What is long-term care?

Long-term care is the assistance needed over an extended period of time to manage, rather than cure, a chronic condition, such as, arthritis, stroke or dementia, or the frailties of aging or accidents.

Long-term care is not typically covered under health insurance policies, HMO plans, Medicare or Medicare supplemental policies, which are designed to provide coverage when you receive care from a doctor or treatment in a hospital. If these policies cover nursing home care or home care at all, it is only for a short-term or limited basis.

Long-term care is primarily the assistance or supervision you may need when you are not able to do some of the basic "activities of daily living" (ADLs), such as bathing, dressing, toileting, or moving from a bed to a chair. You might need assistance with ADLs if you suffer from an injury like a broken hip, prolonged illness, a stroke, or advanced age and frailty. Other people may need long-term
care because of mental deterioration, called "cognitive impairment" that can be caused by a brain disorder such as Alzheimer's, or a mental illness.

Long-term care is sometimes called "custodial care" or "personal care." Family members and friends frequently provide it. "Formal" long-term care (the kind of care you must pay for) is most often provided by unskilled workers such as homemakers, companions, or personal care aides. While less common, "Formal" care can also include skilled care from medical professionals such as nurses and physical therapists.

Long-term care services can be provided in your own home or in a community program like an Adult Day Care Center, in an assisted living facility licensed as a Residential Care Facility (RCF), or in a nursing facility. Long-term care is not necessarily "long term." For instance, about half of all nursing home stays last six months or less. Some people only need long-term care for a few months, for example, while recovering at home from a broken hip. Others, however, may need care for the rest of their life.

Will I need long-term care and if so, will I need to be in a nursing facility?

Unfortunately, while none of us want to consider the probability, everyone is at risk of needing long-term care. A 1990 study, "The Risk of Nursing Home Use in Later Life," found that nearly half of people over 65 years of age will spend some time in a nursing facility. At age 75, the risk increases to 50 percent, and at age 90, this risk increases to 75 percent. These statistics only cover care in nursing facilities and do not include people who only receive care at home.

Your personal risk of needing long-term care depends on many factors, such as longevity, your gender, marital status, and health history.

• Longevity: The longer you live; the more likely it is that you will need long-term care. Those who live to be 95 years old or older are much more likely to have spent five or more years in a nursing home than those who live to their mid-70's. Fewer facts are known about the use of home care services, although for every person in a nursing facility, there are four people receiving the same care in their homes.

• Gender: According to a study completed by the New England Journal of Medicine, February 28, 1991, one out of every two women over the age of 65 will spend some time in a nursing facility. Women are at a much higher risk of needing to pay for formal long-term care for several reasons. Women have longer life spans and often out-live their spouses. When they need long-term care in their older years there is often no one to care for them at home and, as a result, are more likely to need institutional care. Additionally, women are more prone to chronic diseases such as arthritis and osteoporosis, conditions that frequently result in a need for long-term care.

• Married or Single: If you have a spouse (or other family or friends) who can provide your care whenever it is needed in the future, you are more likely to be able to remain in your home rather than move into a RCF or a nursing facility to receive your long-term care.

• Health factors: Certain health conditions, such as severe Arthritis, Alzheimer's or stroke, can cause a need for long-term care. If you know that certain health conditions run in your family, you may have a greater risk of needing long-term care than another person of the same age and gender.

Who will take care of you?

Almost none of us are willing to accept that we are likely to need care in a nursing facility in the future. Most of us are in denial that we will ever need assistance with eating, dressing, bathing, toileting, or moving about our homes. If we ever need such assistance, we believe we will be able to receive it at home. Many of us assume our adult children will take care of us. Yet, many family members will find it difficult to provide an adequate level of care, even though they will likely want to try. In addition, family caregivers frequently see dramatic changes in their own lifestyles that negatively impact their relationship with their spouse, children, and even the loved ones for whom they are caring. Because caregivers are often full-time employees, their job productivity and ability to advance in their careers is also negatively impacted. Some have to quit work entirely.

How Much Does Long-Term Care Cost?

In 2002, the cost of nursing home care in California averages $141 a day. Costs may be lower in rural areas and higher in suburban and urban areas. A short 30-day stay could cost $4,230 or more; a three-month stay, $12,690 or more; and, a year stay, $50,000 or more. Nearly 55 percent will stay at least one year. Twenty-one percent of the people who go into a nursing home will remain longer than five years.

That means more than half the people who go into a nursing home will spend between $51,100 and $255,500 or more. Consider this: care in your own home can be even more costly than care in a residential care or nursing facility, depending on how many hours of you have to pay for care.

The cost of care in the future will be much higher than it is today. California nursing home rates increased at an average rate of 5 percent per year over the past 20 years. These costs are likely to continue to increase by at least 5 percent per year in the future. A 5 percent annual increase means a year of care that costs $50,000 today will cost twice that amount in 14 years, or $100,000 a year, and $200,000 a year less than 30 years from now!

Who Pays For Long-Term Care?

Medicare: Medicare may pay for skilled care in a nursing home for a very short period--but no longer than 100 days--and only when the patient meets all the Medicare requirements for daily skilled care. For Medicare to pay for any days in a nursing facility, you will have had to spend at least three days in the hospital for the condition requiring admittance into the nursing facility. When Medicare pays for nursing facility care, it only pays the full costs for the first 20 days. For the next 80 days, your co-payment is $101.50 per day (based on the co-pay amount for Calendar Year 2002, which tends to increase annually).Your Medicare supplement plan will pay this co-payment for you, but will not pay for additional days in the nursing facility beyond what Medicare will pay for. Most Medicare HMOs will cover nursing facility care or care at home for 100 days, if skilled care is required.

While people do get personal care services while receiving skilled care in a nursing facility, Medicare will not pay unless there is also a need for daily skilled services that only a nurse or therapist can provide. Medicare may pay for some personal care services at home but again, only if you also need skilled care on a daily basis that only a licensed person can provide. For more details, see the Medicare benefits book available from your Social Security office or by calling the Social Security Administration, toll-free at 800-772-1213.

Medi-Cal: Medi-Cal (called Medicaid outside California) pays for necessary health care that is not covered by Medicare, but only if you meet federal and state poverty guidelines.

In 2002, a single person over 65 would qualify for Medi-Cal if he/she had $2,000 or less in non-housing assets. A married spouse, living in the community, however, can keep up to $89,280 in non-housing assets and $2,232 in joint monthly income, when his or her spouse is in a nursing home and applies for Medi-Cal. These guidelines and the amount of assets and income a person may keep can change annually.

Note: In general, the value of a person's house is not counted when applying for Medi-Cal. The state will recover the costs paid by Medi-Cal from a person's estate, which can include the house. Recovery will not occur while there is a surviving spouse or dependent child.

Personal Resources: Most people pay long-term care expenses from their own income and resources. When care is provided by family members and friends at home, other costs such as those for skilled care, equipment, transportation, and other costs not paid by Medicare are also paid from the patient's personal income or savings. People who use up their assets paying for long-term care are “spending down" and may become eligible for Medi-Cal as a result.

Long-Term Care Insurance

Another method of paying for long-term care is long-term care insurance. This type of insurance can cover a wide range of services for individuals when they need long-term care, from home and community based care to institutional care. As with most other forms of insurance, you cannot purchase coverage once you need the company to pay benefits.

Long-term care insurance is most often sold to individuals who pay all of the premiums. Some employers offer this type of insurance, although they rarely pay the premiums. Some allow the parents, and sometimes the parents-in-law of their employees, to apply for group coverage. For instance, the California Public Employees Retirement System companies offer long-term care coverage to their employees, retirees, and the parents and parents-in-law of their members. Companies selling this insurance will screen most people for existing medical conditions when they apply for either group coverage or for an individual policy.

The decision to purchase a long-term care policy and the type of policy you select depends on many factors. Foe example, significant differences exist among policy type, features, benefit options and eligibility criteria. Choosing among these options can be a challenge. It requires careful consideration of a number of factors related to your risk of needing long-term care and your individual financial planning.

What is Long-Term Care Insurance?

Long-term care insurance is designed to reimburse you for some of your expenses when you need assistance with basic activities such as bathing, eating, or getting in and out of bed. You may need this kind of help following a disabling stroke, because of a disorder like Alzheimer’s disease, or because of advanced age and frailty.

Long-term care insurance is a policy that pays for care in institutions like Skilled Nursing facilities and Assisted Living Facilities; at home for home health care, personal care, homemakers services, hospice care and respite care; and in the community of Adult Day Care (or Adult Day Health Care) or Alzheimer’s Day Care.

The care that people generally need in any of these locations is assistance or supervision with the normal activities of daily living (ADL’s), or because of a cognitive impairment like Alzheimer’s disease. This type of care is often called custodial care or personal care. Medicare does not pay for this type of care, but long-term care insurance policies do.

What is a Tax Qualified Long-Term Care Policy?

Congress passed legislation effective in 1997 giving a tax break to people who purchase long-term care insurance that meets certain federal standards.

This legislation is called the Health Insurance Portability and Accountability Act or HIPPA. Policies that qualify for the new tax break use a standard of eligibility for benefits that is stricter than the standards established in California. Policies that are labeled as “Federally tax Qualified” use federal standards for paying benefits. Some or all of the premiums for these policies may be deductible as a medical expense (depending on your age and adjusted gross income), and benefit payments are excluded from income.

Note: Premiums paid for a tax-qualified policy qualify as a medical expense. People who itemize medical expenses on their federal tax return and have a total medical expense greater than 7.5% of their adjusted gross income may be able to deduct some portion of a premium for one of these policies. Contact your tax advisor for more information.

Do All Long-Term Care Policies Offer the Same Benefits?

No, there are three types of long-term care insurance policies. In addition, each type of policy can be designed to qualify for the new tax benefit depending on which set of standards the company uses – the federal standards or the state standards.

Nursing Facility Only
These policies only pay for care in a nursing home or similar facility.

Companies selling these policies must also offer a buyer coverage for assisted living in a Residential Care Facility for the Elderly (RCFE) or a Residential Care Facility (RCF).

Home Care Only
These policies only pay for care in your own home. They are required to include benefits for home health care, adult day care, personal care, homemaker services, hospice and respite care. Some also include care management services and equipment prescribed for medical purposes. A few companies also pay for modifications to your home if necessary to allow you to continue living in your own home.

Comprehensive Long-Term Care

These policies pay for long-term care at home or in the community, as well as in a nursing home. All of the home and community services required in a Home Care Only policy must also be included in a comprehensive policy. Companies selling this kind of policy must also offer buyers a benefit for assisted living in a Residential Care Facility for the Elderly (RCFE) or a Residential Care Facility (RCF).

Any of these policies can be tax qualified or not, depending on which set of benefit eligibility standards are used by the company. A tax-qualified policy must be labeled as “intended to meet federal tax requirements”. Agents selling tax-qualified policies are required to show potential buyers a side-by –side comparison of both types of policies to illustrate the major differences between the two. You should ask to see this comparison before deciding which type of policy to buy.

What Do I Need to Know Before Purchasing a Life Insurance Policy?

Income
Before purchasing a policy, think about your future ability to pay the premium if the company has to raise all premiums for all policy holders. A good benchmark is that a premium should not exceed 7 percent of your annual income. Your income may fail to keep up with inflation as you get older, and if your spouse dies, your income might drop. You could then be faced with some tough decisions about what you can afford to continue paying.

Assets
If you have abundant assets, you may plan to pay some or all of the long-term care costs yourself (in other words, self-insure). If your non-housing assets are low (less than the cost of a year in a nursing home) long-term care insurance is probably not a good idea. If you already qualify for Medi-Cal or would spend all of you assets within a few months, you do not need long-term care insurance.

If you are somewhere in between these extremes, long-term care insurance may be worth considering. The amount of insurance coverage you buy should be roughly comparable to the assets you would otherwise have to spend.

Age
Premiums are based on age. The older you are when you purchase coverage, the more expensive the premium will be. Many companies will not sell long-term care insurance policies to a person over 85 years of age. Most people begin to think about long-term care insurance when they are planning for retirement. Most people buy a policy between the ages of 65 and 80.

Health
People with serious health problems are rarely accepted for long-term care coverage. A few companies will accept you with certain chronic conditions, but your premiums are likely to be higher.

Pre-existing conditions
An insurance company can refuse to pay if you need care during the first six months after you buy the policy because of a condition you had during the six months before you bought the policy. Some insurance companies will pay for care caused buy a pre-existing condition if you listed it on your application and they issued you a policy. You should always be certain that the health questions on an insurance application are answered correctly.

Financial Rating Companies
If you are considering purchasing a long-term care policy, there are “Rating” companies that rate insurance companies on their financial condition and “claims paying ability.” These companies include AM Best, Duff and Phelps, Moody’s and Standard and Poor. AM Best Reports are often available at public libraries. The other three companies will give ratings over the telephone. Some charge a fee, others do not.

Rate Increases
An insurance agent should be able to tell you about any premium increases of the company you are considering. You should ask about rate increases for any long-term care policies the company sells now, or has sold in the past. You can also call the company and ask for information about their rate increases.

How Much Does Long-Term Care Cost?

The cost of Long-Term care policies varies according to the type of policy and coverage provided. Policies that only pay for nursing home care are less expensive than those that cover both nursing home and home and community care.

Some of the factors that can influence the cost of long-term care insurance include:
• Your age and health at the time you apply for coverage.
• The deductible or waiting period you choose before the policy begins paying benefits.
• The combination of benefits you want included in your policy.
• The daily or monthly benefit amount you want the company to pay when you need care.
• The number of years you want the company to pay benefits.

How Much Will a Policy Pay?

That depends on the benefits you choose. Most policies pay daily amount (sometime called “daily benefits” or “daily maximums”) from $50.00 a day to more than $300.00 a day for the services described in the policy. This means that the company will pay your covered expenses “up to” the daily maximum you choose. You will be responsible for any amounts greater than the daily benefit, and the company will not pay more than the cost of the covered service.

For Example: If you choose a daily maximum of $100.00 per day and your nursing home expenses are $150.00 per day, you will be responsible for the difference, $50.00 per day, or $1,500.00 per month. (This is your co-payment)

While you may have income to pay this co-payment today, you need to be sure that you can pay it in the future too. Nursing home costs have doubled about every ten years, which means that the co-payment you choose will also increase. State law requires insurance companies to offer you the chance to buy inflation protection. While this benefit increases the cost of your premium, without it you risk not being able to pay your share of the cost later.

How Long Will a Policy Pay Benefits?

Most policies have a maximum number of days that benefits will be paid once you start using them. This time period is called a “benefit period” or “lifetime maximum.” Others refer to it as the duration of your coverage, or the total number of dollars that the company will pay for your care.

Companies generally sell coverage in one-year increments. You can buy as little as one year of coverage, or lifetime coverage that will pay as long as you live once benefits begin. The premium is higher the longer you want the company to pay benefits, and not many people can afford the premium for lifetime coverage. Most people buy between two and five years of coverage.

What Conditions Must Be Met Before Benefits Will Be Paid?

Know as either the elimination period, deductible or waiting period (depending on the company). It is the number of days you must wait after you are eligible for benefits before the policy begins paying for your care. While a few policies have no elimination periods and pay benefits from the first day, the most common waiting periods are 30 days, 60 days, or 100 days. You will be responsible for the cost of your long-term care expenses during the elimination period you choose when you buy the policy. The policy premiums will be lower if you select a longer elimination period, but you will pay the full cost when you first need care.

For Example: If your nursing home cost is $100.00 per day and you have a 60-day waiting period, you will pay the first $6,000 for your care before the policy pays anything. This example assumes that you continue to stay in the nursing home after 60 days. If your stay was shorter than your elimination period, the policy would pay nothing for your nursing home stay.

While some companies require you to meet the elimination period once during your lifetime, others require you to meet it for each period of care. For example, if you need care for a total of 60 days and have a 30-day elimination period, you pay for the first 30 days and your policy pays the remaining 30 days. Then if you do not need assistance for a period of time and later you need to use your benefits again, you would have to pay for your care during a new elimination period.

Note: Remember you cannot depend on Medicare to pay for the first 100 days you are in a nursing home. Medicare will only pay for the first 20 days and part of the cost from days 21 to 100 while you are receiving daily skilled care and rehabilitative services. If you only need custodial care or personal care services, you or your long-term care insurance will pay for your care, depending on how your policy is designed. Federally tax qualified policies are not allowed to pay the Medicare coinsurance after the 21st day.

Plan of Care

This is a plan for the care you need that is written by your doctor or a medical team, such as those at home health agencies. The plan determines that you need care, describes the kind of care you need, and how frequently, and for how long you need care.

Some insurance policies require a Plan of Care for personal care and homemaker services; others require one for every benefit. Many insurance companies require that the Plan of Care be updated periodically.

Who Can Provide The Care I May Need?

Policy definitions determine where you can get care and who can provide care. Home health agencies can provide any of the required home care services. Licensed professionals such as nurses, physical therapists and social workers may also be eligible providers of certain skilled care services.

What Home Care Services Are Covered in a Long-Term Care Policy?

Many policies contain the following services:

• Home Health Care – skilled nursing, part-time and intermittent, or other professional services and therapies in your residence, including audiology and medical social services;
• Adult Day Care – a licensed day care program that usually provides personal care, supervision, protection or assistance in eating, bathing, dressing, toileting, moving about, and taking medications;
• Personal Care – assistance in your residence with any activity of daily living (bathing, dressing, continence, toileting, transferring, eating, and ambulating) as well as using the telephone, managing medication, shopping for essentials, preparing meals, laundry, and light housekeeping;
• Homemaker Services – services in your residence that provide physical, emotional, social and spiritual support for you, your caregiver and your family when a terminal illness has been diagnosed; and
• Respite Care – short-term care in a nursing facility, in your home or in a community program to relieve the primary caregiver in your home.

Note: Personal care, homemaker and hospice services may be provided by a skilled or unskilled person when they are required in a plan of Care developed by your doctor or a care team under medical direction.

How Do I Qualify for Benefits in a Long-Term Care Policy?

Benefit Eligibility Triggers
Eligibility for home health care benefits in usually based on the inability to perform certain “activities of daily living” (ADLs), or an impairment of cognitive ability. These are referred to as “benefit eligibility triggers.”

Most policies that pay for home care pay benefits when you are impaired in 2 out of the 7 ADLs listed below:

Bathing Transferring
Dressing Eating
Continence Ambulating
Toileting

OR, when you need help because of cognitive impairment. (An example would be someone with Alzheimer’s disease who needs supervision.)

Tax Qualified Policies
Policies that pay for home care and use the eligibility standards for federally tax qualified policies cannot pay benefits until a health care practitioner certifies that you will need care for at least 90 days because you cannot perform 2 out of the 6 ADLs listed below without substantial assistance from another person:

Bathing Toileting
Dressing Transferring
Continence Eating

OR, when you need help because of severe cognitive impairment.

Impairment in Cognitive Ability
In policies that use the federally tax qualified eligibility standard; you must require substantial supervision because of severe cognitive impairment.

What Other Policy Features Are Available?

Inflation Protection
When you buy individual long-term care insurance, the insurance company must offer you the option to purchase inflation protection. In some cases, you must choose this option at the time you purchase the policy and the cost is included in the premium. In others, you can purchase inflation protection at stated intervals during the life of the policy. Your premium increases each time you choose this option.

If you buy long-term care through a group like an employer or an association, the offer of inflation protection has been made to the group master policyholder. You may not be able to purchase this option if the group didn’t choose to offer it to their members.

If you choose the 5% simple inflation protection, your original daily benefit will increase by 5 percent each year. If you choose 5 percent compounded inflation, your previous year’s daily benefit will increase by 5 percent. Compounded inflation increases your maximum daily benefit at a much faster rate than simple inflation protection. Long-term care expenses increase at a compounded rate, and your benefits should too.

Assisted Living
This is a growing and popular option for people when they cannot stay in their own homes. Many of these newer facilities offer independent living with on-site services like meals, supervision, and assistance with ADLs.

Insurance companies are required to offer you the option of purchasing coverage for assisted living either as a rider, or as a benefit in the policy. This benefit must pay no less than 50% of the nursing home benefit you choose. Your benefit must be paid in any facility that is licensed as a Residential Care Facility for the Elderly (RCFE) or a residential Care Facility (RCF).

Flexible Benefits
Long-term care policies must allow the lifetime maximum amount to be used interchangeably for any of the benefits covered by the policy. If a policy covers both home and institutional care, the company is allowed to pay less each day for home care than for nursing home care.

However the company must continue to pay until the maximum amount of the policy is exhausted, unless the person dies, or does not meet other requirements of the policy.

Downgrades
Companies must allow you to reduce your coverage in exchange for a lower premium. There are three ways this can be done. You can reduce the daily benefit payment or the total number of years the policy will pay. You can also change your coverage from a Comprehensive policy to a Nursing Home Only policy if the company sells one. This right to reduce coverage can be exercised anytime after the first year or whenever the premium increases. Companies must also offer this option to you if you stop paying premiums.

Waiver of Premium
Many policies will allow you to stop paying premiums while the policy is paying benefits (usually after a waiting period). Most waivers of premium apply only when you are using the nursing facility benefit, but some policies will also waive premiums while you are using the home care benefits.