Long-Term Care Insurance Kate Mewhinney, Certified Elder Law Attorney Clinical Law Professor, The Elder Law Clinic Thanks to Villy Stolper, 3rd year law student, for research assistance.
Topics • How LTC is paid for & who’ll need it. • LTC costs in NC. • Sources of and paying for LTCI. • Tax-qualified LTCI policies.
The new Partnership Policies. • Cost and affordability of LTCI. • What to buy and when. • Keeping Medicaid in mind.
Assessing the companies. • The new hybrids • Tax deductibility issues for businesses • Public policy issues
1. How LTC is Paid For & Who Needs It • In-home services • Adult day centers • Assisted living (a/k/a domiciliary care, adult care home, rest home) • Nursing facility care – SNF and ICF
Government Programs • Need-based (income/resource rules) • Medicaid (nursing home care) pays for about ½ of all nursing home costs. • Special Assistance (SA) for ALFs or in-home. • CAP/DA
Medicare (but only partial coverage in nursing home under some Medicare “Advantage” programs) • Veterans Benefits
Medicare • Covers most older adults. • Pays for limited post-hospital home health care. • Pays for skilled nursing facility care for up to 20 days in full and 80 days in part, if following a minimum 3 day hospital stay.
With Medicare supplement policies, Medicare pays only about 12 % of all LTC costs.
Private Sources of Payment • Unpaid care from friends and family. • Out of pocket (“private pay”). • Medicare supplemental insurance (for co-pay during days 20-100 in SNF). • Long term care insurance.
Who Will Need LTC? • 2 of 5 Americans > 65 will enter a NH. • 70% of couples, one spouse will need LTC. • Half will stay less than 3 months. • Other half will stay an av. of 2 ½ years. • Less than 2% will stay over 7 years.
Odds of Nursing Home Usage Source: Kemper and Murtaugh, New England Journal of Medicine (1991)
LTCI history • First available in 1987 • 400,000 policies issued in ’07 • 83% of buyers purchased before age 65* *American Association for Long Term Care Insurance (AALTI), News Release, 6/17/08
’07 claims broken down: • 43% for home care; • 33% for assisted living; • 24% for nursing home care.* • 8 million have LTCI.*Most are affluent • About 10% of those 50+ have LTCI. *AALTI, News Release, 6/17/08
Family care costs jobs/ creates caregiver stress • Home Care: $39K - 42K/yr(44 hrs/week) • Adult Day Care: $12k/yr(8 hrs/day, 5 days/wk) • Assisted Living: $34K/year • Nursing Homes: Semi-Private: $67K/year andPrivate Room: $73K/year
3. LTCI: Sources and Payment • Employer (yours or relative’s/partner’s), such as: • Federal LTCI program • State Employees (apply by 6/30/13!) • Membership organizations • Partnership policies in most states • Policies through CCRCs • Hybrid life insurance policies
Involving the Adult Children • Adult children may be financially able to “invest” in a parent’s LTCI policy. • Allows the parent to remain at home longer and in more safety and comfort. • Also opens the doors to better assisted living options, if necessary. • Buying a remainder interest in parents’ home.
Other Ways to Finance LTC • Reverse mortgages allow the cash-poor and house-rich homeowner to tap the equity in his home. • Cashing in a life insurance policy, borrowing against it, accessing a “living need” (if available), and the option of viatical settlements.
Advice from? • Board certified elder law attorneys • Financial advisor (especially CFP) • CLTC – Corp. for LTC Certification • Use different sources; read fine print.
Federal LTCI Program About 20 million people are eligible to apply: • employees (most federal/ postal service, active armed services, and D.C. court employees); • annuitants (including retired armed services); • spouses and adult children of employees and annuitants; and • parents, parents-in-law, and stepparents of employees. www.ltcfeds.com
Federal LTCI Program • John Hancock handles these policies. • 268,200 enrollees (as of 6/30/11) • Same-sex domestic partners of Federal or U.S. Postal Service employees or annuitants may apply. • Offers a facility-only option.
Cost of Sample Plan for 55 y o • 3 year benefit, 90 day elimination period, and $150 daily benefit (and 5% compound inflation) • $159/month ($1,908/yr) for: • Home, nursing home, ALF, or hospice (home or not) • Bed hold days • Home care, adult day care, and respite services • Formal and informal caregiver services. Aug. 2012, www.ltcfeds.com
4. Tax-qualified LTCI policies. • Most people should only shop for this type. • Meets certain requirements of HIPAA (Health Insurance Portability and Accountability Act of 1996). • Pre-’97 policies are “grandfathered” in. • 90% of policies sold in 2001 were TQ.
“Qualified” LTCI premiums are deductible • But limited to excess over 7.5% adjusted gross income (AGI) • Deductibility is unlikely to benefit many • “Qualified” plan benefits are not “income.”
Unreimbursed (uninsured) LTC costs are deductible. • For deductibility issues and small businesses, see last section.
5. The New Partnership Policies They reward people who self-insure by increasing their asset limits under Medicaid. - Ex.: Single person with $100K policy could keep an additional $100K in “countable” assets, and get Medicaid after tapping the full policy.
Early ’90’s till 2006: only in 4 states – Robert Wood Johnson Foundation program of “partnership policies” to encourage middle class to buy LTCI. 225,000 policies sold. • To save on Medicaid, the federal Deficit Reduction Act (DRA) of 2005 authorizes all states to use partnership policies.
Connecticut “Partnership Policies” in ’05: $4,100 premium/year, at age 65 for 3 years, $200 daily benefit, and inflation protection. • Majority of purchasers in CA, CT, and IN have assets over $350,000 (excluding home) and half have incomes of $60K or more. Source: Kaiser Commission on Medicaid and the Uninsured. Feb. 2006. www.kff.org/kcmu
In 2007, Connecticut estimated that its Partnership program had saved $5.5 million in Medicaid benefits. • California estimated over $16 million as of Sept. 30, 2008.
NC Partnership Policy • Legislation to comport with DRA enacted in ‘10. • N.C. Gen. Stat. Chapters 108A and 58-55. • Change Notice 02-11 to Medicaid Manual.
Inflation protection must be offered for the Partnership Policy to qualify. • Compound annual inflation protection must be provided for those under age 61. • Purchasers between age 61 and 76, need only be provided some level of inflation protections.
NC Partnership Policy • Resource disregard at application for LTC Medicaid or CAP and resource protection at estate recovery. (but see the details later…..) • Resource disregard and asset protection are equal to benefits paid under the policy
P’shipPolicy = Harsher Estate Recovery With regards to estate recovery, the definition of estate is much broader for deceased Medicaid recipients who got a resource disregard due to a partnership policy.
For p’ship policy holders, “estate” includes: • All real and personal property owned at the time of death. • Those assets conveyed to a survivor, heir or assignee. • Life estates and living trusts. • Ownership interest in joint tenancy with rights of survivorship, tenancy in common and any other arrangement.
Drawbacks of Partnership Policies • Expanded estate recovery will be a disadvantage for some policyholders’ estates. • Many policyholders won’t live long enough or need nursing home care/CAP services long enough to even apply for Medicaid.
Asset disregards are more likely to help the insured person’s heirs than the insured person. The heirs won’t be better off, though, if they expect to get: • Remainder interests, • POD interests, • JTWROS interest, or • Inter vivos (living) trust assets.
6. Cost and Affordability of LTCI • Median elderly household income: $31K • Median income of LTCI buyers: $62,500 - Pension Rights Ctr., “Income of Today’s Older Adults” (‘08 figures) - Am. Health Ins. Plans, “Who Buys Long Term Care Insurance,” 4/07.
Annual cost: $1,720*- healthy 55 y o. $2,700 - healthy 55 y o couple _____ $3,335 - healthy 60 y o couple * (Up from $1,480 in 2011, a 16% jump.) Nat’l av. for $150 daily, 3 yrs coverage, 90 day elimination period, 5% inflation protection. AALTI, “2012 LTCI Price Index.”
Affordability Standards • Some recommend LTCI only if have $75- 100K aside from home and car. • Consumer Reports says not to buy if your net worth is less than $200K (or over $1.5 million). • Federally required “suitability test.”
Weighing the Costs and Benefits Consider current and future finances • Ability to continue paying the premiums as you age? • What protections does the policy offer if unable to pay the premiums? • Other resources available to help pay for long term care?
Tax Credit for LTCI Premiums • State law allows a credit of up to $350 for LTCI premium costs. • It is restricted however, to the following AGI limits: • Married filing jointly…….. .. $ 100,000 • Head of Household ……… $80,000 • Single …………………..… $60,000 • Married filing separately …. $50,000
Those who take deductions on their fed tax return cannot take the NC LTC tax credit. • Most people who purchase LTCI do not receive federal tax subsidies. Why? • No income tax liability • Do not itemize deductions • Medical expenses do not exceed 7.5% of AGI • Those who do benefit from federal tax subsidies tend to be older and affluent.
Federal Tax Credit May Improve A pending bill would improve the tax deductibility of premiums. It would allow individuals a deduction for qualified LTCI premiums, use of such insurance under cafeteria plans and flex spending arrangements, and a credit for individuals with LTC needs. H.R. 6005: Long-Term Care and Retirement Security Act of 2012, 112th Congress, 2011–2012.
Out of Reach? Middle class is increasingly being priced out of LTCI market due to premium increases. • New policies prices are up 30-50% compared with 5 years ago, for 55 to 65. • A single 55 y o in standard health pays an average of $2,000/year for middling benefits. • A couple at 65 might pay $5,000. [Source: Jane Bryant Quinn, AARP Bulletin, 6/12]
# of new individual buyers dropped by 43 percent from 2004 to 2009. • In past five years, at least 14 companies quit selling new individual LTC policies. • 7 companies dropped out of the employee-group business. Still service policies but can raise rates.
What Affects the Policy Cost? • Premiums based in part on age and gender. • Length of coverage: 3 yrs, 5 yrs, or lifetime. • Elimination period: 30, 90, 180 days • Amt of coverage: $100/day or more