financial need or other eligibility requirements.
Surprisingly, most long-term care is paid for by long-term care recipients or
their immediate family. “The most common method is using private funds,” explained
Lauren Shaham, Vice President Member Communications and Media Relations for the
American Association of Homes and Services for the Aging.
“Following that many people use Medicaid.”
Relying on family to provide or finance long-term care provides flexibility but
has the drawback of carrying a moderate risk of financial insufficiency, according
to DHHS. In addition, the person receiving the services often feels serious guilt
over burdening family members.
Individual savings can also be used, but that is considered high risk for financial
insufficiency because the fixed sum in a savings account rapidly depletes. In
addition, reliance on savings requires a higher degree of discipline in order
to accumulate assets over time.
Many people mistakenly assume that long-term care expenses will be covered by
existing health insurance, according to a survey performed by America’s
Health Insurance Plans (AHIP).
And ignorance can be a recipe for retirement disaster. “They aren’t
factoring in expenses for long-term care and retirement planning, and they are
missing an opportunity to protect themselves,” said Karen Ignagni, president
and CEO of America’s Health Insurance Plans.
Long-term care insurance coverage is an option that is becoming increasingly
popular. It does have health-based eligibility requirements but generally relieves
the family from the financial burden of paying for long-term care.
A major drawback is the requirement that premiums be paid over the life of the
policy and the possibility that coverage will be insufficient to cover all long-term
care costs. DHHS also states that there is a “moderate to low risk of fund
insufficiency if the insurer becomes insolvent.”
Limited long-term care insurance provides the same benefits as long-term care
insurance but limits premium payments to one large lump sum or a set period for
payment of premiums. Common premium terms are 10 years, 20 years or up to age
65.
Limited long-term care policies have a set value or increase in value as long
as they remain unused. Many pay death benefits to heirs if the policy remains
unused.
A life settlement involves selling an existing life insurance policy for the
present value of the policy. The money from the sale can be used to pay for long-term
care needs.
The life settlement option requires that the person selling the policy be in
good health and over age 70 (women) or 74 (men).
Depending on the terms of the policy, the proceeds of a life settlement may be
taxable. The funds are also fixed and may not pay for all long-term care needs.
Since the premiums have already been paid, DHHS considers this option “no
cost” to the beneficiary.
A viatical settlement occurs when terminally ill people sell their existing life
insurance policy to another person and use the money to pay for long-term care.
The policy is sold for a lower amount of the full face value based on the remaining
life expectancy of the insured and usually range from 50 to 80 percent of the
death benefit.
Viatical settlements have stringent eligibility requirements. Because of the
potential for misuse, DHHS recommends contacting the State Attorney General Office
or Department of Insurance before making the final decision to make a viatical
settlement to pay long-term care expenses.
An accelerated death benefit is another way to use life insurance to pay long-term
care costs. It’s a benefit that can be added to an existing life insurance
policy, and it can provide cash advances against the death benefit.
While accelerated death benefit premiums are affordable they often carry to strict
conditional limitations. Accelerated death benefits are also fixed and may be
insufficient to cover extensive long-term care costs.
There are several government programs that pay part or all of the long-term care
costs. In most cases, government programs have strict eligibility requirements.
The Department of Veterans Affairs (VA) may provide long-term care for service-related
disabilities or for certain eligible veterans. VA facilities often have a waiting
period, and the benefits may be subject to limitations based on the nature of
the disability requiring long-term care.
Medicare generally doesn’t pay for long-term care or help with activities
of daily living or other care that most people can do themselves. Medicare will
help pay for skilled nursing or home healthcare if you meet certain conditions.
Medicaid pays for some long-term care services at home, in the community and
in a nursing home, but requires that low income and limited asset tests are met.
The choice of available long-term care facilities is limited to those approved
by Medicaid. Beneficiaries must meet Medicaid eligibility requirements.
The Programs of All-Inclusive Care for the Elderly (PACE) is another long-term
care finance option. PACE features a comprehensive service delivery system and
integrated Medicare and Medicaid financing that combines medical, social and
long-term care services for frail people.
For most participants, the comprehensive service package permits them to continue
living at home while receiving services rather than be institutionalized. PACE
programs may require a monthly premium. The choice of facilities are limited
to those who have contracts with PACE.
Proposals are being made to increase the options available for paying long-term
care.
“Today’s model for long-term care simply will not sustain the need
for services in the future,” said Buck Stinson, president of Genworth Financial’s
long-term care insurance division.
“Currently, without private insurance, the only other choice for a family
is to pay out-of-pocket, potentially spending every dollar saved for retirement
until they are destitute and can qualify for state assistance.”
This page and its contents ©2008
Metropolitan News Company, Inc.
