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Long Term Care Funding

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Long Term Care: The Public and Private Funding Debate

Long term care is a growing need within the United States. Currently the U.S. population is 318.7 million with the older population comprising approximately 43.1 million in 2012. This amount is expected to jump to 88 million by 2050. Currently, 1 in every 7 or 13.7% to be exact, of the population is an older American. This amount increased by 24% between 2002 and 2012. This amount is projected to increase to 79.7 million by 2040. With advances in healthcare and other factors, persons reaching 65 years of age have an average life expectancy of an additional 19.2 years.

Note: Increments in years are uneven. Source: U.S. Census Bureau, Population Estimates and Projections. ----- Sources: U.S. Census Bureau, Population Estimates, Vintage 1980-2012, National Estimates by Age, Sex, Race: 1900-1979 (PE-11) ; 2012 National Population Projections Summary Tables, Table 2. Projections of the Population by Selected Age Groups and Sex for the United States: 2015 to 2060, Middle Series. (NP2012-T2), Released December 2012; and Table 1. Projected Population by Single Year of Age, Sex, Race, and Hispanic Origin for the United States: 2012 to 2060, Released December 2012. Long term care can encompass many different facets. In general it is a range of services and supports that are done to meet personal care needs. Many times it is not medical care but assistance with basic personal tasks of daily life such as bathing, dressing, using the restroom, transferring from one area to another, caring for incontinence, and eating. These are called Activities of Daily Living or ADL’s. Other forms of long term care services can be housework, managing money, taking medication, preparing and cleaning up after meals, shopping for clothes and groceries, using the telephone or other forms of communication, caring for pets, and responding to emergency situations. These forms of care are called Instrumental Activities of Daily Living or IADLs. These services can be conducted over a short or long period of time and are usually utilized to help older individual maintain an independent lifestyle within a safe setting when it has become difficult for them to perform these everyday tasks on their own. Long term care is provided in different place by different caregivers and is based on a person’s individual needs. These needs can be due to terminal conditions, disability, illness, injury, or the infirmity of old age. Temporary long term care is usually care that only lasts for a few weeks or months and can include rehabilitation from a hospital stay, recovery from illness, injury, or surgery and a terminal medical condition. Ongoing long term care which is usually for many months or years can include chronic medical conditions, chronic severe pain, permanent disabilities, dementia, ongoing help with ADL’s, supervision and extensive care for issues that are included in temporary long term care. Long term care services can be provided in a variety of settings including the home of the recipient, the home of a family member or friend of the recipient, an adult day care center, an assisted living facility, a hospice facility, and a nursing home. While long term care is essential, there are many crises that the elderly are facing when it comes to being able to receive care when they need it. One of the main issues that are causing a challenge to being able to receive the care needed is funding. Long term care can be paid for both publically and privately. While there are numerous funding methods, the issues with paying for care are qualifying for public funding and affording private funding. In order to properly discuss funding for long term care, we need to start with the basics. The first is custodial care versus skilled care. These are terms that are utilized within the healthcare community and with health care plans such as insurance, Medicare, Medicaid, and Veterans Administration. These terms are utilized to differentiate care provided by medical specialist versus care provided by aides, volunteers, family, and friends. These terms and their application are very important in determining whether a health care plan will pay for services or not. In general, skilled services are for b a health care plan and custodial care, when not in conjunction with skilled care, is not covered. Custodial services are usually always part of a skilled service plan and since they are included that means they are paid by the health care plan as well. Most people have the misconception that skilled services are the only ones covered when this is not necessarily true.
According to the American College of Medical Quality:
“Skilled care is the provision of services and supplies that can be given only by or under the supervision of skilled or licensed medical personnel. Skilled care is medically necessary when provided to improve the quality of health care of patients or to maintain or slow the decompensation of a patient's condition, including palliative treatment. Skilled care is prescribed for settings that have the capability to deliver such services safely and effectively.
Custodial care is the provision of services and supplies that can be given safely and reasonably by individuals who are neither skilled nor licensed medical personnel. The medical necessity and desired results of skilled care must be clearly documented by a written treatment plan approved by a physician. A patient may have skilled and custodial needs at the same time. In these circumstances, only those services and supplies provided in connection with the skilled care are to be considered as such. The treatment plan must include:
• The applied therapies;
• The frequency of the treatment which is consistent with the therapeutic goals;
• The potential for a patient's restoration within a predictable period of time, if applicable;
• The time frame in which the prescribing physician will review the case for the purpose of evaluating a patient's status and before reassessing the medical necessity of ongoing treatment; or
• The maintenance, palliative relief, or the slowing of decompensation in a patient's status, if applicable.
Determinations of the medical necessity of skilled care must be based on the applicable standard of care."
The next topic to understand in regards to funding is formal versus informal caregivers. Formal caregivers are volunteers or paid care providers that are associated with a service system. Service systems are for profit or nonprofit nursing homes, intermediate care facilities, assisted living centers, home care agencies, community services, hospice agencies, church and charity groups, adult day cares, senior centers, associations, and state aging agencies. Informal caregivers are family, friends, neighbors, and others who provide unpaid care to a disabled person.
Funding Long Term Care

The same way there are many kinds of long-term care services and supports, there is a wide range of costs. These costs and how to pay them is the major crisis facing long term care. There are several methods of payment for long term care such as public finding (Medicare/Medicaid), private (long term care insurance, health insurance, etc.), personal funds, and veteran’s benefits for people who have served.
The average cost of a private room in a nursing home in 2010 was $229 per day or $83, 585 annually while average assisted living cost were $3,293 per month or $39,516 annually. In home care rates averaged $21 per hour for home health aides and adult day care centers averaged $67 per day. In 2011, $210.9 billion was spent on long term care. Of this amount $45.5 billion (21.5 percent) was paid for directly by patients and/or their families. Medicaid paid $131.4 billion or 62.3 percent. Medicare also pays a percentage; however, it is in the form of post-acute care (Medicare does not cover LTC).
While Medicaid may seem like the most viable option for paying for long term care qualifying for Medicaid is one of the largest issues when trying to fund long term care. In order to qualify for Medicare you have to meet certain income eligibility requirements. In order to meet these requirements one usually has to pay for their nursing home stay utilizing their personal and/or family resources and spending all of their savings before they are deemed eligible. This technique has been coined “spending down”. When a person has “spent down” all of their assets, including savings, stocks, and bonds, and have wiped out all of their financial assets except $2,000, Medicaid will then pay for the nursing home care.

Average Cost of Long-Term Care by Care Setting: 2010 (In dollars) | Care setting and type of rate | National average rate | Range of average rate across states | Nursing home (daily): | Semi-private room. | 205 | 123–610 | Private room. | 229 | 138–687 | Assisted living communities (monthly). | 3,293 | 2,073–5,231 | Home care (hourly): | Home health aide. | 21 | 14–30 | Homemaker. | 19 | 13–25 | Adult day service (daily) . | 67 | 31–140 | Source: MetLife Mature Market Institute, 2010. |

Private financing is another option to cover long term care expenses and generally accounts for 22 percent of LTC spending. The main sources of private financing are insurance and direct payments from savings or borrowed funds. Current statistics show that while people think long term care insurance is a good idea, less than 8 percent have actually purchased it. Long term care insurance usually covers home care, assisted living, adult daycare, respite care, hospice care, nursing home and Alzheimer's facilities. In the U.S. two types of long term care policies are offered are * Tax qualified (TQ) policies are the most common policies offered. A TQ policy requires that a person 1) be expected to require care for at least 90 days, and be unable to perform 2 or more activities of daily living (eating, dressing, bathing, transferring, toileting, continence) without substantial assistance (hands on or standby); or 2) for at least 90 days, need substantial assistance due to a severe cognitive impairment. In either case a doctor must provide a plan of care. Benefits from a TQ policy are non-taxable. * Non-tax qualified (NTQ) was formerly called traditional long term care insurance. It often includes a "trigger" called a "medical necessity" trigger. This means that the patient's own doctor, or that doctor in conjunction with someone from the insurance company, can state that the patient needs care for any medical reason and the policy will pay. NTQ policies include walking as an activity of daily living and usually only require the inability to perform 1 or more activity of daily living. The Treasury Department has not clarified the status of benefits received under a non-qualified long-term care insurance plan. Therefore, the taxability of these benefits is open to further interpretation. This means that it is possible that individuals who receive benefits under a non-qualified long-term care insurance policy risk facing a large tax bill for these benefits.
Long term care insurance policies work by reimbursing policyholders a daily amount for services. This amount is usually a pre-selected limit along with the selected care options and benefits. Costs of long term care insurance is based on age at policy purchase, maximum amount policy pays per day, and the maximum number of years a policy will pay. The maximum amount per day times the number of days is what determines the lifetime maximum amount that the policy will pay out.
While long term care policies seem like a great idea, there are several negatives to them. If you are not in good health or if you already receive long term care you may not qualify because most of the individual policies require medical underwriting. Also, most long term care insurance policies have limits on how long or how much they will pay. Some may have a 2-5 year pay period while others may pay as long as you live no matter the costs. Furthermore, some policies may raise premiums as time goes by.
Another option under private funding is utilizing life insurance which can be done through a combination of products (Life/Long Term Care), accelerated death benefits, life settlements, and viatical settlements. Combination products are a mix of life insurance with long term care insurance. This was created because many consumers were apprehensive about purchasing long term care insurance and it being wasted for non-use. By combining the two, insurance carriers concluded that benefits will always be paid in some form. This product is rather new with features that are constantly changing as the product evolves. The long term care benefit amount is usually expressed in terms of a percentage of the life insurance product.
Accelerated death benefits (ADB) are a feature included in some life insurance policies. It allows you to receive a tax-free advance on your life insurance death benefit while still alive. This feature can either be an extra premium or included in the policy at no costs depending on your insurance company and policy type. There are several different types of accelerated death benefits with each serving a different purpose. Depending on your policy type, you can receive a cash advance if you are terminally ill, you have a life-threatening diagnosis, you need long term care for an extended amount of time, you are permanently confined to a nursing home and incapable of performing activities of daylily living. Most accelerated benefit payment amounts are capped at 50 percent however some allow you to utilize the full death benefit. Accelerated death benefits that cover long term care services usually have a monthly benefit used for nursing home care that is equal to 2 percent of the life insurance policy’s face value. The amount available for home care if included in the policy is typically half that amount. While this may seem like a good idea, it is noted that when you receive payments from an accelerated death benefit policy while you are alive, the amount received is subtracted from the amount paid to you beneficiaries upon your death. These policy payouts for long term care services also tend to be more limited and the face value of your life insurance policy may not be enough to cover your long term care service’s needs. Also, ADB riders on life insurance policies may not cover inflation protection, leaving it not sufficient to cover future long term care service costs. By utilizing ADB benefits you may leave little to no death benefit for your remaining survivors and it may affect your Medicaid eligibility.
Life settlements are also an option. They allow you to sell your life insurance policy for its present value for any reason. This option is generally only available to women age 74 and older and men aged 70 and older. Utilizing this option means however, that there may be little to no death benefit for heirs when you die and that the proceeds of the sale may be taxed.
Viatical settlements allow you to sell your life insurance policy to a third party and use those funds to pay for long term care. This type of settlement is similar to a life settlement except that it is only possible if you are terminally ill. While in the settlement process, a viatical company pays you a percentage of the death benefit on your life insurance policy. This amount is based on your life expectancy. Once this is done the viatical company owns the policy and becomes the beneficiary. They also take over payment of the premiums. Unlike life settlements, this money is tax-free.
The last method of private funding is utilizing your own income, savings, and equity in your home, assuming you have enough. A reverse mortgage will allow you to receive cash against the value of your home without selling it. With this option you can choose to receive a lump sum payment, monthly payment, or line of credit. There are no restrictions on how you use the money and you continue to live in the home and retain title and ownership. Also, nothing is due for repayment as long as you continue to live in the home. The funds received do not count as income for Medicaid eligibility and is not taxable or affect social security long as the payments are spent in the month they are received.
Annuities are another option to pay for long term care services. This is a contract that is entered into with an insurance company to help pay for long term care services. The individual makes a single payment or series of payments and the insurance company sends an annuity, a series of regular payments over a specified and defined period of time. There are 2 types of annuities: immediate and deferred long-term care. Immediate long term care annuities are when the insurance company send you a specified monthly income in return for a single premium payment. This option is not dependent on health status. How much you receive as income during this time from the annuity payment depends on your initial premium, age, and gender. Women tend to live longer than men so they generally receive smaller monthly payments over a longer period of time. The negatives of this option are that the annuity amount received may not be enough to cover long term care expenses, inflation may reduce the value of the monthly income you receive from the annuity, and the effect that annuities can have on taxes is very complicated.
Deferred long term care annuities are available to people up to age 85 and work similar to other annuities in that in exchange for a single premium payment you receive a stream of monthly income for a specified period of time. This type of annuity creates two funds: one for long term care expenses and another to use however the annuity holder wishes. The long term care potion is immediately accessible while the holder has to wait till a specified future date to access the cash portion. With a deferred long term care annuity if it is not used, you can pass it on to your heirs, however the annuity may not be enough to pay for your long term care expenses, is complicated in regards to your taxes, and can affect your eligibility for Medicaid and whether Medicaid will pay for long term care services.
The last option is trusts. A trust is a legal entity that allows a person (the trustor) to transfer assets to another person (the trustee). Once the trust has been established, the trustee manages and controls the assets for the trustor or another beneficiary. There are 2 types of trust that can help pay for long term care services: charitable remainder trusts and Medicaid disability trusts. Charitable remainder trusts allow you to use your own assets to pay for long term care. You are able to contribute to a charity of your choosing and reduce your tax burden at the same time and it can be set up so that you receive payments from the trust to use for long term care services as long as you are alive. When you die the balance of the funds is donated to the charity you selected and since you are making a charitable donation you are eligible to receive a tax deduction. This method of payment for long term care services, however, can affect your Medicaid eligibility.
The next type of trust, Medicaid disability trust, is limited to those younger than 65 and who qualify for public benefits. These are usually set up by parents, grandparents, and legal guardians to benefit the trustee while a non-profit organization manages the assets. This is the only trust that is exempt from rules in regards to trusts and Medicaid eligibility. If the beneficiary passes and had been receiving Medicaid benefits the state can recover any amount remaining in the trust. Also, tax implications are very complicated for this method as well.
Conclusion
Long term care needs are inevitable and are only increasing with time due to better health and technology which is increasing the average life expectancy. Also, those that were once considered baby boomers are now moving into the age where they too will soon be needing care. While there seem to be various options to pay for long term care none of them are really advantageous for those who need it. Government programs require you to spend down everything you’ve worked hard for just so that you can try to qualify for care and it’s not even a guarantee. Other methods of private funding require you to utilize all of your resources leaving you with very little for other expenses or to leave your family unless you are well off. I feel that in order to fight the long term care financing crisis there needs to be an overhaul on Medicaid and you should not have to get down to nothing in order to qualify for care. I also feel that because we all know that we are going to need long term care at some point that the burden of responsibility should be placed on the user—invest in your 401k, get an IRA, buy life insurance with long term care riders or purchase long term care insurance separately. I think employers should also offer long term care insurance because they are able to get it as group policies which would have lower premiums. The main reason people mainly are stuck at a crossroads when it comes to long term care is poor planning and financial costs. If some of the burden of costs was taken away whether for care or for the services that will help you pay for care then we would not have so many people with no way to care for themselves as they get older. In order to combat this crisis, the government, the people, the insurance companies, and employers need to come together to offer long term care plans that are affordable for all parties involved. This is something that each one of is going to have to face at some point—with loved ones and with ourselves. In old age, after you’ve worked and cared for others your whole life, your last concern should be who’s going to take care of you.

References
A Profile of Older Americans. (n.d.). A Profile of Older Americans. Retrieved August 4, 2014, from http://www.aoa.gov/Aging_Statistics/Profile/2013/docs/2013_Profile.pdf
Long Term Care: What Are The Issues?. (n.d.). Long Term Care: What Are The Issues?. Retrieved August 12, 2014, from http://www.rwjf.org/en/research-publications/find-rwjf-research/2014/02/long-term-care--what-are-the-issues-.html
Long-Term Care. (n.d.). NIHSeniorHealth:. Retrieved August 6, 2014, from http://nihseniorhealth.gov/longtermcare/payingforlongtermcare/01.html
The Basics. (n.d.). - Long-Term Care Information. Retrieved August 30, 2014, from http://longtermcare.gov/the-basics/
The Long-Term Care Financing Crisis. (n.d.). The Heritage Foundation. Retrieved August 28, 2014, from http://www.heritage.org/research/reports/2013/02/the-long-term-care-financing-crisis

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