LTC - Overview

Question 1

What is the 56-65-70-80 Rule regarding the risk of needing LTC?

Answer 1

80% of people live past age 65

70% of people over 65 experience an LTC event

Therefore, at least 56% of people will experience a LTC event (actual % needing LTC at some point is higher since some need it before age 65)

Question 2

T or F - About 35% of people in LTC are younger people injured in auto accidents

Answer 2

True

Question 3

What role does disability insurance play in protecting against the threat of LTC?

Answer 3

For those who are not retired, it provides a source of income that can help cover LTC costs. Keep in mind that if the bread winner enters LTC then certain work, leisure and basic expenses will decline. However, LTC may be create a net cost increase if LTC costs are greater than the cost savings noted above (which is highly likely). Notes that if the client is severely, permanently disabled they may qualify for SS benefits.

Question 4

What are the minimum and maximum available LTC benefits?

Answer 4

Min = $50

Max = $500

Question 5

What are minimum and maximum elimination periods?

Answer 5

Min - 0 (no elimination period)

Max - 360 days

Question 6

What % of those 65 and over require some level of LTC?

Answer 6

70%

Question 7

What was the daily facility cost for one day in a Phoenix area assisted-living facility in 2008?

What annual cost is this associated with?

Answer 7

$209

$76,285

Question 8

What is one commonly used rule of thumb for applying either compounded or simple inflation protection?

Answer 8

Prior to age 70, use a simple inflation rider, and after age 70 use a compounded inflation rider.

Question 9

Differentiate between the following options for payment of LTCi benefits:

Reimbursement

Answer 9

A reimbursement policy will reimburse a beneficiary up to the maximum benefit amount for any LTC costs not reimbursed from another source. Beneficiary must provide documentation of LTC charges. Reimbursement policies are often coordinated with sources of payment so as to avoid double payment.

Question 10

T or F - LTCi is mostly needed by middle to upper middle class.

Answer 10

True - The poor have no assets to protect, and are good candidates for Medicaid. The rich can self insure.

Middle wealth types have assets and lifestyles to protect, and cannot do so if they are going to try to qualify for Medicaid, or if they are hit with even a below average stay in LTC.

Question 11

What is the breakdown of the source of payment for LTC (as of 2008)?

Answer 11

Paid from personal assets and income - 19%
LTCi (traditional + asset based) - 7%
Medicaid - 49%
Medicare - 19%
Other governmental entities and private charities serving the very poor 6%

Question 12

What is the difference between a traditional and an asset based LTC insurance policy?

Answer 12

Traditional insurance charges a month premium for coverage with a certain benefit amount, elimination period, and duration.

Asset based policies are riders on permanent life insurance or on an annuity that can pay benefits to address LTC

Question 13

What is the budgetary profile of Medicaid payments for LTC?

Answer 13

LTC recipients are only 7% of total recipients but account for 52% of expenditures, which are the fastest growing line item for Medicaid.

Question 14

What % of those applying for Medicaid assistance for LTC were approved?

Answer 14

23% (Arizona, 2008) 7,000 applicants approved out of 30,000 total.

Question 15

What is a Partnership Policy?

Answer 15

An agreement between individuals, state governments, and a private insurance company that provides certain protections in qualifying for Medicaid in exchange for the purchase of a private insurance policy. Each of the three parties derives a benefit from this model.

Total Asset Protection -
Dollar for Dollar Protection - If client purchases a policy with $250,000 in total benefits, and those benefits are actually paid out, then the owner of the policy can qualify for Medicaid and retain $250,000 of assets, instead of the usual limit of $2,000. This program worked well for states, because only 5% of those with insurance drew down their entire benefit and applied to Medicaid.

Question 16

Deficit Reduction Act of 2005 - What impact on Medicaid Look Back Periods?

Answer 16

Look back period of disposal of assets increased to 60 months

Question 17

T or F - As of 2008, the cost of LTC in Phoenix metro area was about in line with the national average. ($208 per day for a private room)

Answer 17

True

Question 18

What percentage of people are involved in the care of an adult 18 or older?

What percentage of those being cared for are elderly?

Answer 18

21% (about 1/5)

80% of recipients of such care are elderly

Question 19

T or F - LTCi benefits paid are never taxable

Answer 19

True, as long as the policy is tax qualified.

Question 20

What is the tax treatment of LTCi premiums paid for non-self-employed?

Answer 20

They are deductible as medical expenses subject to the 10%/7.5% floor according an age based table.

Question 21

What is the difference between an Issued Age LTCi policy and an Attained Age policy?

Answer 21

Premiums for an Issued Age policy are based on the insured’s age at the time of the issue, and cannot rise unless they are raised for a whole class of insured (they cannot be raised for an individual policy holder)

Premiums for an Attained Age policy rise each year as the insured ages. These increases are automatic are not tied to individual underwriting factors from year-to-year. The apparent advantage of such policies is that they are cheaper in the early phases of ownership, and make it possible for some individuals to purchase.

Question 22

T or F - Policies are required by to pay a benefit if the insured cannot perform 3 of the 6 ADLs?

Answer 22

True. However, most policies are written so that benefits are paid if the insured cannot perform 2 of 6 ADLs.

Question 23

What is the difference between group LTC insurance and a multi-life group policy?

Answer 23

True group coverage is a guaranteed issue product, and is not individually underwritten. The contract is between the employer and the insurer and is not portable from one job to another.

A multi-life policy is not a guaranteed issue product. They are individually underwritten, although the process is streamlined and less stringent. The contract is between the insurer and the insured, and the policies are portable.

Question 24

What are some of the cardinal features of a multi-life employer LTCi plan?

Answer 24

1. ) Policies are underwritten, but using streamlined, less stringent standards.
   1a. ) Premiums are discounted.
2. ) Policy contracts are between insurance company and insured
3. ) Coverage is completely portable; employer is not on the hook in any way if the employee leaves
4. ) Policies are available to a wide range of family members, including parents, grandparents, children, step parents, etc. Therefore, the streamlined underwriting standards might provide a way to get coverage that otherwise would not be available to a family member.
5. ) Policies are not approved for Section 125 plans, and can’t be part of a Cafeteria plans, and cannot be paid for with pre-tax dollars.
6. ) Premiums can be employer paid, or the plans can be voluntary, employee paid. They can also be in a hybrid fashion, with employer paying a portion. If the employer pays the premiums for owners, then they must provide a subsidy to all other eligible employees.
7. ) Point 5 means that the policies are more flexible than Section 125 plans, and can be set up in a number of ways.
8. ) An independent consultant works with employees to help them evaluate and select the right policies.

Question 25

How does the need to provide long-term care affect employees and employers?

Answer 25

1 in 5 adult Americans provides some kind of adult care in the home. The need to provide such care of reduces their ability to go work, and creates stress that often leads to health problems. This situation shrinks the available labor pool, and can be detrimental to productivity, especially if a key employee is affected. For this reason, many employers offer LTC insurance to ensure that employees aren’t reduced to significantly decrease their work hours.

Question 26

What are five ways employers may try to accommodate the needs of a care giving employee?

Answer 26

Flex Time
Shared Jobs
Part Time
Work from Home
LTCi

Question 27

What are the most common risk factors for needing long-term care?

Answer 27

LEG(w)S H

Life expectancy: The longer you live, the more likely it is that you will need long-term care.

Gender: Women are more likely to need long-term care because they live longer.

Married or single: If you are married and have adult children, you may be more likely to receive informal care at home. If you are single, however, the risk of needing paid care is higher.

Health factors: If you have poor health, or poor health runs in your family, you could be at greater risk than another person of the same age

Question 28

How are changes in family structure contributing to higher need for LTC.

Answer 28

Higher divorce rates lead to higher numbers of elderly single people. Also, breakdown of traditional nuclear family structure, with more women working (by choice or need for a second income), and the trend toward greater geographical dispersion in families, means lower chance children or other family members will be willing or able to provide low to medium level care.

Question 29

What are the main venues of paid LTC?

Answer 29

1. ). Home visits by registered nurse or by a home health aide.
2. ) Skilled nursing facilities (“snif”)
3. ) In home assistance by unskilled care providers, who price help with ADLs.
4. ) Assisted living facilities
5. ) Group homes of various types
6. ) Memory care units

Question 30

What is the average cost of care of the following types of in home care:

RN
Home health aide
Unskilled aide

Answer 30

RN visits typically cost about $100 for an hour visit, more if longer (2012)

Home health aide - $50 to $60 per hour (2012)

Unskilled home aide - $20 to $25 (2008 figures)

UHHR - 25/50/100 - 2012

Question 31

What are the downsides to having family members provide long-term care?

Answer 31

The are several potential downsides:

1. ) Care givers can become extremely stressed, especially after a few months of providing care.
2. ) Adult care givers also have to work in many cases. This results in lost wages, promotion opportunities, etc., and causes a loss of productivity for employers. Studies show the financial losses to care giving families average $600k over time.

Keep in mind that for higher level long-term care (skilled nursing or home health, extreme inability to perform ADLs, 24 hour memory care) it may not even be possible for family members to provide some or all of the necessary care. In these cases, paid services either in-home or in a facility may be a necessity.

Since most in-home LTC is provided by adult caregivers, the following problems are well documented:

1. ) Increased stress/decreased quality of life - Caregiving is physically and emotionally taxing, especially when combined with the other more typical demands of life
2. ) Increased stress often leads to increased healthcare costs (stress amplifies or causes medical problems)
3. ) Lost wages -

Question 32

What % of those in the following age groups need some assistance with 1 or more ADLs:

65 and Older?

Mid 80s?

Answer 32

65 + 1/3

Mid 80s 2/3rds

Question 33

What % of those who need assistance with one or more ADLs lives at home or in the community?

Answer 33

4/5 ths

Question 34

What are the primary venues for LTC?

Answer 34

Home
Adult day care
Assisted living facility
Memory care
Skilled nursing facility

HAAMS

Question 35

What’s aspects of changing family structure have changed the way LTC is provided?

Answer 35

The decline of the extended family, in part due to higher societal mobility, cultural change - Previously, members of extended family could give or receive care as needed, without the need for outside help.

Advent of the two income family - A working spouse may not be able to care for a spouse needing LTC.

Higher divorce rates - Fewer elderly have a spouse who provide care.

Question 36

What is the American Dilmema?

Answer 36

Lengthening life spans are causing an increasing percentage of people who need LTC

Question 37

What psychological and financial impacts does providing LTC to a family member entail?

Answer 37

Caregivers often become stressed, and may feel isolated, anxious, or depressed as the demands of providing care overwhelm time and emotional resources.

Financially, the impact varies. However, for those who are working, the need to provide LTC is typically negative. Caregivers must reduce hours, or quit entirely, creating financial stress. Caregivers turn down more promotions, and often can’t move to optimize career opportunity.

Question 38

Are LTC costs tax deductible?

Answer 38

Yes, if deemed “medically necessary” by an MD, and only to the extent thru exceed 10% of AGI.

Note, for those high LTC costs, this is an attractive tax benefit.

Question - Does it apply for those receiving a tax free LTCi benefit??

Question 39

What is a “tax qualified” LTC policy?

Answer 39

One with two necessary triggers. To receive benefits, the insured must at a minimum:

Insured must be unable to perform 2 or more ADLs

Doctor certifies that care needed for at least 90 days

Question 40

What is significance of a tax quailed LTCi policy?

Answer 40

Benefits are tax free and premiums can be deducted subject to the age based table and to the extent they exceed 10% of AGI.

Question 41

What are the minimum and maximum benefit periods?

Answer 41

Min - 2 Years

Max - Lifetime benefits

“LTC sentences are 2 to life”

Question 42

What is one of the disadvantages if a Reimbursement (as opposed to an Indemnity or Cash) LTC plan?

Answer 42

Reimbursement plans may coordinate payments from other sources, reducing the benefit from the policy.

Question 43

What is tax treatment for premiums and benefits for tax qualified policies for C Corps?

Answer 43

Benefits are always tax free for tax qualified LTC policies.

Premiums are fully deductible for both employees and owners.

Question 44

What is the tax treatment of tax qualified policies for self employed (sole prop., LLC/partnership, S Corp)?

Answer 44

Benefits are always tax free for tax qualified policies.

Premiums for employees are fully deductible as an ordinary and necessary business expense.

Premiums for owners are only deductible to the extent???

Question 45

For purposes of Medicaid, what are “exempt” and “non exempt” assets?

Answer 45

Exempt assets are not included in determining eligibility for Medicaid LTC. Non-exempt assets are included.

Exempt

Totally Excluded

Home (in California, $803,000 of equity)
Term Life Insurance
Whole Life (up to $1,500)
Retirement plan balances that are being distributed subject to RMDs up to $186,000
Multi-unit rental property in which the applicant lives

Applicants must spend down or gift liquid assets down to $2,500 with a time buffer (look back period) of 5 years.

Violation of these rules may subject applicant to criminal penalties.

Question 46

How is home equity treated for purposes of qualifying for Medicaid?

Answer 46

The Deficit a Reduction Act of 2005, required States to set maximum limits on the amount exempt home equity of between $500k and $750K for Medicaid LTC. Each year the amount of exempt equity is indexed to inflation. California chose $750k, which has inflated to $803K in 2014.

Question 47

Women are more likely than men to need LTC. Why?

Answer 47

Longer life expectancy. The longer you live the more likely you are to need LTC.

Question 48

Single people are more likely to need long-term care in a facility than married people. Why?

Answer 48

Lesser chance of receiving care from family than a married person.

Question 49

What is the difference between medical care and LTC?

Answer 49

Medical care is curative or rehabilitative. LTC is primarily or entirely custodial, aimed at helping the frail and ill or disabled with daily functioning and maintain some independence.