When Long-Term Care Insurance Benefits Run Out

A relatively new type of long-term care policy, “Partnership Plans” could be a good option for many consumers, says Denise Gott, CEO of ACSIA Partners. The Partnership Long-Term Care Insurance Plans emerged over two decades with little fanfare. These plans are now available in a majority of states, but most consumers don’t know about them.

Partnership Plans are private long-term care insurance policies that let people keep some or all of their assets if they exhaust their policy’s benefits and then apply for Medicaid. With a Partnership Plan, you can maintain a higher level of wealth and still qualify for Medicaid.

The American Assn. For Long Term Care insurance explains that the Long Term Care Partnership Program is a joint federal-state policy initiative to promote the purchase of private long term care insurance. There is an important benefit to purchasing a Partnership-qualified long term care insurance policy. Policyholders earn one dollar of Medicaid asset disregard for every dollar of insurance coverage paid on their behalf. Here’s an example. Stephanie has a Partnership-qualifed policy, which has paid out $150,000 of insurance claim benefits. She earns a Medicaid asset disregard that allows her to keep an additional $150,000 over the asset level she would have had to meet to be eligible for Medicaid. The Partnership Program also protects those assets from Medicaid estate recovery after death.

Gott explains, “This can make a huge difference. You no longer have to impoverish yourself to get public assistance. Middle-class families can keep solvent and keep productive longer as a result. Knowing you’ve got this backup can give you an extra incentive to protect yourself with LTC insurance in the first place. That’s why Uncle Sam and the states set it up. Some people may choose a less expensive policy with more limited benefits, knowing the public backup is there.”

Gott said, “To get a state-approved Partnership Plan, you need to take care, Not all of today’s long-term care policies fit the category. You need to seek out one of the relatively few approved policies now available.” For more information, visit acsiapartners.com or aaltci.org.

Home Care Costs Rise Again in California

The cost of long-term care from a home health aide has increased in California and nationally, according to a Genworth study. Long term care costs are up in all care settings in California from 2015. Home is where most Americans get long-term care. “Although home care costs are much less expensive than those in facility-based settings, the costs can add up to as much as $54,912 per year in California, which is why it’s imperative for consumers to begin planning now for how they will pay for that care should they need it,” said Tom McInerney, president and CEO of Genworth. He noted that at least 70% of Americans 65 and over will need some form of long-term care and support. The following are key trends in California’s major metropolitan areas:

  • The cost of care in a semi-private nursing home in Los Angeles is 8.8% less than the state average, at $6,935 per month.
  • Home health aides cost 18.52% more in the San Diego metro area than the national average, at $4,576 per month.
  • The cost of private nursing home care in San Francisco is $15,193 per month, which 97.36% more  than the national average.

How Far Are Adult Kids Willing to Go to Help Aging Parents?

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A study by Fidelity Investments reveals that adult children have their parents’ backs and far more than parents may think, although 93% of parents say it would be unacceptable to become financially dependent on their children; only 30% of children feel the same. Nearly four in 10 families disagree as to roles and responsibilities as parents get older. Among the other communication gaps:

  • 92% of parents expect one of their children to assume the role of executor of the estate, but 27% of the kids who are expected to be the executor don’t know that they are expected to do so. Fifty-five percent of parents expect the oldest child to be executor.
  • While 72% of parents expect one of their children will assume long-term caregiver responsibilities in retirement if need be, 40% of the kids identified as filling this role didn’t know this. Of those that do, 58% are women. One surprising trend is that a growing number of Millennials are providing care giving support for a parent.
  • While 69% of parents expect one of their children to help manage their investments and retirement finances, 36% of the kids identified as filling this role didn’t know this.

John Sweeney, executive vice president of Retirement and Investing Strategies at Fidelity said, “Many families need to do a better job of being on the same page when it comes to financial planning, as there are real emotional and financial consequences when family conversations don’t happen or lack sufficient depth. At some point every family will face issues related to aging, which is why it’s important to take the time to sort through the details related to care giving responsibilities and estate planning, before declining health forces the issue. Doing so can lead to far better emotional and financial outcomes for everyone.”

Why aren’t these conversations taking place? Part of it seems to be a matter of timing, since only 33% of parents and their children agree when it’s appropriate to initiate these conversations; that is, whether to have them well before retirement, upon entering retirement or closer to when health and finances become an issue. Part of it may be that families don’t realize the importance of talking these topics through: a significant portion of those surveyed have yet to discuss retirement plans (38% of parents, 43% of adult children) say it’s because the subject never comes up! Even if conversations are taking place, the depth and extent of the conversations is often inadequate, as the study uncovered significant gaps in the following areas:

  • Long-term care: 43% of parents say they have not had detailed conversations with family members about long-term care and elder care. An additional 23% have not had any conversations at all. While 72% of children think their parents should be tackling the issue of long-term care/elder care, only 41% of their parents say they actually are. As healthcare costs have risen in the past few years, this has become an increasingly important topic. According to the latest Fidelity Investments Retirement Health Care Cost Estimate, the average couple can expect to spend an estimated $245,000 on health care throughout retirement.
  • Will and estate planning: Sixty-nine percent of parents say they’ve had detailed conversations with their children on this subject, 52% of children say they haven’t.
  • Living expenses in retirement: Thirty-four percent of parents say they have not had detailed conversations with family members about covering their living expenses in retirement. An additional 16% have not had any conversations on the topic at all.
  • Shelter from the Storm: With conversation comes greater peace-of-mind.

One thing is certainly clear: having detailed conversations around finances can help families avoid panic when it matters most. In fact, 93% of children who say they have had any detailed conversation with their parents are significantly more likely to have greater peace-of-mind around these issues. Likewise, 95% of parents reported feeling greater peace of mind as a result of estate planning conversations.

One-third of parents and their children say frank conversations should occur after retirement and when health and finances have become an issue—at which point, it may be too late. These conversations should begin taking place before retirement, and certainly well before any challenges arise. “It’s actually a good idea for conversations about finances to be taking place among families no matter what your age, whether you are in your twenties and looking to build a strong financial foundation or in your sixties and transitioning into retirement,” added Sweeney.

Ask as many detailed questions as you can. Don’t be afraid to ask even the most seemingly obvious questions. Three out of 10 families surveyed disagreed as to whether or not the children knew where to find important family documents such as wills, power of attorney and health care proxies. (For those looking for a safe, electronic storage location, Fidelity recently introduced FidSafe®, a secure digital place to store, access and share all of a families’ most important documents.)

When having discussions, follow the “voice not vote” rule. While family members should have a role in the planning process, make sure the ultimate decisions made are consistent with the wishes of the parents, who are charting the course of the rest of their lives. If a financial advisor is already involved in planning, having these discussions with the advisor can be a good place to start.

Define family roles. Advanced planning can help define roles and choose when and how different people will be involved. For example, who will have power of attorney or be the executor of your estate? It’s important to consider the personalities of each child, as well as their proximity, relationship with parents and other nuances that play into long-term decision making.

Commit to follow-up conversations to keep the dialogue going. These conversations are not “one and done.” Keep the momentum going and schedule as many get-togethers as needed—and revisit those plans at least annually, to make sure they still make sense.

Obesity Is Driving Disability Claims

Disability claims have increased significantly over the past 10 years for joint disorders and musculoskeletal issues in the U.S., according to data from Unum. Greg Breter, senior vice president of benefits at Unum noted that aging Baby Boomers are staying in the workforce longer, and more than a third of U.S. adults are classified as overweight or obese. “Almost everyone over 55 begins to feel the twinges in joints and backs. But research is showing that obesity is contributing to a dramatic increase in knee replacement surgery and exacerbates other conditions like arthritis, back injuries and joint pain. We also see obesity contributing to other issues, like heart disease, stroke, type 2 diabetes, sleep apnea and respiratory problems, and certain types of cancer.” Aging and obesity tip scales in Unum’s 10-year review of disability claims. For musculoskeletal issues, there has been a 33% increase in long term disability claims and a 14% increase in short term disability claims. There has been a 22% increase in long term disability claims and 26% increase in short term disability claims for joint disorders. While Unum has seen an increase in joint and musculoskeletal issues, cancer has stayed the number one reason for long term disability claims over the past decade, and pregnancy continues to top the list of reasons for short-term disability.

Here are the top long-term disability causes for 2015:

  • Cancer 16.5%
  • Back disorders 13.9%
  • Injury 10.4%
  • Cardiovascular 9.6%
  • Joint disorders 9.2%

Here are the top short-term disability causes:

  • Pregnancy 27.4%
  • Injury (excluding the back) 11.3%
  • Joint disorders 2%
  • Back disorders 7%
  • Digestive system 6.6%

Americans Greatly Underestimate the Cost of Homecare

The average American underestimates the cost of in-home care by almost 50%, according to a Genworth study. Thirty percent say that home care costs less than $417 a month when the national median rate is $3,861 a month for an in-home aide or $3,813 a month for homemaker care. Homemaker costs are up 2.6% from 2015, marking the highest year-over-year increase across all care categories. In comparison, home care aide services rose modestly at 1.25% since 2015. Over the past five years, home maker costs have risen 11% and 6.6% for health aides.

Interestingly, people who stand to be affected most by long term care events are more likely to underestimate the cost of care. This includes women (who are more likely to enter caregiving roles), single adults (who may not have a partner to rely on for caregiving needs), and younger adults (aged 25 to 45), who are more likely to deal with the reality of a parent needing care).

The national median cost of care rose across all care settings, except adult day care, which decreased slightly. The monthly cost of a private nursing home room is $7,698, up 1.24% from 2015. The cost of a semi-private room is up 2.27% to $6,844 a month. Assisted living communities saw a slight increase in costs of .8% to $3,628 a month. Adult day care costs fell 1.25%.

The IRS Increases Deduction Limits for Long Term Care Insurance

A couple with tax-qualified long-term care insurance coverage could enjoy a maximum $9,500 tax deduction in 2015. The potential tax deduction increases to $9,740 in 2016 according to a just-released IRS revenue procedure. “The potential tax deductibility of tax-qualified long-term care insurance costs is one of the most overlooked benefits, especially for older retired Americans,” states Jesse Slome, director of the American Association for Long-Term Care Insurance (AALTCI).

The IRS permits deductions for long-term care insurance policies that meet certain eligibility standards. Life insurance policies that offer a long-term care benefit are generally not eligible for a tax deduction. The allowable maximum deduction is based on the policyholder’s age before the end of the taxable year. A couple ages 64 and 66 could be eligible to deduct $3,800 each from their 2015 taxes. The deduction may be possible even if they paid for the policy now before the end of the year.

For 2016, the IRS approved a 2.5% increase. “This is a positive indication of the government’s commitment to encourage more individuals to do some planning. The government recently announced that 60 million people on Social Security will not receive any cost-of-living increase in their 2016 benefits,” he said. Tax-deductible limits for long term care insurance premiums vary by age. The 2015 limit for someone age 55 is $1,430 in 2015 (increasing to $1,460 in 2016).

Slome notes, “You likely will not qualify for a tax deduction while you are still working but you could benefit when you are retired. After retirement, your income is low; the age-based tax deductible maximum limit for long term care insurance is high; and your ability to deduct costs is more likely and much more valuable.”
Slome contends that few individuals are aware of the tax deductibility of long-term care insurance premiums, “We find most people are completely unaware of the opportunity and rules that apply for individuals and self-employed individuals.”

Certain owners of businesses are able to take advantage of special rules that apply to tax qualified long-term care insurance. A small business, established as a C-corporation may be able to deduct the full cost of long term care insurance premiums, even if the cost is above the stated yearly tax limits. Plus, the company can designate who is covered even when the employer pays the full cost.

While deductions may not apply for individuals who are still working, they often can be taken during retirement when income stops and medical expenses often occur. The 2015 and 2016 deductible limits under Section 213(d)(10) for eligible long-term care premiums includable in the term ‘medical care’ are as follows

Why People Lapse Their Long-Term Care Insurance

More than one third of people with long-term care insurance at age 65 will lapse their policies before death, according to a study by the Center for Retirement Research at Boston College. Men, this age, have a 32% chance of lapsing before death while women have 38% chance. Low-wealth and low-income people are more likely to lapse their insurance policies.

There is no evidence that people are lapsing because they believe they have a low probability of needing care. Lapses are common among the cognitively impaired, perhaps reflecting poor financial decision-making. Those who lapse are more likely to end up needing long-term care. Many lapsers, not only forfeit policy benefits, but may also adopt an aggressive path for drawing down their wealth in retirement based on the false premise that they will retain coverage.

One way of eliminating lapses would be to pay premiums in a lump sum. Most likely candidates for long-term care insurance have accumulated significant financial wealth by retirement. From the insurance company’s perspective, the problem with this approach is that, in contrast to policies with monthly premiums, it would be difficult to increase premiums should claims be higher than expected.

Home Care Costs Increase in California

Nationally, there has been a dramatic increase in the cost of care at assisted living facilities and nursing homes while the cost of health aide care is rising more moderately. Nationally, it costs $20 an hour for home health aide services from an agency in 2015; it’s  $23 in California. Home health aide costs have increased 2.3% annually in California over the past five years.

Nationally, the cost of assisted living has increased 2.5% a year over the past five years to reach $43,200. In California, it has grown 1.3% a year to $45,000. The cost of a room in a private nursing home rose 4% a year over the past five years to reach $91,250 nationally. Costs increased 3.5% to reach $104,025 in California.

Long Term Care Claims Reveal Popularity of Home Care

Eight million Americans have purchased long-term care insurance and an increased number are now starting to claim benefits, according to a report by American Association for Long-Term Care Insurance (AALTCI). Most people mistakenly associate LTC with skilled nursing home care, but 51% of all newly opened claims begin with home care. Good coverage can cost about $100-a-month for a 55-year-old healthy male. That’s for roughly $160,000 of benefits, which covers quite a bit of care. Add a flexible inflation growth option and your benefits grow over time,” explains Jesse Slome, director of (AALTCI).

“In 2014 we paid $105 million in claim benefits, a 12% increase over the prior year…This protection is best purchased in your 50s and 60s when you are still able to meet the health qualifications and costs for coverage are lower,” says Bill Naylon, president of MedAmerica Insurance Company.

According to AALTCI, roughly two-thirds of all beneficiaries are women, and 54% of new LTC insurance applicants are 55 to 64. Most insurers charge higher rates for single women, but offer discounts for couples or partners who apply for coverage. While most new claims begin for policyholders who are 70 or older, nearly 9% of claims begin before age 70. The leading causes for home care claims are stroke, Alzheimer’s, arthritis, cancer and injury

Long-Term Care in California – A Shattered System

California’s Senate Select Committee on Aging and Long Term Care issued a report calling for an overhaul of California’s fragmented long-term care system. The report, “A Shattered System: Reforming Long-Term Care in California,” recommends consolidating programs and improving workforce and training. The state’s economic recovery offers the opportunity to reinvest in the system and support services for older adults, people with disabilities, and their families, who rely on a patchwork of services to avoid institutionalization. “Continuing to place a low priority on reinvesting in California’s home and community-based care will only force greater reliance on institutionalization and higher costs for the state. Years of devastating budget cuts and program eliminations across California’s LTC system cannot be underestimated,” according to the report.

Consumers seeking statewide services face programs with inadequate funding, a lack of information, a lack of services and providers, insufficient transportation and housing, and geographic isolation. California’s home and community-based service infrastructure has struggled to keep up with demand for services, which is partly due to significant budget cuts during the recession. The report recommends the following:

  • The state should gather information to create quality measures for LTC. The state needs to collect and integrate data from across programs to drive program and policy decisions.
  • The California Health and Human Services Agency should establish safety net and standards for home and community-based services to determine the basic statewide service mix, particularly for each of the 44 rural counties. This will establish a baseline to identify gaps and invest in resources appropriately. The state should also re-establish the Cal Care Net website for people and families to access information and understand their LTC options.
  • The state should analyze workforce needs of the LTC population, outline training and education requirements for the LTC workforce, and align resources accordingly. The state should also consider the needs of family caregivers, which are the backbone of the LTC workforce. The state should expand nurse delegation of health maintenance tasks and implement legislation to help identify the caregiving needs of people who have been discharged from hospitals to home settings. The state should institute full practice authority for nurse practitioners in order to expand access to primary care services across the state.
  • The Legislature and Administration need to engage with recommended policies on a number of federal issues, including finding a solution to the nation’s LTC financing crisis, reauthorizing the Older Americans Act, and raising the eligibility threshold for Medi-Cal LTC

Last Updated 10/09/2019

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