September 18, 2018
By Mark D. Schubert
Most of us are careful to ensure that we protect ourselves and our families by maintaining appropriate coverage for health care expenses. Without even knowing it, however, many are vulnerable when it comes to the possible need for long term care.
The phrase “long term care” (or “LTC”) is generally understood to refer to services which are required due to a permanent disabling condition or the infirmities of aging, especially those which involve assistance with essential daily tasks that the person receiving the care can no longer perform independently. The need for LTC can arise, for example, as the result of Alzheimer’s disease or dementia, or the effects of a stroke. Placement in a nursing home or assisted living facility, or in-home care designed to avoid the need for such institutions, are common forms of LTC services. While it may not be pleasant to think about LTC, it is an issue that most of us will need to face. Government statistics show that 70% of Americans age 65 or older will require long term care at some point during the remainder of their lives./1
The Cost of LTC
The cost of LTC depends initially on the level of care a person requires. Not unexpectedly, as the amount of assistance increases, so do the costs. In 2017, the median monthly costs in Wisconsin ranged from $1,413 for adult day care (for 5 days per week), to $2,240 for an in-home health care aide (assuming about 3 hours per day), to $4,000 for residential care in an Assisted Living Facility (one private bedroom), to $7,908 for placement in a nursing home (semi-private room)./2
Costs for all of these forms of LTC have been increasing steadily for decades, a trend which is projected to continue. In fact, recent data show that LTC expenses are rising at about triple the general rate of inflation.
Misconceptions about LTC
In a recent study conducted by Genworth, two-thirds of Americans expressed the belief that government programs will partially or fully cover the cost of any LTC they may need during their life./3 Unfortunately, however, that belief is misplaced. One of the major reasons for the erroneous assumption is likely the existence of Medicare, coupled with confusion about exactly what that program does and does not cover.
Medicare is a government administered alternative to private health insurance. Enrollment in Medicare is required upon reaching age 65, and it then becomes the primary source of payment for health care expenses. But although that description makes it sound like Medicare covers any kind of care that a person may need, it doesn’t.
In general, Medicare will only pay for medical or health care expenses. That is, diagnostic or treatment services needed to cure a disease, heal an injury, or otherwise help a person overcome a medical problem and get healthy again. That kind of care is normally short-term or of limited duration, and is focused on diagnosis and treatment. Once a patient reaches a point of maximum healing (an event often referred to as a “healing plateau”), Medicare coverage generally ends.
In contrast, LTC services as noted above are required due to conditions which generally cannot be “cured” and are likely to be chronic or indefinite. The focus of LTC is therefore on providing support, especially that which is necessary to help the patient perform so-called Activities of Daily Living (or “ADLs”) like eating, grooming, dressing, bathing, toileting, and every day movement and mobility tasks. By definition, such care is likely to be long-term in nature, and Medicare provides very limited, if any, coverage for it.
LTC Coverage under Medicaid
The only widely available form of government benefit which does provide coverage for LTC is Medicaid. While the names are deceptively similar, there are tremendous differences in the programs themselves. Unlike Medicare, Medicaid is a means-tested (“welfare”) program which was originally intended as a benefit for the poor. It is only available to people who can show both a qualifying degree of functional impairment and financial need as defined by government eligibility rules.
In other words, the expectation is that each of us will be required to pay for any LTC we may need out of our own pockets. Only after someone has “spent down” their resources to the point where they are under the applicable threshold of government defined poverty will Medicaid benefits be available to pay for any LTC they may need. For a single person, being “poor” in that sense is defined as having countable assets of less than $2,000. For a married couple, separate asset thresholds apply for each spouse which provide a somewhat higher resource allowance for the non-incapacitated spouse of just over $120,000. However, the assets of both spouses are generally considered available to pay for the care needs of either of them, without regard to the actual property rights of either spouse under state law. For either a single or married person, the law does not allow a Medicaid applicant to get under the applicable asset limit by making gifts (or partial gifts or transfers for less than true value). Those acts are subject to penalties as “divestments.” In addition, after a recipient of LTC Medicaid passes away, the law further allows the government to pursue “estate recovery,” which in effect amounts to a claim for reimbursement of the full cost of any benefits paid from any remaining property of the recipient or his or her spouse.
“In a recent study conducted by Genworth, two-thirds of Americans expressed the belief that government programs will partially or fully cover the cost of any LTC they may need during their life. Unfortunately, however, that belief is misplaced.”
For a person who requires LTC Medicaid coverage, and for that person’s family, the overall impact of the rules can be financially devastating. Absent careful planning which is in compliance with the extremely dense and complex web of federal and state Medicaid laws, the assets of the Medicaid applicant, or for a married applicant the assets of both spouses, will typically need to be spent down to almost nothing in order to qualify. In that case, the end result will be both the substantial depletion of whatever the applicant and/or spouse may have worked a lifetime to accumulate for self-support or retirement, and also an inability to provide promised educational or other assistance to children or grandchildren or to otherwise pass on specific assets such as heirlooms, farms or businesses, or family wealth in general to younger generatio
Other Options for Payment
So, if Medicare does not cover the cost of LTC and the effects of Medicaid are unacceptable, what other options for payment are there? One alternative is long term care insurance, a specialized kind of insurance coverage which provides benefits to pay for LTC if it becomes needed. LTC insurance provides numerous benefits, including the ability to use the insurance to provide for in-home or other kinds of care services that might be unavailable or highly restricted with Medicaid. For policies which qualify under the so-called “Partnership” program, a policyholder can also shelter assets up to the full amount of benefits payable under the policy, a unique and powerful feature. LTC insurance does require that an applicant pass underwriting criteria and remain current with premium payments. Not everyone will qualify, and many others wait too long to apply or conclude that the cost is prohibitive.
A final alternative can be to simply plan to self-fund the cost of LTC. For families with significant assets, this may be a viable option. Those in that position would be wise to work closely with a financial advisor who can help them to accurately estimate the costs which may be involved, and structure their investments to support the cash flow which may be needed. While home equity and retirement savings can provide a fallback option, planning which simply assumes that such sources of funds can be tapped as needed is likely to be viewed with regret in hindsight.
Impact on Family Members
Too often, families are simply not prepared to deal with the extraordinary costs of LTC. As a result, family members often make the decision to provide care themselves, as much as they can and for as long as they can. While that can ease the financial burden associated with an incapacitating condition, a substantial and growing body of research confirms it also exacts a toll on the caregiver.
For example, a recent study of caregivers has confirmed that they usually experience a wide variety of adverse effects. Some of those effects are financial. For example, most caregivers reported negative impacts on their employment and earnings, including 77% who indicated that they had missed work in order to provide care. A stunning 62% further reported paying for part of the cost of care with their own savings or retirement funds./4
The researchers noted that a high percentage of caregivers had positive feelings about providing care for their loved one. Notwithstanding that, the caregivers often privately acknowledged increased stress, anxiety, and depression. A majority (55%) said that they did not feel that they were actually qualified to provide the physical care needed. Almost half (43%) said their caregiving negatively affected their personal health and well-being, and 41% admitted experiencing negative physical side effects such as depression. One in three caregivers (33%) reported an extremely high level of stress, and 45% said their decision provide care had reduced their quality of life./5 The implications of these findings are sobering.
What can be done?
Learn about LTC, and plan ahead. The best way to have options when they are needed is to plan ahead. But unfortunately, most people fail to address the LTC issue proactively. Sometimes, that is simply due to a lack of knowledge, a problem which this article will hopefully help to solve. In other cases, it is because people don’t want to think about or admit that the need for LTC may arise, or think that they can defer taking action until “later.” While addressing LTC needs can be challenging, having the courage to do so can pay dividends now and in the future.
Watch for, and act on, early warning signs. For example, the Alzheimer’s Association (www.alz.org) has prepared a list of signs and symptoms that can help individuals and family members recognize the beginning stages of dementia. Early diagnosis provides the best opportunity for treatment, support and planning for the future. Some medications can slow the progress of the disease, and new discoveries are being made every year.
Arrange support for caregivers and loved ones. If a need for assistance does arise and a loved one decides to help, the caregiver needs support and time off for self-care and stress relief. Through honest reflection, caregivers should identify what they need to maintain their stamina, energy and positive outlook. That may include regular exercise (a walk or run, golf, yoga class, etc.), social events or time with friends, preferred hobby or recreational activities, church services or Bible study, or simply time to read, watch TV, relax and unwind. Other family members should try to arrange for relief by offering to serve periodically as caregivers themselves. When possible, the impaired individual and family should seriously consider including paid outside caregivers in the overall plan, even if only occasionally or on a limited basis. Any affected loved one may benefit from speaking with a friend or counselor, or perhaps even joining a support group, to share questions and frustrations, and learn how others are coping.
Seek assistance. Find out what resources might be available. An insurance agent with specific training and experience in the LTC area can explain the benefits and cost of specialized insurance. Many financial advisors are knowledgeable about LTC and can help with strategies to fund the possible expense. An experienced elder law attorney can assist in implementing strategies to protect assets from LTC costs and the effects of Medicaid. Depending on the situation, this can include not only proactive planning techniques which can be implemented well in advance of any identified need for care, but also crisis planning strategies designed to obtain Medicaid eligibility quickly while still protecting as many assets as reasonably possible at that point. He or she will also likely be familiar with many other professionals and providers of senior care services, and therefore can be a valuable source of information and referrals.
The bottom line is that it is possible to minimize the potentially negative consequences of LTC. The starting point is recognizing the issue, and realizing that it’s not likely to resolve itself.
1. “Who Needs Care?” U.S. Department of Health & Human Services, Feb. 21, 2017 (https://longtermcare.acl.gov/the-basics/who-needs-care.html).
2. Data derived from the 2017 Genworth Cost of Care Survey (see https://www.genworth.com/aging-and-you/finances/cost-of-care.html).
3. Genworth Cost of Care Companion Study, conducted Sept. 1-4, 2017 (http://newsroom.genworth.com/2017-10-26-Genworth-Survey-Consumers-greatest-fear-about-aging-is-not-having-enough-money-to-pay-for-long-term-care-but-few-plan-ahead).
4. Beyond Dollars 2015: The Expanding Circle of Care (see https://pro.genworth.com/riiproweb/productinfo/pdf/157453C.pdf).