LifeFocus.com T. Young info@lifefocus.com www.LifeFocus.com
Long Term Care Planning
March 28, 2010
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Table of Contents Housing Options for Older Individuals ...............................................................................................................10 What is it? ................................................................................................................................................ 10 Staying where you are: when there's no place like home ........................................................................ 10 Pulling up stakes: moving in with (or near) your child .............................................................................. 11 Setting out for greener pastures: independent living options ................................................................... 12 When you need a little more help: assisted living options ........................................................................12 When you need a lot more help: nursing homes ......................................................................................13 Will care be there when you need it? ....................................................................................................... 14 Questions & Answers ...............................................................................................................................14 How to Pay for Nursing Home Care ..................................................................................................................15 What is it? ................................................................................................................................................ 15 Ways to pay for nursing home care ......................................................................................................... 15 Tax considerations ................................................................................................................................... 16 Questions & Answers ...............................................................................................................................17 Healthcare in Retirement .................................................................................................................................. 18 What health care benefits are available in retirement? ............................................................................ 18 Medicare .................................................................................................................................................. 18 Medigap ................................................................................................................................................... 19 Medicaid ...................................................................................................................................................19 Military benefits ........................................................................................................................................ 21 Choosing a continuing care retirement community .................................................................................. 21 Choosing a nursing home ........................................................................................................................ 21 Medicare ........................................................................................................................................................... 22 What is Medicare? ................................................................................................................................... 22 Who administers the Medicare program? ................................................................................................ 22 Who is eligible for coverage under Medicare? ......................................................................................... 23 How do you sign up for Medicare? ...........................................................................................................24
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How much does it cost to enroll in Medicare? ..........................................................................................24 How are Medicare payments determined? .............................................................................................. 25 How Medicare claims are paid ................................................................................................................. 26 Medigap ............................................................................................................................................................ 28 What is Medigap? .................................................................................................................................... 28 What services are covered? .....................................................................................................................28 What consumer safeguards are available? ..............................................................................................29 What is Medicare SELECT? .................................................................................................................... 30 Can you use your employer plan as your Medigap? ................................................................................30 Can you use your retirement health plan as your Medigap insurance? ................................................... 30 Medicaid ............................................................................................................................................................32 What is Medicaid? ....................................................................................................................................32 What types of benefits are available? ...................................................................................................... 32 How have the Medicaid rules been tightened in recent years regarding long-term nursing home care? 33 Are Medicaid planning opportunities still available? .................................................................................34 Long-Term Care Insurance (LTCI) ....................................................................................................................35 What is long-term care insurance (LTCI)? ............................................................................................... 35 How is it useful as a protection planning tool? ......................................................................................... 35 How much does it cost? ........................................................................................................................... 36 Who should purchase LTCI? ....................................................................................................................36 How much coverage is enough? ..............................................................................................................36 How do you compare policies and providers? ......................................................................................... 37 What are the tax ramifications? ................................................................................................................37 Types of Long-Term Care ................................................................................................................................. 38 What is long-term care? ........................................................................................................................... 38 What are the three levels of long-term care? ........................................................................................... 38 Where is long-term care provided? .......................................................................................................... 38 Evaluating Long-Term Care Insurance (LTCI) Policies Discussion ................................................................. 40 What is evaluating, comparing, replacing, and conserving long-term care insurance (LTCI)? ................ 40
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How should you evaluate and compare long-term care insurance (LTCI) policies? ................................ 40 How should you compare companies? .................................................................................................... 41 What about replacing or updating your policy? ........................................................................................ 42 What about conserving your policy (LTCI)? ............................................................................................. 42 Coordination of Long-Term Care with Government Benefits ............................................................................ 43 What does "coordination with government benefits" mean? ....................................................................43 What is long-term care? ........................................................................................................................... 43 What is Medicare and to what extent does it subsidize long-term care? ................................................. 43 What is Medigap insurance and to what extent does it subsidize long-term care? ..................................44 What is Medicaid and to what extent does it subsidize long-term care? ..................................................44 What is long-term care insurance (LTCI), and to what extent does it subsidize long-term care? ............ 45 Medicaid and Long-Term Care Insurance .........................................................................................................47 What is long-term care insurance? .......................................................................................................... 47 How is LTCI useful as a Medicaid planning tool? .................................................................................... 47 When do benefits begin? ......................................................................................................................... 48 What do LTCI policies cost? .................................................................................................................... 48 What should you look for in an LTCI policy? ............................................................................................48 How should you compare providers? .......................................................................................................50 What are the tax ramifications? ................................................................................................................50 Long-Term Care Insurance as a Medicaid Planning Tool .................................................................................52 What is it? ................................................................................................................................................ 52 When can it be used? .............................................................................................................................. 53 Strengths ..................................................................................................................................................53 Tradeoffs .................................................................................................................................................. 54 How to do it .............................................................................................................................................. 54 Tax considerations ................................................................................................................................... 55 Medicaid Planning Goals and Strategies .......................................................................................................... 56 Why is Medicaid planning important? ...................................................................................................... 56 What are the goals of Medicaid planning? ............................................................................................... 56
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What are the primary tools and strategies for attaining these goals? ...................................................... 57 Durable power of attorney ........................................................................................................................58 How does long-term care insurance factor in? .........................................................................................58 What are the drawbacks to Medicaid planning? ...................................................................................... 59 Look-back period ......................................................................................................................................59 Penalties .................................................................................................................................................. 59 Adverse tax consequences ...................................................................................................................... 60 Incapacity .......................................................................................................................................................... 61 What is incapacity? .................................................................................................................................. 61 Why should you care? ..............................................................................................................................61 How is incapacity determined? ................................................................................................................ 61 Why do you need to plan for incapacity? ................................................................................................. 62 Caring for Your Aging Parents .......................................................................................................................... 63 What is it? ................................................................................................................................................ 63 Start planning ........................................................................................................................................... 63 What kind of advice will you need? .......................................................................................................... 63 What kinds of support and community services will you need? ............................................................... 64 Financial and tax considerations for you ..................................................................................................66 Questions & Answers ...............................................................................................................................67 What to Avoid When Buying a Long-Term Care Insurance Policy ....................................................................68 Comparing Long-Term Care Insurance Policies ............................................................................................... 69 Medicare, Medigap, and Medicaid .................................................................................................................... 71 Medicaid Eligibility for Nursing Home Care .......................................................................................................73 Housing Options for Aging Parents ...................................................................................................................74 Tips for Caregivers ............................................................................................................................................75 Common Incapacity Documents ....................................................................................................................... 76 Inflation Protection Options ............................................................................................................................... 77 Housing Options for Older Individuals ...............................................................................................................79 There's no place like home ...................................................................................................................... 79
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Hey kids, Mom and Dad are moving in! ................................................................................................... 79 Assisted-living options ..............................................................................................................................80 Nursing homes ......................................................................................................................................... 80 Medicare ........................................................................................................................................................... 82 What does Medicare cover? .................................................................................................................... 82 Medicare Part A (hospital insurance) ....................................................................................................... 82 Medicare Part B (medical insurance) ....................................................................................................... 82 Medicare Part C (Medicare Advantage) ...................................................................................................82 Medicare Part D (prescription drug coverage) ......................................................................................... 82 What is not covered by Medicare Parts A and B? ....................................................................................82 Are you eligible for Medicare? ..................................................................................................................83 How much does Medicare cost? .............................................................................................................. 83 Who administers the Medicare program? ................................................................................................ 84 How do you sign up for Medicare? ...........................................................................................................84 Buying Supplemental Health Insurance: Medigap ............................................................................................ 85 When's the best time to buy a Medigap policy? .......................................................................................85 What's covered in a Medigap policy? .......................................................................................................85 Are all Medigap policies created equal? .................................................................................................. 85 Does everyone need Medigap? ............................................................................................................... 85 Medicaid and Nursing Home Care .................................................................................................................... 87 Nursing homes provide different levels of long-term care ........................................................................87 Medicaid can help you pay for nursing home care ...................................................................................87 You must satisfy several requirements to qualify for Medicaid ................................................................ 87 Choosing the right nursing home takes research .....................................................................................88 Medicaid Planning Basics ................................................................................................................................. 89 Eligibility for Medicaid depends on your state's asset and income-level requirements ............................89 Medicaid planning can help you meet your state's requirements ............................................................ 89 One way to shelter countable assets is to exchange them for exempt assets .........................................89 Irrevocable trusts can help you leave something for your loved ones ..................................................... 90
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If you're married, an annuity can help you provide for your healthy spouse ............................................ 90 Beware of certain Medicaid planning risks ...............................................................................................90 Understanding Long-Term Care Insurance .......................................................................................................92 What is long-term care? ........................................................................................................................... 92 Why you need long-term care insurance (LTCI) ...................................................................................... 92 How does LTCI work? ..............................................................................................................................92 Comparing LTCI policies ..........................................................................................................................92 What's it going to cost? ............................................................................................................................ 93 Long-Term Care Insurance: How Does It Work? .............................................................................................. 94 What determines if you're entitled to benefits? ........................................................................................ 94 Who determines if you're entitled to benefits? ......................................................................................... 94 When will benefits start? .......................................................................................................................... 94 The mechanics of filing a claim ................................................................................................................ 95 What Do Long-Term Care Insurance Policies Cover? ...................................................................................... 96 Types of long-term care ........................................................................................................................... 96 Where it's happening ............................................................................................................................... 96 What long-term care insurance policies don't cover ................................................................................ 96 Should You Buy Long-Term Care Insurance? .................................................................................................. 98 Who needs it? .......................................................................................................................................... 98 But won't the government look out for me? ..............................................................................................98 Looking out for yourself ............................................................................................................................98 Understanding Long-Term Care Riders and Options ........................................................................................100 A quick look at long-term care insurance basics ......................................................................................100 Home health care and other alternative care options .............................................................................. 100 Inflation protection ....................................................................................................................................100 Nonforfeiture of premium feature ............................................................................................................. 100 Waiver of premium ................................................................................................................................... 101 Guaranteed insurability ............................................................................................................................ 101 Third-party notification ..............................................................................................................................101
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Comparing Long-Term Care Insurance Policies ............................................................................................... 102 Compare insurance companies ............................................................................................................... 102 Compare policy ins and outs ....................................................................................................................102 Compare premiums ..................................................................................................................................103 Consider getting help ............................................................................................................................... 103 Five Things to Watch Out for When Buying Long-Term Care Insurance ..........................................................104 A long-term care policy is a great tax write-off ......................................................................................... 104 You should buy a policy now so you can lock in the price forever ........................................................... 104 It doesn't matter how the policy defines "facility" ..................................................................................... 104 It's not necessary to check the financial rating of the insurance company .............................................. 104 You should get rid of the policy you have now and buy a new one ......................................................... 105 Tax Tips: Long-Term Care Insurance ............................................................................................................... 106 You may be eligible for an income tax deduction .....................................................................................106 The amount of your deduction depends on a few factors ........................................................................ 106 Watch out--your long-term care insurance benefits may be taxable ........................................................107 If Long-Term Care Insurance Isn't for You: Other Options ............................................................................... 108 You saved for a rainy day--it's here ......................................................................................................... 108 Did you hear? Medicaid pays for long-term care ..................................................................................... 108 Life insurance--it's not just for estate planning anymore ..........................................................................108 Get paid to live in your home ................................................................................................................... 108 Caring for Your Aging Parents .......................................................................................................................... 109 Mom? Dad? We need to talk ....................................................................................................................109 Preparing a personal data record .............................................................................................................109 Where will your parents live? ................................................................................................................... 110 Evaluating your parents' abilities ..............................................................................................................110 Get support and advice ............................................................................................................................ 110 Is there such a thing as nursing home insurance? ............................................................................................111 What types of nursing care does long-term care insurance cover? .................................................................. 112 Should I buy long-term care insurance? ........................................................................................................... 113
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Should I buy medical payments coverage? ...................................................................................................... 114 What is long-term care insurance? ................................................................................................................... 115 What is critical illness insurance? ..................................................................................................................... 116 Do I need cancer insurance? ............................................................................................................................ 117 Can I deduct premiums paid for long-term care insurance (LTCI)? .................................................................. 118
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Housing Options for Older Individuals What is it? As you grow older, your housing needs may change. Maybe you'll get tired of raking leaves from the lawn of the house you bought 30 years ago because you liked its huge, shady backyard. You might want to retire in sunny Florida or live close to your grandchildren in Illinois. Perhaps you will need to live in a nursing home or an assisted-living facility. Sometimes, after considering your options, you may even decide to stay where you are. Deciding where to live is never easy, but if you evaluate your options carefully, you'll find it easier to live with your decision.
Staying where you are: when there's no place like home Physical considerations Are you able to take care of your home by yourself? If your answer is no, that doesn't necessarily mean it's time to move. Maybe a family member can help you, or maybe you can hire someone to clean your house, mow your lawn, or help you with personal care. Perhaps staying in your home is simply a matter of making it more accessible by installing wheelchair ramps, safety lighting, or new bathroom fixtures. To evaluate whether you can stay in your home or if it's time to move, consider the following questions: • If you need help (or might need it in the future), how willing are you to let someone else help you? • Can you afford to hire help, or will you need to rely on friends, relatives, or volunteers? • How far do you live from family and/or friends? • How close do you live to public transportation? • How easily can you renovate your home to address your physical needs? Emotional considerations You may want to stay in your home because you have memories of raising your family there. However, if you are widowed or lonely, those memories may be the very reason you want to leave. Moving from a cherished house is never easy, and it might be even harder when you're moving to a new town or a smaller place. Conversely, you might find that change is just what you need to get a new perspective on life, or to be able to relax and enjoy retirement. To evaluate the emotional impact of moving, consider the following questions: • How easily do you adjust to change? • How easily do you make new friends? • How does your family feel about your move? (This is important if you're moving closer to them or further away from them.) • How does your spouse feel about moving? Financial considerations You might think you can't afford to live in the same home after retirement and want to generate retirement income by selling it. However, selling your home is not the only way you can get income from it. Two other options you might consider if you own your own home and need more income are home equity loans and reverse mortgages.
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• Home Equity Loans or Lines of Credit--If you're thinking about selling your house because you need more retirement income but you don't really want to move, consider applying for a home equity loan or line of credit. You put your home up as collateral, and your bank (or other lender) provides you with a term installment loan that will give you a certain sum of money you need up front or a revolving line of credit that you can access when you need cash. When you apply for the loan you'll probably be asked how you intend to use the money. One way to use it is to finance home improvements that will make your home safer and more accessible, so that you can stay in it instead of moving to an assisted-living facility or nursing home. For more information on home equity loans and lines of credit, see Home Equity Loans and Lines of Credit. • Reverse Mortgages--A reverse mortgage might enable you to obtain needed retirement income and remain in your home. There are many types of reverse mortgages, but here's how one usually works. You take out a mortgage on your home, and in return the bank or person who holds the mortgage gives you a lump sum of cash or pays you a predetermined monthly amount for a set number of years (sometimes tied to your life expectancy). At the end of that period, you will owe the bank or mortgage holder the principal and interest due on the house. In order to repay the loan at that time, you (or your estate) may have to sell the house or turn it over to the mortgage holder. For more information on reverse mortgages, see Reverse Mortgages. Example(s): After Hal retired, he found that he couldn't live off his Social Security benefit and pension income, so he considered selling his house to raise cash. However, he didn't really want to move, so he decided instead to take out a reverse mortgage. He found a bank that was willing to pay him $650 a month, more than enough to supplement his retirement income. In addition, Hal was allowed to live in the house for the rest of his life. After he died, the bank sold the house to pay off the mortgage.
Pulling up stakes: moving in with (or near) your child Living arrangements Moving in with (or near) your child may mean living in your own nearby apartment, living in a room in your child's house, or living in an accessory apartment. Accessory apartments are either apartments within your child's house (also known as in-law suites) or cottages that are set up on the premises of your child's home (also known as Granny flats or Elderly Cottage Housing Opportunity). Tip: Granny flats have become increasingly popular and can be purchased as prefabricated housing. However, since Granny flats are subject to zoning restrictions, check the local zoning laws before you decide to move into your child's backyard. Staying independent You may worry that if you move in with (or near) your child, you'll lose your much-valued independence. That's a valid concern, but not necessarily an inevitable one. There are many ways you can move closer to your child without sacrificing your independence. For example, if you move in with (or near) your child, you can maintain your independence if your living area is accessible to public transportation or other facilities such as grocery stores and shopping centers. If you need it, look into hiring part-time help so that you don't feel that you're overburdening your son or daughter, or join a senior center or church group that provides activities and transportation for its members. Physical considerations If you are moving in with your child, will you have adequate privacy? Will you be able to move around your child's home easily? If not, you might ask him or her to install devices that will make your life easier (such as tub or shower grab bars and easy-to-open handles on doors). Example(s): Sue wanted to live with her son John, but after only a few days at his house, Sue was ready to move out. She just couldn't get up the stairs by herself, and she didn't like asking John for help all the time. Fortunately, she saw an advertisement on television for a motorized chair that
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could be attached to John's staircase and could easily move her up and down. She bought the chair, John installed it, and Sue was able to live with John after all. Emotional considerations When deciding whether or not to move closer to your child, ask yourself how you expect to benefit from the move, and how your son or daughter will likely respond. If you move closer to your child, will you expect him or her to take you shopping? Will you expect to be included in any party your son throws or in every dinner he eats at a restaurant? Even if you make your own friends, will you still want to be best friends with your daughter? Will you feel in the way? Will he or she expect you to help with cooking, cleaning, and baby-sitting, or, on the other hand, expect you to do little or nothing? Discussing your concerns before you move will help you avoid conflicts later. Financial considerations Money is an uncomfortable issue for many people, but one that needs to be discussed rationally. Before you move in with your child, consider the following questions: Will he or she expect you to contribute money towards household expenses? If you don't, will you feel guilty? Will you feel the need to critique his or her spending habits, or are you afraid that he or she will critique yours? Can he or she afford to remodel his or her home to fit your needs? Do you have enough money to support yourself during retirement, and if you don't, how do you feel about your child supporting you financially? Talking about money with your child before you move in will help avoid any conflicts or hurt feelings later. Example(s): When Jane moved in with her daughter Liz, she expected to pay for her part of the grocery bill but Liz wouldn't hear of it. Consequently, Jane felt guilty about asking Liz to buy her favorite items at the store since she wasn't paying for them. She grew more and more resentful toward Liz, even though Liz had no idea what was going on. When they finally had an argument one day, Liz realized how important it was for her mother to help pay her own way, and she gladly let her mother pay part of the grocery bill.
Setting out for greener pastures: independent living options What is independent living? Independent living communities are often apartments or townhouses that can be rented or owned as condominiums. The common areas are maintained for a fee, and the complex provides security, transportation, activities, and dining facilities. Physical considerations Not all independent living communities are alike, and each is governed by different rules. For example, some communities allow your guests to use the facilities, while others do not. Some may allow your grandchildren to spend a week with you, but some may not. Read the rental or sales contract carefully, and find out whether you object to the community's rules before you decide to lease or purchase a unit in an independent living community complex.
When you need a little more help: assisted living options What is assisted living? The wide number of assisted-living options available makes defining the term difficult. Generally, however, assisted-living facilities offer rental rooms or apartments, housekeeping services, meals, social activities, and transportation. Their primary focus is social, not medical, but some do provide limited medical care. Assisted-living facilities can be state-licensed or unlicensed and primarily serve senior citizens who need more help than those who live in independent living communities. Other terms used to describe assisted-living arrangements are board and care homes, rest homes, and community residences. Continuing care retirement communities (CCRCs), also called life care communities, also fit loosely into this category, although they provide what other assisted-living facilities do not: long-term nursing care and guaranteed lifetime services.
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How to choose an assisted-living facility Choosing an assisted-living facility can be difficult because you may not know what kind of help you will need in the future. However, there are certain things you can consider in order to narrow down your choices. Some of the factors you should evaluate when choosing a facility are described in the following sections. Physical considerations Before entering an assisted-living facility, you should carefully read the contract and tour the facility. Some facilities are big, caring for over 1,000 people. Others are small, caring for fewer than 5 people. Consider whether the facility meets your needs. Do you have enough privacy? How much personal care is provided? What happens if you get sick? Can you be asked to leave the facility if your physical or mental health deteriorates? Is the facility licensed or unlicensed? Who is in charge of health and safety? Reading the fine print on the contract may save you a lot of time and money later if any conflict over services or care arises. Example(s): Before she entered Mayfield Community Retirement Village, Helen researched the facility. She was pleased with the grounds and the decor, and the staff seemed friendly. However, when she read the contract she was required to sign, she was uncomfortable. She saw that if her mental health deteriorated, she would be asked to leave, but the terms were vague, so Helen decided to go over the contract with her lawyer before she signed it. Emotional considerations When you move into an assisted-care facility, you may feel that you have given up a measure of independence. You may think that the staff is intrusive, or that you have less choice when it comes to what you eat and who you see every day. In addition, the facility you choose may have rules that you do not like. For example, you may not be allowed to have house guests (especially children) stay overnight, or your guests may not be allowed to use facilities such as the dining rooms and the swimming pools. Because assisted-care facilities vary widely, it's very important to make sure you can live with the emotional implications before you sign a contract. Financial considerations Some housing units at assisted-living facilities are more expensive than regular residential apartments, but not all are. There is a wide range of care available at a wide range of prices. CCRCs are significantly more expensive than other assisted-living options, for example, and usually require an entrance fee above $50,000, in addition to a monthly rental fee. For more information on CCRCs, see Choosing a Continuing Care Retirement Community. In addition, don't expect Medicare to cover your expenses at these facilities, unless those expenses are health care related and the facility is licensed to provide medical care. For a comprehensive discussion of Medicare benefits see Medicare.
When you need a lot more help: nursing homes What are nursing homes? Nursing homes are licensed facilities offering 24-hour access to medical care. They provide care at three levels: skilled nursing care, intermediate care, and custodial care. Skilled nursing care may be provided to individuals who need intensive medical care but not hospitalization. Intermediate care may be provided to individuals who need some medical care in addition to custodial care. Custodial care is provided to individuals who need some help eating, bathing, dressing, or taking medications due to physical or mental deterioration. Individuals in nursing homes generally cannot live by themselves or without a great deal of assistance. Physical considerations Privacy in a nursing home may be very limited. Private rooms may be available, but rooms more commonly are shared. There is a great deal of variation in quality and atmosphere, depending upon the facility selected. A nursing home may be hospital-like or home-like. When you choose a nursing home, pay close attention to the quality of the facility. For more information on what to look for when you're considering entering a nursing home,
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see Choosing a Nursing Home. Emotional considerations Due to the high cost of nursing home care and media reports of mistreated nursing home residents, you might fear entering a nursing home. However, the quality of life in nursing homes varies widely. To allay your fears about nursing homes, select one before you need care. Visit several facilities in your area, and talk to your family about your needs and wishes regarding nursing home care. In addition, remember that most people don't live their lives in a nursing home. If your physical or mental condition improves, you may be able to return home or move to a different type of facility. Financial considerations Nursing homes are expensive. If you need nursing home care in the future, do you know how you will pay for it? Will you use private savings, or will you rely on Medicaid to pay for your care? If you have time to plan, consider purchasing long-term care (LTC) insurance to pay for your nursing home care.
Will care be there when you need it? Nursing homes and assisted-living facilities often have long waiting lists. In addition, many nursing homes do not accept Medicaid right away from a resident; using private funds or LTC insurance may help you get into a nursing home. Many people don't plan for long-term care because they don't think they will ever need it. However, you will grow old, and as you do, your health challenges will increase. You may never need long-term care, but if you plan ahead for it, you'll be much better off physically, emotionally, and financially.
Questions & Answers Will Medicare pay for nursing home care? Medicare will pay, in part, for the medical care you need, but not for custodial care. If you need skilled nursing care, Medicare will pay for it (with certain limits) up to 100 days. Before you rely on Medicare coverage to pay your nursing home bills, however, research your coverage. What if you move into a retirement community and don't like it? The first move you make after you retire probably won't be your last. If you live 20 years past retirement, you may even make several moves. Despite the fear some people have that once they move into a retirement facility they will be lost and forgotten, this is usually not the case. Decisions to move are not permanent. However, because of waiting lists, you may, for example, find it difficult to move from one nursing home to another, or you may have difficulty getting out of a CCRC once you enter it, due to the large sum of money you paid up front. Before you move into any retirement facility, research the facility thoroughly and go over the contract with an attorney.
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How to Pay for Nursing Home Care What is it? Paying for nursing home care is a burden that most Americans bear, whether directly or indirectly. Even if you never need nursing home care yourself, you are already paying for the nursing home care of others by paying income taxes that, in part, finance Medicaid and veterans' benefits. In addition, you are probably paying Social Security or self-employment taxes that help pay the cost of skilled nursing home care provided through Medicare. Although your own nursing home care may someday be financed by one of these government programs, you may find yourself struggling to pay the high cost on your own if you are not poor enough to qualify for Medicaid or if you need custodial rather than skilled nursing care. In general, there are three ways you can finance nursing home care: pay for it from your own savings (self-insure), buy long-term care (LTC) insurance, or use government benefits.
Ways to pay for nursing home care Self-insure You may be able to afford to pay for nursing home care by using your own savings. To determine this, consider how much monthly income you will have after you retire. You may be able to liquidate some investments or sell your house to come up with additional funds if you need to. You might also be able to borrow against your cash value life insurance policy. (Note, though, that the death benefit available to your survivors will be reduced.) If you are seriously ill, and the policy permits, you can take accelerated benefits from the policy. However, when you determine how much retirement income you will have and how much your nursing home costs will be, don't forget to account for price increases and inflation. Consider also what will happen if your money runs out. Will you be able to qualify for Medicaid, or will you have to rely on your children for help? Tip: If you plan on self-insuring, it would be wise to consult a financial professional well in advance of retirement, due to the complexity of self-insuring and the numerous estate planning and taxation issues involved. Buy LTC insurance LTC insurance pays for the cost of nursing home (or sometimes in-home) custodial care. It pays a fixed dollar amount of benefits per day to cover nursing home care, so it may not pay the total cost of nursing home care. LTC insurance is expensive, but the premium you pay depends upon at what age you buy the policy. The premium is fixed as of the date of purchase and only goes up if the insurance company raises its overall rates. Your premium is also affected by the elimination period you choose. (The elimination period is the time between when care begins and when the insurance company starts paying benefits.) Some policies give lifetime coverage, while others only give coverage for a specified number of years. Example(s): Marvin bought a LTC policy at age 66. His annual premium is $3,000. He chose a 15-day elimination period and 3-year coverage at $100 per day. This means that if Marvin enters a nursing home at age 76, his LTC policy will pay the nursing home $100 per day for three years, but his coverage won't start until he has been in the nursing home for 15 days. Like any insurance policy, the features and price of a LTC policy may vary from one company to another, so you have to comparison shop. For more information on this topic, see Long-Term Care (LTC) Insurance. Use government benefits If you meet certain eligibility requirements, three types of government benefits can help you pay the cost of nursing home care: Medicare, Medicaid, and veterans' benefits.
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Medicare Medicare does not pay the cost of custodial nursing home care. However, it may pay part of the cost of skilled nursing care/rehabilitative care in a hospital or nursing home under the following conditions: • You have been hospitalized for at least three days prior to entering the nursing home (and entered the nursing home within 30 days of being discharged from the hospital) • A doctor certifies that you need skilled nursing care • The nursing home or hospital is a Medicare-certified skilled nursing facility Caution: Relying solely on Medicare to pay for nursing home care is a mistake, because Medicare defines skilled nursing care narrowly and pays limited benefits for care. For instance, if skilled care in a Medicare facility is approved, Medicare will pay for the first 20 days of care, and then will pay only part of the cost for days 21 to 100. After that, Medicare pays none of the cost. For more information on what benefits Medicare does provide, see Medicare. Medicaid Medicaid does pay for custodial nursing home care (and in some states, in-home care), but only for low-income individuals who have few assets. If you have income and assets higher than the Medicaid limits, you will not be eligible for Medicaid. However, if you enter a nursing home and pay for care yourself for months or years, you may qualify for Medicaid once your money runs out. In addition, you may be able to qualify for Medicaid if you spend down or transfer your assets. For detailed discussions of strategies you may use to qualify for Medicaid and the rules surrounding Medicaid, see Medicaid Planning Goals and Strategies. Veterans' benefits If you are a veteran age 65 or over, you may be eligible for treatment in a Veterans Administration (VA) nursing home. You don't have to have a service-connected illness or injury to get treatment, but since nursing home space is limited, veterans with service-connected conditions will be admitted first. Their treatment will be free; for others, treatment will be free only if certain eligibility rules are met. In addition, the VA runs other community retirement facilities that you may be eligible to enter. For more information, contact your local Veterans Administration office. Also see Veterans' Benefits.
Tax considerations You may be able to deduct LTC insurance premiums LTC insurance premiums are deductible as medical expenses within certain limits. How much you can deduct depends upon your age at the end of the tax year. For further information see the general discussion Long-Term Care (LTC) Insurance. You may be able to exclude LTC insurance reimbursements from income Money you receive under your LTC insurance contract may be excludable from income for tax purposes (subject to certain limitations). In addition, if your employer provides coverage for you under a LTC insurance contract, the value of coverage is generally excludable from your income, unless the coverage is provided through a cafeteria plan or if you are reimbursed under a flexible spending account. Example(s): Grant's LTC insurance contract states that the company will pay for nursing home care beginning on the 16th day after care begins. Grant enters a nursing home that charges $125 a day. His total expenses for 60 days are $7,500. His insurance company sends him a check for $5,625 (45 x $125). The $5,625 he receives is excludable from his income for tax purposes when he files his annual income tax return.
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Caution: When deducting your medical and dental expenses from your income taxes, you must reduce your total medical and dental expenses for the year by reimbursements you receive under a LTC or other insurance contract. For more information see Medical and Dental Expenses. You may be able to deduct nursing home costs for which you are not reimbursed You may be only partially reimbursed for nursing home costs under your health insurance or LTC insurance contract. However, any expenses you have for which you are not reimbursed may qualify as medical deductions for income tax purposes. For more information see Medical and Dental Expenses.
Questions & Answers Can your son or daughter be asked to guarantee payment to a nursing home if you don't qualify for Medicaid? No. In fact, under federal law it's illegal for a nursing home to ask a child to personally guarantee payment for your care. However, the nursing home may require you to prove you have the money to pay for your care by asking you to provide bank statements or by asking you to put down a deposit.
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Healthcare in Retirement What health care benefits are available in retirement? Health care in retirement is available from many sources. Government programs (such as Medicaid and Medicare) offer numerous health care benefits. However, you may need to purchase supplemental health insurance or Medigap, as well. Most Americans are eligible to begin receiving Medicare benefits at age 65, but qualifying for Medicaid may require some planning on your part. In addition to these resources, you may also be entitled to military health care benefits if you are a veteran, retired servicemember, or the spouse or widow of a veteran or retired servicemember. Continuing care retirement communities and nursing homes also offer health care services for older individuals. Depending on your specific needs and circumstances, you may use any number of these resources during your retirement years.
Medicare In general Medicare is a federal health insurance program created in 1965. Medicare primarily assists those who are 65 or older, but if you are disabled or have kidney disease, you may be eligible for Medicare coverage no matter what your age. Medicare currently consists of Part A (hospital insurance), Part B (medical insurance), Part C (which allows private insurance companies to offer Medicare benefits), and Part D (which covers the costs of prescription drugs), with each part having its own eligibility requirements. You may qualify for one or more parts, or you may choose to accept or decline coverage if you are eligible. Many health policies limit coverage for Medicare-eligible individuals regardless of whether they have accepted Medicare coverage. Medicare benefits for disabled individuals Under certain conditions, the disabled are eligible to enroll in Medicare before age 65. If you have been receiving (or have been entitled to receive) Social Security disability benefits for at least 24 months (not necessarily consecutively), you may be eligible to enroll in Medicare. To enroll, you must be entitled to benefits in one of the following categories: • A disabled individual of any age receiving worker's disability benefits • A disabled widow or widower age 50 or older • A disabled beneficiary who is older than age 18 and receives benefits based on a disability that occurred before age 22 In addition, Medicare may be available at any age if you are disabled as a result of chronic kidney failure requiring dialysis or a kidney transplant. For more information, see Medicare Benefits for Disabled Individuals. Qualified Medicare Beneficiary program If you have limited means, you may be eligible for the Qualified Medicare Beneficiary (QMB) program. Here, your state's Medicaid program may pay for your Medicare Part B premium, Part A and Part B deductibles, and coinsurance requirements. Eligibility rules may vary from state to state, but in general, you must meet the following three criteria: • You must be entitled to Medicare Part A • Your income must be at or below the national poverty level • The value of your assets must be below a certain level
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There are also other related programs that have somewhat less restrictive eligibility requirements. For more information, see Qualified Medicare Beneficiary Program.
Medigap In general Medigap is supplemental insurance specifically designed to cover some of the gaps in Medicare coverage. Although the name might lead you to believe otherwise, Medigap is provided by private health insurance companies, not the government. However, Medigap is strictly regulated by the federal government. Every Medigap policy offers certain basic core benefits, and various additional benefits may be included as well. The basic benefits and the optional benefits can only be combined in certain ways, creating 12 standard Medigap policy types. Basic Medigap will cover most of your Medicare co-payments, while optional benefits may cover your Medicare deductibles, prescription drugs, skilled nursing facility care, preventative care, and charges that result when a provider bills more than the Medicare-approved amount for a service. Caution: No new Medigap policies with drug coverage (plans H, I, and J) are currently being sold, although two new types of Medigap benefits packages are available (plans K and L).
Medicaid In general Medicaid provides medical assistance to aged, disabled, or blind individuals, or to needy, dependent children who could not otherwise afford the necessary medical care. Medicaid pays for a number of medical costs, including hospital bills, physician services, home health care, and long-term nursing home care. Each state administers its own Medicaid programs based on broad federal guidelines and regulations. Within these guidelines, each state performs the following: (1) determines its own eligibility requirements; (2) prescribes the amount, duration, and types of services; (3) chooses the rate of reimbursement for services; and (4) oversees its own program. Applying for benefits To apply for Medicaid, you must use a written application on a form prescribed by your state and signed under penalties of perjury. Give the application to your state Medicaid office. Typically, you will need to provide proof of age, marital status, residence, and citizenship, along with your Social Security number, verification of receipt of government benefits, and verification of your income and assets. A responsible individual can complete the application on behalf of an incompetent or incapacitated individual. For more information, see Applying for Benefits. Eligibility To qualify for Medicaid, you must meet two basic eligibility requirements. First, you must be considered categorically needy because of blindness, disability, old age, or by virtue of being the parent of a minor child. Next, you must be financially needy, which is determined by income and asset limitation tests. States have much discretion in determining which groups their Medicaid programs will cover, but as participants in Medicaid, they must provide coverage for all residents who are considered categorically needy. Caution: State and federal rules regarding Medicaid eligibility change frequently. For further information, see Eligibility for Medicaid. Transfer of assets Because Medicaid eligibility is based on your income and other resources, state Medicaid authorities are interested in knowing whether you have tried to transfer assets out of your name in order to qualify for Medicaid. When you apply for Medicaid, the state has the right to examine your finances and those of your spouse as far
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back as 60 months before the date you applied for Medicaid. Only certain transfers are prohibited. Fair market transactions will typically be considered legitimate, but if you transfer assets for less than fair market value around the time you apply for Medicaid, the state will presume that the transfer was made solely to help you qualify for Medicaid. For further information, see Transfer of Assets. Planning goals and strategies As mentioned earlier, the state has the right to look into your financial transactions to determine whether you have transferred assets solely to qualify for Medicaid. However, the state may count only the income and assets that are legally available to you for paying your bills. Consequently, several methods have been developed to help you shelter your assets from the state and facilitate Medicaid qualification. Proper planning can help you to qualify for Medicaid, shelter "countable" assets, preserve assets (including the family home) for loved ones, and protect the healthy spouse (if any). For more information, see Planning Goals and Strategies. Medicaid qualifying trusts To qualify for Medicaid, both your income and the value of your other assets must fall below certain limits (which vary from state to state). A trust helps you to qualify for Medicaid because it can shelter your income and assets, making them unavailable to you. The state Medicaid authorities cannot consider assets that are truly inaccessible to the Medicaid applicant. Therefore, anything that stays in an irrevocable trust will lie outside of your financial picture for Medicaid eligibility purposes. If you are looking for a strategy to shelter your resources, one of the following may be appropriate: (1) an irrevocable income-only trust, (2) an irrevocable trust in which the creator of the trust is not a beneficiary, (3) a Miller trust, or (4) a special needs trust. For further information, see Medicaid Qualifying Trusts. Protection of principal residence In certain cases, the state may be entitled to seek reimbursement for Medicaid payments by forcing the sale of your principal residence if you are a Medicaid recipient. Medicaid planning tools have been devised to protect your home, but their effectiveness varies. Therefore, it is important to weigh the costs and benefits of each device carefully. If you are looking for a strategy to preserve your home for loved ones, one of the following four methods may be appropriate: (1) an outright transfer or gift of the home, (2) a transfer subject to life estate, (3) a transfer subject to special power of appointment, or (4) a transfer in trust. For more information, see Protection of Principal Residence. Medicaid and long-term care insurance Long-term care (LTC) insurance can be useful as part of your Medicaid planning strategy. Your LTC policy can subsidize your nursing home bills during the Medicaid ineligibility period caused by your transfer of assets to third parties. Thus, it may be possible for you to give your assets away to loved ones, have the security of paid nursing home bills during the ineligibility period, and qualify for Medicaid when the LTC policy runs out. For further information, see Medicaid and Long-Term Care Insurance. Medicaid liens and estate recoveries Federal law requires states to seek reimbursement from Medicaid recipients for Medicaid payments made on their behalf. Cost-recovery actions against the assets of Medicaid recipients may come in two forms: (1) real or personal property liens and (2) recovery from decedents' estates. A Medicaid lien makes it impossible for you to sell or refinance your house without the state's knowledge and ability to collect what it is owed. As for recovery from decedents' estates, states also can seek reimbursement from your probate estate after you die. States have the option to expand the definition of estate to include all nonprobate assets as well. For more information, see Medicaid Liens and Estate Recoveries.
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Divorce and Medicaid From a purely financial perspective, divorce can be a practical move and may actually be used as a Medicaid planning tool. When a spouse enters a nursing home and applies for Medicaid, the couple's assets must be pooled together and totaled to determine what portion the healthy spouse may keep. After this Spousal Resource Allowance has been determined, the Medicaid applicant must transfer assets representing the amount of the allowance to the healthy spouse. The remaining assets must be spent on the institutionalized partner's medical care. A divorce court order can supersede the normal Spousal Resource Allowance rules prescribed under state Medicaid regulations. You should consult your legal advisor for further information. For more information, see Divorce and Medicaid.
Military benefits Disability benefits, health-care benefits, and long-term care benefits are available through various military programs sponsored by the Department of Defense and the Department of Veterans Affairs (VA), formerly known as the Veterans Administration. Health care for veterans is typically available at VA hospitals and health-care facilities. In general, active service members, retirees, and veterans other than those who were dishonorably discharged are eligible for military benefits. Survivors of servicemembers and veterans are also generally eligible for some of the same benefits. However, the rules surrounding these benefits can be complex and may change frequently. It is best to check with your military personnel office or local VA office if you have questions about any of these benefits. For further information on military health care benefits and eligibility requirements, see Military Benefits.
Choosing a continuing care retirement community Continuing care retirement communities (CCRCs) are retirement facilities that offer housing, meals, activities, and health care to their residents. These communities appeal to people who are currently in good health but who worry that they may need nursing care later on. The CCRC and the resident sign a contract guaranteeing that the CCRC will provide housing and nursing home care throughout the resident's life and that, in return, the resident pays an entrance fee and a monthly fee. In choosing a CCRC, you should consider factors such as the entrance fee and monthly fees, insurance requirements, the financial stability of the CCRC, its facilities and activities, and the quality of medical care provided to residents. For more information, see Choosing a Continuing Care Retirement Community.
Choosing a nursing home A nursing home is a licensed facility that provides skilled nursing care, intermediate care, and custodial care. Although you may prefer in-home care, you may have to enter a nursing home if you need round-the-clock care, especially if you can't get help from family or an in-home caregiver. When choosing a nursing home, you should consider factors such as the cost of the home, the quality of medical care provided, the appearance and the safety of the facilities, the ratio of staff to residents, and recreational opportunities. For further information, see Choosing a Nursing Home. Paying for nursing home care Nursing home care can be extremely expensive, and paying for this care is a problem that weighs heavily on the minds of older Americans and their families. There are several resources you can use in planning for this expense, including self-insurance, long-term care insurance, Medicare (limited benefits), Medicaid, and military benefits. For more information, see Paying for Nursing Home Care.
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Medicare What is Medicare? Medicare is a federal health insurance program created in 1965 to help pay medical costs incurred by people over the age of 65, people with certain disabilities, and people with end-stage renal disease. Under the original Medicare plan (sometimes called fee-for-service), coverage consisted of two parts: Part A (hospital insurance) and Part B (medical insurance). The 1997 Balanced Budget Act created Part C (originally called Medicare + Choice). Part C allowed private companies to offer Medicare benefits as well as benefits not offered by Medicare. In 2003, the Medicare Prescription Drug, Improvement, and Modernization Act, the first major revision of the Medicare program since its creation was signed into law, preserving and strengthening the original plan, and offering important new prescription drug and preventative benefits, as well as extra help to people with low incomes. Medicare Part A (hospital insurance) Generally called hospital insurance, Part A covers services associated with inpatient hospital care (i.e., the costs associated with an overnight stay in a hospital, skilled nursing facility, or psychiatric hospital, such as charges for the meals, hospital room, and nursing services). Part A also covers hospice care and home health care. Medicare Part B (medical insurance) Generally called medical insurance, Part B covers other medical care. Physician care--whether it was received while you were an inpatient at a hospital, at a doctor's office, or as an outpatient at a hospital or other health-care facility--is covered under Part B. In addition, ambulance service, laboratory tests, and physical therapy or rehabilitation services are covered. Example(s): Mom goes into the hospital for four days for treatment of her broken hip. Medicare Part B covers the cost of taking an ambulance to the hospital. Medicare Part A covers her room, meals, nursing care, emergency room charges, charges for the use of a wheelchair, physical therapy, and the cost of medications administered while she is in the hospital. Medicare Part B pays for her physician bills, including those incurred while in the hospital and those for her physical therapy after she leaves the hospital. Medicare Part C The 1997 Balanced Budget Act expanded the kinds of private health care plans that may offer Medicare benefits to include managed care plans, medical savings accounts, and private fee-for-service plans. These Medicare Part C programs are in addition to the fee-for-service options under Medicare Parts A and B. Medicare Part D Medicare Part D covers the costs of prescription drugs.
Who administers the Medicare program? The Centers for Medicare and Medicaid Services (CMS), a division of the U.S. Department of Health and Human Services, has overall responsibility for administering the Medicare program. While the Social Security Administration processes Medicare applications and claims, the CMS sets standards and policies. However, as a beneficiary, you deal mostly with the private insurance companies that actually handle the claims on the local level for individuals receiving Medicare coverage. Insurance companies handling Part A claims are called fiscal intermediaries, and insurance companies handling Part B claims are called Medicare carriers. Managed care plans handle Part C claims. Although the same private insurance company may handle both Part
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A and Part B claims, Part A and Part B are very different in administration, such as the requirement of separate deductibles and distinct co-payment requirements. There is virtually no overlap; it is as if you have two separate health insurance policies. Tip: Because the majority of Medicare beneficiaries also receive Social Security benefits, local Social Security offices also provide information about and assistance with Medicare. You can also access information by visiting www.ssa.gov (Social Security Administration site) and at www.medicare.gov, or by calling (800) Medicare.
Who is eligible for coverage under Medicare? Eligibility for Part A You may be eligible for Medicare Part A if: • You are age 65 or older and you are eligible for Social Security benefits • You are a qualified Railroad Retirement beneficiary • You are a dependent or a survivor of an individual age 65 or over who is entitled to Medicare Part A benefits or a dependent of an individual under age 65 who is entitled to Social Security retirement benefits OR • You are under age 65 and disabled, and • You have permanent kidney failure, requiring dialysis or a transplant • You have been receiving Social Security benefits for at least 24 months because you meet the Social Security Administration's definition of permanent and total disability (i.e., you are unable to hold gainful employment in any job), or • Under special circumstances, you are entitled to Railroad Retirement benefits because of disability Tip: Individuals who do not meet the eligibility requirements for premium-free hospital insurance can voluntarily enroll in Medicare Part A and pay a monthly premium. If you enroll in premium Medicare Part A, you must also enroll in Medicare Part B. . Eligibility for Part B You may be eligible for Medicare Part B if: • You are entitled to Part A hospital insurance (by entitlement to Social Security or Railroad Retirement Act retirement or disability benefits, Medicare-qualified government employment, or end-stage renal disease benefits) and you are a citizen of the United States, or • You are 65 or older, a U.S. resident, and either a U.S. citizen or an alien legally admitted for permanent residence who has continuously resided in the United States for at least five years prior to your enrollment month Special eligibility requirements for federal, state, and local government employees Federal employees who were originally exempt from Medicare because they were not covered under Social Security may qualify for Medicare. To compensate for their not having been eligible to accrue Social Security
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credits throughout their career, they may qualify for benefits with less than 40 credits or may be able to get their work credited for purposes of becoming Medicare eligible. Almost all federal employees hired after 1983 are covered under Medicare. State and local government employees who were originally exempt from Medicare may qualify depending on their state's agreement with Medicare. State and local employees hired after March 31, 1986, are covered under Medicare provisions. Caution: Unlike the state health insurance program, called Medicaid, eligibility for Medicare is not contingent on income. Medicaid is available to indigent individuals. You may be eligible for coverage under both Medicare and Medicaid.
How do you sign up for Medicare? Enrollment is usually automatic Any individual who receives Social Security benefits before age 65 or who applies for Social Security benefits at age 65 will be automatically enrolled in Medicare. However, if you retire after age 65, remember to enroll in Medicare at age 65 anyway, because your enrollment won't be automatic. Individuals who will be automatically enrolled in Medicare will receive notification by mail from the Social Security Administration, usually three months before your 65th birthday. If you need to enroll or want more information about it, call your local Social Security office. If you need assistance finding the local office number, you can call the Social Security Administration at (800) 772-1213. You may not even have to go into the local office; you may be able to enroll over the phone. The Social Security representative will fill out the application for you. Tip: You can decline to enroll in Medicare Part B. If you have been automatically enrolled in Part B, you will be notified that you have a certain amount of time to decline coverage. If you decline Part B coverage, will you have another chance to enroll later? In your 65th year, you have seven months to enroll in Part B during the initial enrollment period, commencing at three months before your 65th birthday and lasting until 4 months after. If you decline Part B coverage that year, you can also enroll in later years during the annual general enrollment period from January 1 through March 31 each year. Coverage will begin in July of the year you enroll. However, the cost of the Part B monthly premium increases 10 percent for each 12-month period that you did not enroll although you were eligible, unless you did not enroll because you were still covered under an employer insurance plan. In that case, you need to enroll within eight months after termination of your coverage under your employer's plan (the special enrollment period).
How much does it cost to enroll in Medicare? You do not pay a premium for enrolling in Medicare Part A. However, you will pay a premium for Part B. If you do not want to pay the Part B premium, you may decline to receive Part B coverage. You must be enrolled in Parts A and B to get Medicare through a managed care plan, and if you choose a managed care plan under Part C, you may also have a monthly charge from the plan. Medicare coverage costs the same for any eligible individual, regardless of his or her medical condition. The various costs associated with Medicare, including the deductibles and Part B monthly premium, are usually adjusted annually, using factors such as the Consumer Price Index. Cost of Medicare Part A coverage There is no premium for eligible individuals. If you are 65, but not eligible for Medicare coverage, you may still be able to purchase it. In 2010, the monthly premium is $461 (up from $443 in 2009) for an individual with 29 or fewer Social Security credits, or for a disabled individual under age 65. The premium is $254 (up from $244 in 2009) for individuals with 30 through 39 credits. You must buy Parts A and B together, so you will also have to pay the Part B monthly premium, which for most beneficiaries is $96.40 in 2010 (certain beneficiaries will pay more). You cannot buy Part A coverage alone.
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If you are admitted to a hospital as an inpatient, you will be required to pay a deductible, plus coinsurance costs after 60 days as an inpatient. In 2010, the deductible is $1,100 (up from $1,068 in 2009). Coinsurance costs are $275 (up from $267 in 2009) a day for days 61 through 90, per benefit period, and $550 (up from $534 in 2009) a day for each lifetime reserve day used. Example(s): Uncle Pat is admitted to the hospital in January of 2010. He is required to pay a deductible of $1,100. Medicare will pay the balance of his costs for 60 days. Should he still be in the hospital after 60 days, he will then be required to pay $275/day. Medicare will pay the balance. After 90 days, his coinsurance obligation is $550/day, because he will need to use his lifetime reserve days. Medicare will pay nothing after 150 days. Cost of Medicare Part B coverage For 2010, the standard monthly premium is $96.40 (certain beneficiaries will pay more). There is an annual deductible of $155 ($135 in 2009), and you are also required to pay a portion of your costs, usually 20 percent of the bill. Example(s): In 2010, Dr. Brown treated Uncle Pat while he was in the hospital. Dr. Brown's bill is covered under Part B, even though he treated Uncle Pat while in the hospital. Unless Uncle Pat already paid his deductible (because he already incurred $155 worth of Part B claims), he will also have to pay the deductible for his Part B coverage. This deductible is in addition to the $1,100 deductible under Part A. Uncle Pat will also have to pay 20 percent of Dr. Brown's bill. Cost of Medicare Part C coverage The managed care plan may charge a monthly fee, along with associated costs.
How are Medicare payments determined? The general rule is that Medicare pays for those costs it determines are reasonable and necessary for diagnosing or treating your illness or injury. What are reasonable and necessary costs? As a cost-control measure, Congress enacted complicated procedures for predetermining the dollar amounts Medicare will pay for the specific health care provided. Part A costs are determined by calculating the average cost to diagnose and/or treat the principal diagnosis. Diagnoses are categorized into diagnosis-related groups, called DRGs. Part B costs are determined by calculating the cost of each variable in treating your illness or injury, such as the degree of expertise needed by the physician and the specific procedures used. Medicare will pay managed care plans directly under Part C. Costs may be adjusted for factors such as regional variations and the type of health-care facility providing the treatment. Example(s): To illustrate how Medicare works, let us say that Medicare has predetermined that the cost of treating a kidney stone in a hospital under Part A is $4,000. The hospital may choose various combinations of services to treat the kidney stone, including various lengths of stay in the hospital, but it will be limited to Medicare reimbursement of $4,000. Part B coverage will depend on factors such as the specialty of the physician, the procedures used, and the average cost of treating a kidney stone in an area. Example(s): So, when Dad (who is vacationing out of state) develops a kidney stone, he is admitted to the local hospital and is treated by an internist. However, had Dad been at home, he may have had access to a lithotripter, an expensive machine that breaks up kidney stones. In this case, he would have been treated by an internist and a radiologist but on an outpatient basis. So, what Medicare paid for treating Dad for a kidney stone in one state might be different than what it would have paid for treating Dad for a kidney stone in a different state, because his course of treatment would be different.
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Limits on charges under Medicare If the health-care provider (whether it is a hospital, a physician, or other kind of provider) accepts Medicare assignments, the provider has agreed to accept the amount Medicare will pay as payment in full. Your Medicare carrier can give you the list of providers that accept Medicare assignments. It is illegal for a provider accepting Medicare assignment to charge you more than these amounts. Providers annually have the opportunity to sign a contract with Medicare that they will accept assignments or can also choose to accept Medicare assignment on an ad hoc basis. In addition, even without assignment, a provider generally cannot charge more than 15 percent above the Medicare approved amount, except in three situations: • You have agreed that neither you nor the provider will submit a claim to Medicare and you plan to pay out-of-pocket • You are participating in Medicare's medical savings account plan and are using funds from your assets to pay for the services in question • Medicare approves a higher amount because of extenuating circumstances in your case, as documented by your provider The 15 percent limit only applies to certain services, not supplies or equipment. If you are concerned that you are being billed in violation of Medicare regulations (e.g., that Medicare is being billed for services you did not receive or that a provider is performing unnecessary procedures), you can report it by calling the U.S. Department of Health and Human Services's toll-free fraud and abuse hotline at (800) HHS TIPS ((800) 447-8477). How do you cover medical expenses over and above what Medicare pays? Many individuals purchase supplemental insurance known as Medigap to augment Medicare coverage. You should also understand the claims process and your rights if you disagree with the claims determination.
How Medicare claims are paid The claims process The health-care provider submits your claim to Medicare. If the provider accepts Medicare assignment, you will pay nothing. If the provider does not, not only may you have to pay more than what Medicare will cover, you may have to pay the provider up front and wait for Medicare reimbursement. After receiving your claim, Medicare will send you a notice that may include an amount for actual charges, approved charges, and excess charges. The actual charge is the amount the provider is seeking. The approved charge is the amount Medicare will pay, based on complicated formulas such as determining the cost of each component of a service and factoring in variables such as regional variations and physician specialties. You may be responsible for the amount that the actual charge exceeds the approved charge, called the excess charge. However, except as described above, that amount cannot be more than 15 percent greater than the Medicare approved amount. The provider can appeal to Medicare for additional reimbursement if the cost in diagnosing or treating your condition entails exceptional costs or an exceptionally long hospital stay. The approved amounts for Medicare coverage are typically based on average costs and therefore do not factor in any of the several variables that could affect the cost of your care. Caution: Medicare regulations specifying what services it will cover almost always begin with a general rule, followed by a myriad of exceptions. If you are denied coverage, it is always wise to look into whether or not you can meet one of the exceptions.
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Tip: As a Medicare beneficiary, you have a right to receive the care that is necessary for the diagnosis and treatment of your illness or injury. A hospital may not discharge you merely because Medicare payment has run out. Claims review and hearing procedures If you disagree with a determination from Medicare that it will not pay a charge and the amount in dispute is $100 or more for a Part A claim or $500 or more for a Part B claim, you can request a hearing before an administrative law judge. There are similar, but separate, procedures for resolving claims under Part C, described in the section on Part C. If the hospital believes that Medicare will not pay for the care, however, it may attempt to discharge you, in which case you should seek a formal determination as to whether or not Medicare will pay for the coverage by contacting your local Peer Review Organization. Peer Review Organizations (PROs) are local groups of physicians paid by the federal government to review the medical necessity, appropriateness, and quality of care provided for Medicare patients in a hospital. You have the right to request a review by a PRO of any written notice from Medicare that it will not pay for some or all of your hospital bill. Similarly, you can appeal denials of coverage under Part B to the Medicare carrier. If you disagree with the decision of the PRO or the Medicare carrier, you can ask the PRO or carrier to reconsider its decision. The request for a reconsideration must be made within 60 days of the adverse decision. If you are seeking admission to a hospital or to stay in a hospital, you may request expedited reconsideration, and the PRO is required to deliberate the reconsideration within three days. Otherwise, the PRO has 30 days. You can appeal a PRO reconsideration if the amount in dispute is $100 or more by requesting a hearing before an administrative law judge. Again, you must make your request within 60 days of the adverse decision. If you are still faced with an adverse decision, you may appeal to the Social Security Appeals Council. Finally, if the disputed amount is $1,000 or more, for Part A or B, you can appeal in federal court. You must appeal the decision following these levels of appeals. The principle is called exhaustion of your administrative remedies. Example(s): Medicare provides you a written notice that it will not pay for the fifth day of inpatient care for your operation. You appeal the decision to the PRO, which decides that the fifth day was not reasonable and necessary. You may appeal this decision or decide to submit your claim to your Medicare supplemental insurance company. Example(s): Your local PRO determined that the physical therapy you received could have been provided in an outpatient facility and your inpatient stay was not medically necessary. Medicare will not pay for the inpatient stay. You may request that the PRO reconsider its decision. If, on reconsideration, the PRO upholds its decision, you may request a hearing before an administrative law judge. Your last resort would be in federal court.
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Medigap What is Medigap? Because Medicare coverage has limitations, many people purchase supplemental insurance policies that are specifically designed to cover some of the gaps. This supplemental insurance is provided by private health insurance companies, not the government, although it is typically called Medigap. In general, you will not need a Medigap policy if your Medicare coverage is through a managed care plan or if you are qualified for Medicaid because of a low income. Specific income requirements for Medicaid eligibility are determined by individual states. In either case, your managed care plan or Medicaid generally fills the gaps in Medicare coverage.
What services are covered? The federal government regulation of Medigap insurance generally requires that only 12 kinds of plans (Plans A through L) can be offered as Medigap plans, and that all 12 cover these services: • Part A coinsurance and for the cost of 365 extra days of hospital care after Medicare coverage ends • Part B coinsurance (usually 20 percent of the Medicare approved payment amount) • The first three pints of blood A Plan A Medigap policy will cover only the above expenses. Plans B through L offer Plan A benefits plus some combination of these additional benefits: • Coverage of your Part A deductible ($1,100 for each inpatient hospital stay in 2010) • Coverage of your Part B deductible ($155 in 2010) • The daily co-payment requirement for the 21st to 100th day of skilled nursing facility care ($137.50 per day in 2010) • Eighty percent of medically necessary emergency care during the first two months of each trip outside the US, after you pay a $250 deductible • All or part of Medicare Part B excess charges • Coverage for at-home recovery, including assistance with daily living tasks, up to $1,600 per year • Preventive medical care, up to $120 per year • Coinsurance for respite care and other Medicare Part A-covered services • Annual out-of-pocket maximum; pays 100 percent of Medicare Part A and Medicare Part B coinsurance, co-payments, and deductibles after out-of-pocket maximum ($4,620 for Part K or $2,310 for Part L) has been reached
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Medigap Plans A through L - Benefits Offered Plan
A B C D E F G
H I
Basic Plan
X X X X X X X
X X X Partial
Partial
X X X X X
X X X 50%
75%
X X X X X X
X X X 50%
75%
Skilled Nursing Co-pay Part A Deductible Part B Deductible
X
X
Emergency Care on Travel At-Home Recovery Preventive Care
X X X X X X
X X
K
L
X
X 80%
Part B Excess Charges
J
X X X X X X X X X
X
Hospice Care
50%
75%
Out-of-Pocket Maximum
$4,620 $2,310
All 12 plans may not be offered in your state, yet all 12 are standardized and certified by the U.S. Department of Health and Human Services so that each plan provides exactly the same kind of coverage no matter what state you live in (except for Massachusetts, Minnesota, and Wisconsin, which have their own standardized plans).
What consumer safeguards are available? The federal government has mandated that several consumer safeguards be required in all Medigap plans: • There must be what is called a "free-look" provision, permitting you to get a full refund of any money you paid if you decide to cancel the policy within a certain time period, usually 30 days. The specific time period may actually be longer in your state. • The policy must be guaranteed renewable, absent your not paying premiums or making false statements on your application. • If you purchase Medigap insurance within six months of enrolling in Part B, you cannot be denied coverage, regardless of any illnesses or medical conditions you may have, although you may have to wait up to a maximum of six months to get coverage of a pre-existing condition. Pre-existing conditions are any illnesses you had before signing on to an insurance plan. Moreover, if you switch from one Medigap policy to another, the new policy cannot restrict or deny payment for pre-existing conditions that were covered in your original policy, as long as you had the original policy for at least six months. This restriction may be eased even further in the future. • An insurance company cannot sell you a policy that substantially duplicates any existing coverage you have, including Medicare, or sell you more than one Medigap policy. • An insurance company cannot claim a policy is a Medigap policy if it duplicates Medicare coverage. • If an insurance company offers a plan that looks like a Medigap policy but does not conform to one of the 12 standardized plans, there must be a clear disclaimer that it is not a Medigap policy. In addition, most regulation of insurance is actually done on the state level, and there may be additional consumer safeguards in your state.
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What is Medicare SELECT? Medicare SELECT is offered in some states as a managed care Medigap plan that provides full coverage only if you use the plan's network of health care providers. These policies have lower premiums than the Medigap plans that do not restrict your choice of provider.
Can you use your employer plan as your Medigap? Many baby boomers who delayed financial commitments such as buying a house or having children may find themselves needing to continue working after age 65. In that case, you may choose to keep your employer-provided health insurance as well as sign up for Medicare. Companies with 20 or more employees must offer employees over 65 the same health insurance choices they do to their other employees. Your employer-sponsored insurance will be your primary payer so your claims need to be submitted to them first. Medicare will be the secondary payer, paying costs not covered by your employer plan. If you submit your claim to Medicare first, it will be rejected. When Medicare is the secondary payer, it requires documentation that your primary payer will not pay. Medicare coverage will be subject to the same rules of coverage as if you did not have an employer plan. In other words, the amount it will pay will still be the Medicare-approved amounts, and it will only pay for the kinds of service covered by Medicare. Example(s): Laura is 70 and still working. She continues to receive the same coverage under her employer's health insurance plan that she always has, and she is also covered under Medicare. She recently needed some home health care service following surgery and knew that her employer's plan would not cover it, so she submitted it to Medicare. Medicare rejected the claim, however, because she did not provide any documentation that her primary payer would not pay. When she submitted the claim to her employer's plan and got a notice that it would not pay, she resubmitted her claim to Medicare along with the notice from her employer's plan, and Medicare paid. Since Part A coverage is free, you surely should sign up for it, and you may have to pay a penalty if you do not sign up when you become eligible at 65. However, you may not want to sign up for Part B, which carries a monthly premium, because you are receiving sufficient coverage from your employer's plan. As long as you remain on the employer's plan, you will not be penalized the annual 10 percent increases in Part B premiums for those who delay signing up after becoming Medicare eligible. There is another good reason not to enroll in Part B while receiving insurance from your employer: Medigap's six-month open enrollment period begins with your enrolling in Part B. It is only during this open enrollment period when you cannot be denied coverage under a Medigap policy or charged a higher premium. Example(s): Bob will continue working until his last child finishes college, when he will be 67. Bob's employer has always provided him health insurance and continues to even after he becomes eligible for Medicare at age 65. When he does reach age 65, Bob enrolls in Medicare Part A, which costs him nothing. He decides not to enroll in Part B because it would provide little or no additional coverage to him above the coverage provided by his employer, and he would have to pay the Part B monthly premium. He also has to consider whether to purchase a Medigap policy--he has emphysema and is concerned that if he wants a Medigap policy, he needs to enroll in the open enrollment period. At that time, he is sure that he will not be denied coverage because of his emphysema. If you decline coverage under your employer's health insurance, the employer cannot instead give you a Medigap policy. It can only give you a policy that covers services Medicare does not cover at all.
Can you use your retirement health plan as your Medigap insurance? If you will receive an employer-sponsored health plan when you retire, your employer plan will be your primary payer, and Medicare will be your secondary payer. An employer-provided plan for retirees may be converted into
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a Medigap policy; in fact, some insurance policies automatically change coverage when you reach age 65 because they assume you will sign up for Medicare. If you are not eligible for an employer-provided retiree health insurance plan, you have eight months from your termination of employment to transfer from an employer plan to Medicare. You do not have to wait until the general open enrollment period of the first three months of a calendar year.
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Medicaid What is Medicaid? Medicaid was created in 1965 as a joint federal-state program providing medical assistance to aged, disabled, or blind individuals (or to needy, dependent children) who could not otherwise afford necessary medical care. Medicaid pays for a number of medical costs, including hospital bills, physician services, home health care, and long-term nursing home care. The long-term care aspect of Medicaid is of particular note to financial planners and will be discussed in detail. Each state administers its own Medicaid programs based on broad federal guidelines and regulations. Within these guidelines, each state: (1) determines its own eligibility requirements, (2) prescribes the amount, duration, and types of services, (3) chooses the rate of reimbursement for services, and (4) oversees its own program. To qualify for Medicaid, individuals must meet two basic eligibility requirements. First, the individual must be considered categorically needy because of blindness, disability, old age, or by virtue of being the parent of a minor child. Next, the individual must be financially needy, which is determined by income and asset limitation tests. • States have a great deal of discretion in determining which groups their Medicaid programs will cover. However, states participating in Medicaid must provide coverage for all persons who are considered categorically needy. Essentially, this term is defined as people who receive benefits under Supplemental Security Income (SSI) for the aged, blind, and disabled. It also includes individuals in low-income families with dependent children. • In order to enable more people to qualify for Medicaid, federal law gives states the discretion to offer Medicaid benefits to other groups as well. For example, states may provide coverage under a medically needy program, which extends eligibility to those individuals with incomes exceeding the applicable SSI limits, but who still can't afford certain medical care, such as the cost of monthly nursing home bills.
What types of benefits are available? The scope of available Medicaid services depends on whether you are considered categorically needy or medically needy. • Federal law and regulations specify a list of basic services that must be included in any state Medicaid plan for the categorically needy. Those services include: CATEGORICALLY NEEDY 1. Inpatient hospital services 2. Outpatient hospital services and rural health clinic services 3. Physician services and surgical services furnished by dentists 4. Laboratory and X-ray services 5. Skilled nursing care for individuals age 21 and over 6. Family planning services 7. Nurse-midwife services 8. Services furnished by a certified nurse-practitioner
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• With respect to the medically needy, federal law specifies a list of basic services (asterisked (*) below) and gives states the option of providing a number of additional services from among the following: MEDICALLY NEEDY 1. Prenatal care and delivery services for pregnant women * 2. Ambulatory services for children under age 18 and for persons entitled to institutional services * 3. Home health services for a person entitled to skilled nursing facility services * 4. Home health care services 5. Private duty nursing services 6. Personal care services 7. Clinic services 8. Community-supported living arrangement services 9. Physical therapy 10. Dental services 11. Home and community care for functionally disabled elderly 12. Prescription drugs, dentures, prosthetic devices, and glasses 13. Respiratory care services 14. Hospice care 15. Inpatient psychiatric facility services for persons under age 21 16. Case management services 17. Hospital, skilled nursing, and intermediate care for persons over age 65 18. Intermediate care facility services • In general, states may elect to provide a number of other services for which federal matching funds are available. Some of the most frequently covered optional services are: clinic services, medical transportation services, intermediate care facility services for the mentally retarded, prescribed drugs, optometrist services and eyeglasses, occupational therapy, prosthetic devices, and speech therapy.
How have the Medicaid rules been tightened in recent years regarding long-term nursing home care? An aging population and the increased cost of long-term care have made Medicaid planning an important topic for the elderly. In years past, attorneys and financial planners devised strategies for the middle class and people of means to qualify for Medicaid by transferring funds to family members and by establishing trusts. Consequently, Congress tightened the Medicaid rules regarding the transfer of assets. The Omnibus Reconciliation Act of 1993 and the Deficit Reduction Act of 2005 make qualifying for Medicaid more difficult for those people who transfer their assets away without receiving fair value in return. More specifically, transfers of assets for less than fair consideration, if given away within a certain time period, known as the look-back period, will create a waiting period before you can collect Medicaid benefits. For transfers made prior to February 8, 2006 (the date of enactment of the Deficit Reduction Act), there is a 60-month look-back period for transfers into an irrevocable trust, and a 36-month look-back period for all other transfers. For transfers made on or after February 8, 2006, the look-back period is 60 months for all transfers. Further, for transfers made prior to February 8, 2006, the waiting period begins on: (1) the day of the transfer, or (2) the first day of the month
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in which the assets were transferred, or (3) the first day of the month following the month in which the transfer was made. For transfers made on or after February 8, 2006, the waiting period begins on: (1) the first day of the month during or after which assets have been transferred, or (2) the date of first possible eligibility for Medicaid (but for the penalty period), whichever is later. Caution: In some states, the date the new rules become effective may be different than the federal enactment date of February 8, 2006. Ask an elder law attorney in your state for more information.
Are Medicaid planning opportunities still available? It is still possible to plan for Medicaid by using such tools as trusts, transfers of the family home, purchase of exempt assets, the purchase of long-term care insurance, and other methods. However, seniors and their families should take no action without consulting a knowledgeable elder law attorney.
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Long-Term Care Insurance (LTCI) What is long-term care insurance (LTCI)? Long-term care insurance (LTCI) is a contractual arrangement that pays a selected dollar amount per day for a selected period of time for skilled, intermediate, or custodial care in nursing homes and other settings (such as home health care). Because Medicare and other forms of health insurance do not pay for custodial care, many nursing home residents have only three alternatives for paying their nursing home bills: their own assets (cash, investments), Medicaid, and LTCI. For information about Medicare and other government programs that cover only a limited amount of long-term care expenses, see Coordination with Government Benefits. For details about Medicaid, see Long-term Care Insurance (LTCI) as a Medicaid Planning Tool. In general, long-term care refers to a broad range of medical and personal services designed to provide ongoing care for people with chronic disabilities who have lost the ability to function independently. The need for this care arises when physical or mental impairments prevent one from performing certain basic activities, such as feeding, bathing, dressing, transferring, and toileting--activities known as ADLs ("activities of daily living"). For more information about these activities, see Long-term Care Insurance (LTCI) Provisions. For details about places where you might receive long-term care, see Types of Long-term Care. For information about different kinds of LTCI policies and places where you might purchase them, see Types of Long-term Care Policies. Long-term care may be divided into three levels: • Skilled care--continuous "around-the-clock" care designed to treat a medical condition. This care is ordered by a physician and performed by skilled medical personnel, such as registered nurses or professional therapists. A treatment plan is created, and it is usually contemplated that the patient will recover at some point. • Intermediate care--intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse's aides under the supervision of a physician. • Custodial care--care designed to help one perform the activities of daily living (such as bathing, eating, and dressing). It can be provided by someone without professional medical skills, but is supervised by a physician.
How is it useful as a protection planning tool? The risk of contracting a chronic debilitating illness (and the resulting catastrophic medical bills incurred) is considered by many to be one type of risk best passed on to an insurance company through the purchase of a LTCI policy. A number of factors can increase your risk of requiring long-term care in the future. Naturally, your health status affects your likelihood of incurring a long stay in a nursing home. Indeed, people with chronic or degenerative medical conditions (such as rheumatoid arthritis, Alzheimer's disease, or Parkinson's disease) are more likely than the average person to require long-term nursing home care. And because women usually outlive the men in their lives, women stand a greater chance of requiring long-term nursing home care. However, if you already have a primary caregiver (like a spouse or child), your likelihood of needing a long stay in a nursing home will be less, particularly if you're a man. Because the cost of long-term care can be astronomical and may exhaust your life savings, purchasing LTCI should be considered as part of your overall asset protection strategy. Example(s): Sue is a 75-year-old widow with two children, John and Jill. Sue owns her condominium apartment and has $200,000 in liquid assets. After enjoying independence much of her life, Sue suffered a stroke and now needs help with such things as bathing, dressing, and eating. John and Jill look into home health care and discover that it will cost $1,500 per week (or $78,000 per year). The money that Sue had hoped to pass on to her children will instead be spent
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on expenses that may otherwise have been covered by an LTCI policy.
How much does it cost? Although purchasing LTCI seems to be the easy answer to the problem of escalating long-term care costs, the premiums for LTCI can be, depending on benefit levels selected, quite expensive. Your yearly premium for an LTCI policy depends on a number of considerations, including your age when you purchase the policy, your health, the length of the coverage period (for instance, three years, five years, or lifetime benefits), the amount of the daily benefit provided, and whether you purchase inflation protection. When buying an LTCI policy, you must also consider not only whether you can afford to pay the premiums now but also whether you'll be able to continue paying premiums in the future, when your income may be substantially decreased. For more information about the cost of LTCI and examples regarding how Medicare and Medigap may help defray some of the costs, see Coordination with Government Benefits.
Who should purchase LTCI? During the "golden years," when income typically declines, the purchase of LTCI should be carefully considered. People with significant discretionary income and substantial resources to protect for spouses, children, and other loved ones should seriously consider purchasing LTCI. Individuals with modest resources (e.g., less than $50,000 net worth) may find the premiums unaffordable, and may qualify for Medicaid by spending down their assets and/or engaging in a little Medicaid planning.
How much coverage is enough? Insurance protects against an event that might happen in the future. Therefore, buying enough protection is important, but affordability must also be considered. In terms of cost, you need to consider the amount of the daily benefit you want to purchase and also the length of the benefit period. • Daily benefit--Most policies will let you choose your amount of coverage, typically running anywhere from $40 to $150 or more per day. Of course, the greater the daily benefit and the longer the benefit period, the more the policy will cost. Also, note that the cost of nursing home care varies greatly from one metropolitan area to another, so you need to know where you'll be living out the remainder of your years. Certainly, it wouldn't make sense to purchase a policy with a daily benefit of $40 if the average daily cost of nursing homes in your area is $250 per day--unless, of course, you have substantial resources and plan to use some of your own income to pay for care. Consumers should generally buy enough coverage to cover 50 to 100 percent of nursing home costs. If you don't plan on using your own income to supplement, you should buy enough insurance to cover 100 percent of the nursing home costs. • Length of benefit period--When purchasing LTCI, you'll be asked to select a benefit period. Benefit periods generally range from one to six years, with some policies offering a lifetime benefit. You'll want to choose the longest benefit period you can afford. If you can't afford a lifetime benefit, consider choosing a benefit period that coordinates with the look-back period for Medicaid (five years). For more information about ineligibility periods, see Look-Back Period for Medicaid. Tip: The Deficit Reduction Act of 2005 gave all states the option of enacting long-term care partnership programs that combine private LTCI with Medicaid coverage. Partnership programs enable individuals to pay for long-term care and preserve some of their wealth. Although state programs vary, individuals who purchase partnership-approved LTCI policies, then exhaust policy benefits on long-term care services, will generally qualify for Medicaid without having to first spend down all or part of their assets (assuming they meet income and other eligibility requirements). Although partnership programs are currently available in just a few states, it's likely that many more states will offer them in the future.
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How do you compare policies and providers? Unfortunately, LTCI policies are not standardized. Provisions contained in policies vary greatly, and premiums charged vary as well. Therefore, you should compare policies to obtain the best amount and combination of benefits for your premium dollars. • To compare policies, you should obtain sample policies and "Outlines of Coverage" from each carrier you are considering. The Outline of Coverage summarizes the policy's benefits and highlights the policy's important features. You need to read the policies carefully, ensuring that you understand each provision. There are a number of factors you should be concerned about, such as inflation protection, a full range of care (including home health care), exclusions for pre-existing conditions, and the amount of the daily benefit provided. For a description of the types of provisions typically contained in an LTCI contract, see Long-term Care Insurance (LTCI) Provisions. • To compare providers, you should check out the financial strength of the companies by reviewing their A. M. Best Company's ratings along with the opinions of other rating services. You can also review the company's financial statements. For more information, see Comparing and Replacing Long-term Care Insurance (LTCI) Policies.
What are the tax ramifications? If you purchase a "qualified" LTCI policy, part (or all) of the premiums you pay pursuant to the contract may be deductible on your federal income tax return. LTCI polices issued after January 1, 1997, must meet certain federal standards to be considered qualified. However, LTCI policies issued prior to January 1, 1997, that met the long-term care insurance requirements of the state in which the contract was issued are automatically considered qualified. For more information, see Taxation and Long-term Care Insurance (LTCI).
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Types of Long-Term Care What is long-term care? In general, long-term care refers to a broad range of medical and personal services designed to assist individuals who have lost their ability to function independently. The need for this ongoing care arises when you have a chronic disability or when physical/mental impairments prevent you from performing certain basic activities, such as feeding, bathing, dressing, transferring, and toileting. For details about these activities of daily living, see Long-term Care Insurance (LTCI).
What are the three levels of long-term care? Because some long-term care insurance policies will subsidize only certain forms of long-term care, it is important to understand the accepted terminology. Long-term care may be divided into three levels: • Skilled care--continuous "around-the-clock" care designed to treat a medical condition. This care is ordered by a physician and performed by skilled medical personnel, such as registered nurses or professional therapists. A treatment plan is established. • Intermediate care--intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse's aides under the supervision of a physician. • Custodial care--care designed to assist one perform the activities of daily living (such as bathing, eating, and dressing). It can be provided by someone without professional medical skills but is supervised by a physician. Tip: Note that the above terms may be defined differently by Medicare. For more information, see Medicare.
Where is long-term care provided? Although long-term care can be provided in a number of places, long-term care insurance policies sometimes limit the facilities where you can choose to receive long-term care. Most long-term care is provided in the following venues: Nursing homes Although some homes for the aged provide custodial care primarily, many nursing homes can provide skilled care, intermediate care, and custodial care. When a patient no longer needs skilled care, for instance, he or she can be transferred to an intermediate or custodial section within the same facility. Nursing homes provide 24-hour care and can usually offer a great range of care, including intravenous therapy and physical therapy. For information about evaluating nursing homes, see Choosing a Nursing Home. For information about continuing care retirement communities (CCRCs) and similar housing options, see Housing Options for Older Individuals. Home health care Home health care makes particular sense when you're recovering from an injury or illness and don't need 24-hour care. It also makes sense when the type of care you require is custodial. Home health care is most often provided by a visiting nurse, a therapist, or a home health aide. Often, several visits to your home are made each week to provide you with the appropriate care. This care ranges widely and can include respiratory therapy, cleaning and bandaging of wounds, monitoring health, and assistance with bathing and dressing. For more information, see When You Need Help: In-Home Care Options for Older Individuals.
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Adult day care Adult day-care centers provide care in a group setting for aged or disabled people who live at home. Such people may need help with the basic activities of daily living or perhaps have a slight mental impairment. Often, these people live with a relative who works and cannot take care of them during the day. Adult day-care centers usually provide an elderly person with social interaction, therapeutic activities, preventive health services, and nutritional meals. Hospice care A hospice is a place that provides comfort and care for terminally ill patients. This type of care may be provided in a special facility or perhaps at home. Respite care Respite care provides some time off for the caregiver (usually a relative) who regularly provides care for an elderly or disabled person. It can be offered in a nursing home (by way of a temporary confinement of the elderly person) or at home through the services of a home health aide. For information about the cost of long-term care, see Long-term Care Insurance (LTCI).
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Evaluating Long-Term Care Insurance (LTCI) Policies Discussion What is evaluating, comparing, replacing, and conserving long-term care insurance (LTCI)? In some ways, comparing long-term care insurance (LTCI) policies from different insurance companies is like comparing apples with oranges. LTCI can be expensive, especially if you decide to purchase a policy particularly late in life. In addition, because LTCI policies are not standardized at present, provisions contained in different policies may vary greatly, and the premiums charged will vary as well. Therefore, it is important for you to evaluate and compare various LTCI policies to ensure that you purchase a policy that best fits your needs, financial and otherwise. To compare the cost of two policies accurately, you'll need to ensure that each policy provides the specific benefits that you require. While it's important for you to review the provisions of each policy, it's also essential to research the financial stability of the issuing insurance company and to decide whether you want to purchase a traditional policy or one of the new tax-qualified policies. And if you already own an LTCI policy, you might wish to consider switching plans or upgrading coverage. This might be appropriate, for instance, if you're in good health and have an old LTCI policy that was highly restrictive (e.g., it required you to have a prior hospital stay before benefits would kick in). Most of the newer policies are less restrictive and offer the added advantage of inflation protection. In terms of conserving your policy, you'll want to make sure that you pay your premiums in a timely fashion and follow all applicable requirements to ensure that your policy remains in effect.
How should you evaluate and compare long-term care insurance (LTCI) policies? Many factors are involved in selecting a suitable LTCI policy. The best policy for you depends on your family arrangement, your financial situation, your preferences regarding long-term care choices, and the level of risk you are willing to accept. There is no one best company or one best policy for everyone. You should select a policy that meets your needs. But before analyzing different policies, you should complete the following steps: • Obtain sample policies and outlines of coverage from each carrier you are considering. The outline of coverage summarizes the policy's benefits and highlights the important features. • Review the company's rating and financial strength (discussed later). • Determine the current cost of long-term care in the area in which you live (or the area in which you intend to move). You can do that by contacting nursing homes, home health care agencies, adult day cares, and state elder affairs offices. Next, you need to read the actual policies carefully, making sure you understand each provision. After you've made sure that each policy contains the provisions you desire, you'll want to compare prices. Finally, you might wish to consult with an agent, financial planner, or other professional to ensure that you've selected the policy that will best suit your needs. Cost of long-term care insurance (LTCI) In general, premiums for LTCI begin to accelerate each year around age 65. Rates increase dramatically for those buying coverage in their 70s and 80s. Nevertheless, it probably makes little sense to buy a policy before age 50. This is because you'll probably end up paying premiums for many years unnecessarily, considering that most people don't enter nursing homes in their 50s. Bear in mind that an inexpensive policy is not necessarily the best policy. Furthermore, it's difficult to compare premium costs between two plans, since the cost for care
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fluctuates between insurers, issue ages, and benefit levels. It's important, therefore, to review the provisions of each policy to make any price differential more meaningful. For instance, it may be that the policy with the higher premium allows you the flexibility to receive care in virtually any setting, whereas the policy with the lower premium limits care to a skilled nursing home. Comparing provisions You'll want to determine that certain necessary provisions are included in the policy while keeping in mind that the more features or benefits the policy has, the more expensive it will be. Questions that should be addressed when evaluating an LTCI policy include the following: • What long-term care services are covered? Does the policy cover skilled nursing, intermediate care, custodial care, home health care, and adult day care? • Is the policy renewable regardless of the insured's age or physical or mental condition? • How do you qualify for benefits? • When do benefits begin? Is there a waiting or elimination period? • How long will the policy pay benefits? • How much does the policy pay? What is the minimum and maximum daily benefit amount that you can purchase? • Will benefits increase with inflation? • Is the policy tax qualified? • Can the policy be upgraded if the insurance company offers an improved policy? • What conditions are specifically excluded from coverage? • Does the policy limit benefits because of pre-existing conditions? For more information, and for a description of various provisions contained in LTCI policies, see Long-term Care Insurance (LTCI) Provisions. See also Options and Riders.
How should you compare companies? You should check with several companies and insurance agents before you buy an LTCI policy. And it's important to check out the financial strength of the companies you're interested in. You can determine a sound investment by reviewing the company's A. M. Best Company's rating along with the opinions of other rating services, such as Moody's or Standard & Poor's Insurance Rating Services, at your local library. If you decide to go with an A. M. Best rating, you should select an insurance company that has received a rating of at least A or A+. This means that the investment is excellent or superior and entails very little risk. The following table outlines the various ratings: COMPANY RATING
A. M. BEST SCORE
Superior (little risk)
A++ or A+
Excellent (slightly more risk)
A, A-
Very Good (strong claims-paying ability) B++, B+ Fair (less protection against risk)
B,B-
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C++, C+
Weak (high risk factor)
C,C-
Poor
D
Under Regulatory Supervision
E
In Liquidation
F
Suspended
S
If you are financially savvy, you can also review the company's financial statements to determine its financial stability. Review the annual report and find out how long the company has been in business. (Note that this type of research might prove to be quite time consuming, however.) For more information about insurance company ratings, see Finding Insurance Company Rating Information.
What about replacing or updating your policy? There might be situations in which canceling an existing policy and buying a new one makes sense. You should carefully compare the increased premiums to the added benefits of the new policy. Insurance companies introduce new products every few years. An older plan might be more restrictive (e.g., it might require a hospital stay before paying benefits for nursing-home care, or it might not cover assisted living). Ask your agent about the company's record regarding policy upgrades. Many companies automatically notify existing policyholders and offer the new policy at a higher premium because of the enhanced benefits. Some companies automatically upgrade existing policies to new policies. If a policy is upgradable, you'll be able to acquire an improved policy without meeting the health requirements of a new policyholder. In some cases, it may be possible for you to replace your current policy with one of the new tax-qualified policies. Qualified policies allow certain taxpayers to deduct all or part of the premium for their long-term care insurance. However, these tax-qualified policies can be more restrictive. For more information, see Taxation and Long-Term Care Insurance (LTCI).
What about conserving your policy (LTCI)? You probably shouldn't buy an LTCI policy unless you intend to keep it for the rest of your life. Unfortunately, it's all too easy for some people to allow a policy to lapse inadvertently or because they can no longer afford the premiums. "Conserving" your policy means ensuring that you pay your premiums in a timely fashion and follow all applicable requirements to keep your policy in effect. Some companies have begun to add safeguards to make sure that the people who want to stay insured do. If you miss a premium, some companies will send a notice of a missed premium to a third party of your choosing. Some companies may offer the right to reinstate a policy after five months if it lapsed because a policyholder was cognitively or functionally impaired. Some states require these provisions. At a price, you can also purchase nonforfeiture of premiums as an option. This requires the insurance company to refund all or a part of your premiums if you hold the policy for a specified number of years before discontinuing it. For more information, see Options and Riders.
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Coordination of Long-Term Care with Government Benefits What does "coordination with government benefits" mean? In the context of long-term nursing home care, a number of governmental (and governmentally regulated) programs and tools exist to help you pay for this care. Medicare, Medicaid, Medigap, and long-term care insurance (LTCI) (combined with Medicare) can each assist you to pay for your long-term nursing-home care, assuming you meet their respective qualifications.
What is long-term care? Long-term care refers to a broad range of medical and personal services designed to assist individuals who have lost their ability to function independently. The need for this care often arises when physical or mental impairments prevent you from performing certain basic activities, such as feeding, bathing, dressing, transferring, and toileting. Long-term care may be divided into three levels: • Skilled care--continuous "around-the-clock" care designed to treat a medical condition. This care is ordered by a physician and performed by skilled medical personnel, such as registered nurses or professional therapists. A treatment plan is established, and it is usually contemplated that the patient will recover at some point. • Intermediate care--intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse's aides under the supervision of a physician. • Custodial care--care designed to assist one perform the activities of daily living (such as bathing, eating, and dressing). It can be provided by someone without professional medical skills but is supervised by a physician.
What is Medicare and to what extent does it subsidize long-term care? Medicare is a federal health insurance program for people age 65 and older, certain disabled individuals under age 65, and people of any age with permanent kidney failure. Medicare is divided into two parts: Part A is a hospital insurance program, and Part B is a medical insurance program: • Part A covers: (1) inpatient hospital care, (2) inpatient care in a skilled nursing facility (SNF), (3) home health care, and (4) hospice care • Part B covers: (1) doctors' services, (2) home health care services (for persons not covered by Part A), and (3) certain other outpatient medical services and supplies not covered by Part A Medicare was not designed to address custodial and intermediate long-term care needs at institutional facilities. Although Medicare will subsidize skilled medical care in nursing facilities, it will pay for only a certain number of days per year and requires a co-payment after a period of time. In addition, numerous rules exist governing when a beneficiary will qualify for benefits. To qualify for Part A's SNF care benefit, the patient must have been hospitalized for at least three days before entering a Medicare-approved SNF. (The patient has 30 days from his or her hospital discharge date to enter the SNF.) Furthermore, a doctor must certify that the patient needed and received skilled nursing care or skilled rehabilitation on a daily basis at the SNF. Assuming these conditions have been met, Medicare will pay for skilled care in the following manner: • Medicare will pay the full cost of SNF care for the first 20 days in each benefit period (year).
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• The patient must pay a daily co-payment for days 21-100. This co-payment figure increases each year and amounts to $137.50 per day in 2010 ($133.50 in 2009). • After the 100th day of SNF care, the patient must pay all costs. Example(s): Hal was eligible for Medicare, had a stroke, and was hospitalized for four days. Subsequently, he entered an SNF and remained there for the rest of the year (receiving skilled care for the first 30 days and custodial care for the rest of the year). The daily cost of care in his SNF is $150. Hal's expenses for the year may be calculated as follows: Days 1-20.
Medicare pays 100% (20 x $150) = $3,000
Days 21-30.
Hal pays at rate of $137.50 per day (10 x $137.50) = $1,375
Days 21-30.
Medicare pays balance (10 x $12.50) = $125
Days 31- 365. Hal pays full amount (335 x $150) = $50,250 Example(s): Therefore, while Hal ended up paying $ 51,585 out-of-pocket for his long-term care over the course of the year, Medicare paid only $3,165. The preceding example illustrates the inadequacy of Medicare when it comes to paying for long-term care in a nursing facility. In such facilities, Medicare will pay for skilled care only--it will not pay for custodial care. Medicare is more valuable when it comes to home health care.
What is Medigap insurance and to what extent does it subsidize long-term care? Medigap is supplemental insurance sold by private insurance companies to fill in some of Medicare's gaps in coverage. Medigap is an individual health plan that provides benefits for all or part of the deductible and coinsurance amounts not covered by Medicare. Certain benefits not covered by Medicare, such as payment for prescription drugs, may also be covered under particular Medigap plans. With respect to long-term care, some (but not all) Medigap plans will subsidize the $137.50-per-day co-payment for days 21-100 of skilled nursing home care under Medicare Part A. Thus, your first 100 days in a given year of skilled care provided in an SNF will be free of charge. However, you will still have to pay the full cost out-of-pocket for the rest of the year. And bear in mind that Medigap will not pay for intermediate and custodial care in nursing homes. Example(s): Victor owned a Medigap policy that covered the SNF $137.50 co-payment for days 21-100. After a six-day hospitalization, Victor entered an SNF, where he received skilled medical care for 90 days and custodial care for the rest of the year. The daily cost of care in his SNF is $150. Victor's expenses for the year may be calculated as follows: Days 1-20.
Medicare pays 100% (20 x $150) = $3,000
Days 21-90.
Medigap co-pays (70 x $137.50) = $9,625
Days 21-90.
Medicare pays balance (70 x $12.50) = $875
Days 91-365. Victor pays full amount (275 x $150) = $41,250
What is Medicaid and to what extent does it subsidize long-term care? Medicaid is a joint federal-state program providing medical assistance to low-income individuals who are aged, disabled, or blind (and to needy, dependent children and their parents), and who cannot otherwise afford the necessary care. Medicaid pays for a number of medical costs, including hospital bills, physician services, and
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long-term nursing care. To qualify for Medicaid's long-term care benefits, you must be financially and medically eligible. Financial eligibility is based on the amount of your income and assets, and although many people are not financially eligible for Medicaid when they first enter a nursing home, many states allow elders to "spend down" their assets to become eligible. Typically, Medicaid beneficiaries must require some skilled medical care (e.g., intravenous feeding, treatment of dressings), but a medical condition requiring assistance with activities of daily living can also be part of the eligibility requirements. Thus, intermediate care in an institution will be subsidized in most states, as will home health care and personal care services at home. Medicaid is the largest single payor of nursing-home bills in America and is the last resort for people who have no other way to finance their long-term care. Unfortunately, however, because Medicaid mandates income and asset thresholds, many people are forced to exhaust their lifetime savings to become eligible for Medicaid. For information about Medicaid planning, see Planning Goals and Strategies.
What is long-term care insurance (LTCI), and to what extent does it subsidize long-term care? Long-term care insurance (LTCI) pays a selected dollar amount per day for a set period for skilled, intermediate, or custodial care in nursing homes and other long-term care settings. Because Medicare and other forms of health insurance do not pay for intermediate care in a nursing facility and custodial care in general, many nursing home residents have only three alternatives for paying their nursing home bills: cash, Medicaid, and LTCI. Most policies will let you select the amount of coverage you want, typically running anywhere from $40 to $150 or more per day. A very comprehensive LTCI policy will cover skilled care, intermediate care, home care, adult day care, hospice care, and assisted living care. Example(s): Dick and Martha are a married couple considering the purchase of an LTCI policy. Each policy pays $150 per day. Policy A offers a 20-day deductible and charges a $3,500 annual premium. Policy B offers a 90-day deductible and charges a $2,000 yearly fee. If Martha enters a nursing home after 10 years, requires 20 days of skilled care during her first year, and intermediate care for the remainder of that year, benefits may be calculated as follows: Example(s): Policy A: Days 1-20.
Medicare pays 100%; policy pays nothing
Days 21-365. Policy pays all charges Example(s): Policy B: Days 1-20.
Medicare pays 100%; policy pays nothing
Days 21-90.
Medicare pays nothing for intermediate care Martha pays 70 days x $150 = $10,500
Days 91-365. Policy pays all charges Example(s): Under Policy A, Martha paid 10 years' worth of annual premiums at the rate of $3,500, for a total of $35,000. Under Policy B, she paid 10 years' worth of annual premiums at the rate of $2,000, for a total of $20,000. Example(s): An element of risk is always involved in the decision-making process. Martha and Dick need to consider whether entering a nursing home is a substantial likelihood, and, if so,
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approximately how many years shall pass before entry is required. They must also consider how much extra cash they have to spend on premiums now, and whether they'll be able to continue those payments well into the future. Most policies provide that benefits will be "triggered" by certain physical and/or mental impairments. The most common method for determining when benefits are payable is based upon your inability to perform activities of daily living (ADLs). The most common ADLs are eating, bathing, dressing, continence, toileting, and transferring. Typically, benefits are payable when you're unable to perform a certain number of the ADLs, such as two out of the six or three out of the six.
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Medicaid and Long-Term Care Insurance What is long-term care insurance? Long-term care insurance (LTCI) pays a certain dollar amount per day, for a set period, for skilled, intermediate, or custodial care in nursing homes and, sometimes, in alternative care settings, such as home health care. Because Medicare and other forms of health insurance do not pay for custodial care, many nursing home residents have only three alternatives for paying their nursing home bill: cash, Medicaid, and LTCI. In general, long-term care refers to a broad range of medical and personal services designed to assist individuals who have lost their ability to function independently. The need for this care arises when physical or mental impairments prevent one from performing certain basic activities, such as feeding, bathing, dressing, transferring, and toileting. These are normally called the activities of daily living (ADLs). Long-term care may be divided into three levels: • Skilled care is "around-the-clock" care designed to treat a medical condition. This care is ordered by a physician and performed by skilled medical personnel, such as registered nurses or professional therapists. A treatment plan is drawn up, and it is usually believed that the patient will recover at some point. • Intermediate care refers to intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse's aides under the supervision of a physician. • Custodial care is designed to help one perform the activities of daily living (such as bathing, eating, dressing, etc.). It can be provided by someone without professional medical skills but is supervised by a physician.
How is LTCI useful as a Medicaid planning tool? To qualify for Medicaid, both your income and the value of your other assets must fall below certain limits (which vary from state to state). For details, see Eligibility for Medicaid. In determining your eligibility for Medicaid, a state may count only the income and resources that are legally available to you for paying your medical costs. Consequently, a number of tools have been developed to shelter assets, including irrevocable trusts, life estates, and gifts. Each of these options, however, involves relinquishing your control over the assets (to some extent). For more information about these tools, see Planning Goals and Strategies. Purchasing an LTCI policy when you are healthy helps you maintain control over your assets until such time as you actually require care. Therefore, there is no need for you to divest yourself of assets years ahead of time. Indeed, even if you transfer away certain assets soon after you enter a nursing home and apply for Medicaid, your LTCI policy may cover your nursing home bills during the ineligibility period caused by the transfer. Example(s): Assume Marge is a 75-year-old widow who purchased a 60-month LTCI policy a few years ago. Marge enters a nursing home. At the same time, she transfers all of her assets into an irrevocable trust in order to qualify for Medicaid when the insurance benefits run out. Transferring "countable" assets into an irrevocable trust within 60 months of applying for Medicaid creates a waiting period or period of ineligibility for Medicaid, based on a formula set by the state. Without the LTCI policy, Marge would have no way to pay her nursing home bills for a period of time and would have to borrow the money or perhaps live at home with her children. However, Marge's LTCI policy covers her nursing home bills during the ineligibility period. When her insurance benefits run out, she will qualify for Medicaid. Note that in some states, if you purchased an older "qualified" long-term care insurance policy (i.e., one purchased prior to OBRA '93) your house will be protected from the imposition of a Medicaid lien upon eligibility for Medicaid benefits. Some people were able to purchase the minimum coverage necessary to obtain this protection against a Medicaid lien. However, the benefits payable under these policies typically represent only a small fraction of the expected cost of nursing home care.
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For more information about ineligibility periods, see Look-Back Period for Medicaid. Tip: The Deficit Reduction Act of 2005 gave all states the option of enacting long-term care partnership programs that combine private LTCI with Medicaid coverage. Partnership programs enable individuals to pay for long-term care and preserve some of their wealth. Although state programs vary, individuals who purchase partnership-approved LTCI policies, then exhaust policy benefits on long-term care services, will generally qualify for Medicaid without having to first spend down all or part of their assets (assuming they meet income and other eligibility requirements). Although partnership programs are currently available in just a few states, it's likely that many more states will offer them in the future.
When do benefits begin? Most policies provide that benefits will be "triggered" by certain physical and/or mental impairments. The most common method for determining when benefits are payable is based upon your inability to perform ADLs. The most common ADLs are eating, bathing, dressing, continence, toileting, and transferring (getting from bed to chair, etc.). Typically, benefits are payable when you're unable to perform a certain number of the ADLs, such as two out of the six or three out of the six. Some policies, on the other hand, will commence benefits only if your doctor certifies that the care is medically necessary. Others will also offer benefits for "cognitive incapacity" or mental incapacity, demonstrated by your inability to pass certain mental tests. Caution: Since many policies contain a waiting period or deductible period, your benefits may not begin the first day you enter a nursing home. These deductibles can range from a zero-day deductible up to a 365-day deductible, and naturally, a longer deductible means a lower premium. It also means you'll have to pay nursing home bills out of your own pocket for a longer period of time. So, if a nursing home in your area charges $200 per day, a policy with a 30-day deductible period will require you to pay $6,000 of your own money before the insurance will kick in. When you purchase an LTCI policy, however, you will be able to select the plan design that you desire (within the constraints of your budget). Thus, you'll be able to choose the waiting period (if any), the benefit amount, and the benefit period.
What do LTCI policies cost? Your yearly premium for an LTCI policy depends on a number of factors, including your age when you purchase the policy, the length of the coverage period (for instance, three years, five years, or lifetime benefits), the amount of the daily benefit provided, the range of care provided, and whether you purchase inflation protection or other optional coverages. When buying an LTCI policy, you must consider not only whether you can afford to pay the premium now, but also whether you'll be able to continue paying premiums in the future, when your income may be substantially decreased.
What should you look for in an LTCI policy? Duration of benefits When purchasing LTCI, you'll be asked to select a benefit period. Benefit periods generally range from one to six years, with some policies offering a lifetime benefit. You'll want to choose the longest benefit period you can afford. If you can't afford a lifetime benefit, consider choosing a benefit period that coordinates with the look-back period for Medicaid (five years). For more information about ineligibility periods, see Look-Back Period for Medicaid.
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Nursing home daily benefit Most policies let you choose the amount of coverage, typically running anywhere from $40 to $150 or more per day. Of course, the greater the daily benefit and the longer the benefit period, the more the policy will cost. Because the formula for determining the Medicaid ineligibility period (if any) is based on the average cost of nursing homes in your locale, you should ascertain this figure. Certainly, it wouldn't make sense to purchase a policy with a daily benefit of $50 if the average daily cost of nursing homes in your area is $150 per day. Additionally, you should consider whether you plan to remain in your present state or whether you plan on moving to another state at some point in the future in order, for example, to be closer to your children. Optional inflation rider Although the average daily cost of nursing homes in your locale may be $200 today, it could be significantly more five years from now. Therefore, an inflation rider is very important. The younger you are when you buy an LTCI policy, the more important inflation protection will be. Unfortunately, an inflation rider may significantly increase the policy cost. Range of care Review the policy carefully to determine what expenses are covered. A very comprehensive LTCI policy will cover skilled care, intermediate care, custodial care, home care, adult day care, and even alternative care (assisted living). Most policies will cover skilled, intermediate, and custodial care. Home health care can be an important consideration, because most people prefer to live in their own homes for as long as possible. Home care makes sense when, for example, you're recovering from a stroke, broken bone, or illness and don't need lifetime care. It is also useful if you're living with your children and require the services of a nurse or home health aide a few times a week. It's generally a good idea to insure for at least a one- or two-year home health care benefit period. Pre-existing conditions A pre-existing condition may be defined as a medical condition for which you sought medical advice or treatment (or regarding which you experienced symptoms) within a specified period of time, such as one year or five years, before applying for the LTCI policy. Although some companies may ignore pre-existing conditions, others may refuse to pay for treatment related to those conditions. Often, however, insurance companies will impose a waiting period on you before your coverage will go into effect for treatment of pre-existing conditions. Typically, you'll have to wait up to six months before that condition is eligible for coverage. Even though some companies will not require a medical examination before issuing your policy, it is still necessary that you truthfully disclose any pre-existing conditions. Otherwise, your company can refuse coverage for that condition or terminate your coverage altogether. Other exclusions Read the policy carefully to ascertain what isn't covered. For instance, since Alzheimer's disease, senility, and Parkinson's disease are common reasons for long-term care, make sure that your policy doesn't exclude these conditions. Also, most policies will not pay benefits for a person who has an alcohol or drug addiction, an injury caused by an act of war, or injuries that were self-inflicted or resulted from attempted suicide. Premium increases Most policies provide that your premiums will not increase unless the rates for everyone in a given class are increased. Your own premiums cannot be increased simply because of your age, health status, or claims experience. However, rates for the entire class you're in (e.g., the class of 70-year-old retired autoworkers) may be adjusted, based on claims experience.
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Guaranteed renewability When LTCI was introduced, it was a conditionally renewable contract. This gave the insurance companies discretion to cancel policies and/or raise rates. Most policies now are "guaranteed renewable" as long as you pay your premiums, so do not purchase a policy that is renewable at the option of the insurer. The insurance company should guarantee that it will offer you the opportunity to renew the policy and maintain the coverage. The company cannot condition the renewal on evidence of your insurability (i.e., good health). All LTCI plans which qualify for deductibility for federal income tax purposes are guaranteed renewable. Waiver of premiums An important feature of your policy may be the waiver of premium provision. This provision allows you to stop paying premiums once you are in a nursing home and the insurance company has started to pay benefits. Although some companies will waive your premium as soon as they make the first benefit payment, others may wait up to 90 days. A good contract will waive premiums based on the use of home health care as well, but read your contract to be sure. This provision can be especially important to a potential Medicaid applicant since it is likely that you will be unable to afford extended nursing home premiums if you've transferred your assets away as part of an asset protection plan. Grace period for late payment A good policy should provide a one-month grace period during which the policy will remain in effect if you are late paying the premium. Absent such a grace period, your policy could be canceled immediately. Return of premium Some companies offer return of premium or nonforfeiture benefits for individuals who cancel their policies after paying premiums for a number of years. For instance, a policy might return nothing if canceled within the first five years, 15 percent of the premium after five years, and perhaps all of the premium after 35 years. However, adding a return of premium rider to your policy may significantly increase the policy cost. Prior hospitalization Beware of policies that require you to have a hospital stay of at least three days before qualifying for LTCI benefits. This requirement is very restrictive and can greatly limit your ability to receive any benefits under your policy if you require only custodial care.
How should you compare providers? It's important to check out the financial strength of the companies in which you're interested. You can determine a sound investment by reviewing your company's A. M. Best and Company's rating, along with the opinions of other rating services such as Moody's or Standard and Poor's, at your local library. You should select a company that has received a rating of A or A+ from A. M. Best. Of course, you can also request a copy of the firm's annual report. For more information, see Comparing and Replacing Long-Term Care Insurance Policies.
What are the tax ramifications? Federal law generally allows you to treat all or part of the premium for a tax-qualified long-term care insurance contract as a medical expense. As a consequence, the portion of your LTCI premium treated as a medical expense should be deductible for federal income tax purposes. To claim a tax deduction, you must itemize your deductions and the total of your medical expenses (including the applicable portion of any LTCI premiums) must exceed 7.5 percent of your adjusted gross income. Caution: Not all long-term care contracts are tax qualified--your policy must meet certain federal
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standards. For more information, see IRS Publication 502,Medical and Dental Expenses. Tip: Benefits you receive from a tax-qualified LTCI policy generally are not subject to income tax; they are treated as excludable benefits received for personal injury and sickness. However, benefits received from a policy that is not tax qualified might be subject to income tax. For more information, see Taxation and Long-Term Care Insurance.
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Long-Term Care Insurance as a Medicaid Planning Tool What is it? What is long-term care insurance? Long-term care insurance (LTCI) is a contractual arrangement that pays a certain dollar amount per day for a set period of time for skilled, intermediate, or custodial care in nursing homes and, sometimes, in alternative care settings, such as home health care. Because Medicare and other forms of health insurance do not pay for custodial care (defined later), many nursing home residents have only three alternatives for paying their nursing home bills: cash, Medicaid, and LTCI. In general, long-term care refers to a broad range of medical and personal services designed to assist individuals who have lost their ability to function independently. The need for this care arises when physical or mental impairments prevent one from performing certain basic activities, such as feeding oneself, bathing, dressing, transferring, and toileting. These activities are known as the activities of daily living (ADLs). Long-term care may be divided into three levels: • Skilled care--continuous, around-the-clock care designed to treat a medical condition. This care is ordered by a physician and performed by skilled medical personnel, such as registered nurses or professional therapists. A treatment plan is drawn up, and it is usually believed that the patient will recover at some point. • Intermediate care--intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse's aides under the supervision of a physician. • Custodial care--care designed to help one perform the activities of daily living (such as bathing, eating, dressing). Care can be provided by someone without professional medical skills but is supervised by a physician. For more information about LTCI in general (and for specifics on what to look for in a good LTCI policy), see Medicaid and Long-Term Care Insurance. How is LTCI useful as a Medicaid planning tool? To qualify for Medicaid, both your income and the value of your other assets must fall below certain limits, which vary from state to state. For details, see Eligibility for Medicaid. In determining your eligibility for Medicaid, a state may count only the income and assets that are legally available to you for paying your medical costs. Consequently, a number of tools have arisen to shelter assets. These include irrevocable trusts, life estates, and outright gifts. Each of these options, however, involves relinquishing control over your assets (to one extent or another). For more information about these tools, see Planning Goals and Strategies. Purchasing an LTCI policy while you are still healthy helps you maintain control over your assets until such time as you actually require care. Thus, there is generally no need for you to divest yourself of assets years ahead of time. Note also that in some states, the purchase of an older "qualified" long term care insurance policy (i.e., one purchased prior to OBRA '93) will protect your house from the imposition of a Medicaid lien when you become eligible for Medicaid benefits. Thus, some people were able to purchase the minimum coverage necessary to obtain this protection against the Medicaid lien. However, the benefits payable under these types of policies typically represent only a fraction of the expected cost of nursing home care. If you give away some assets while LTCI is paying your nursing home bills, will you be ineligible for Medicaid? In general, if you transfer certain assets for less than fair market value within what's known as the look-back period, the state presumes that the transfer was made solely to qualify you for Medicaid. Therefore, the state will impose a waiting period or period of ineligibility upon you before you can start to collect Medicaid benefits. For more information about look-back periods, see Look-Back Period for Medicaid. Also see Penalties and Hardship
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Exceptions for additional information about ineligibility periods. Purchasing an LTCI policy gives you the option to transfer your assets to your loved ones after you enter a nursing home. Ideally, your LTCI policy should cover your nursing home bills during the ineligibility period caused by the transfer. Thus, you can give your assets away, enjoy paid nursing home bills during the ineligibility period, and qualify for Medicaid when the insurance policy runs out. Example(s): Marge is a 75-year-old widow who purchased a 60-month LTCI policy a few years ago. Marge enters a nursing home that charges $5,000 per month. At the same time, she transfers all of her assets (worth $250,000) into an irrevocable trust in order to qualify for Medicaid when the insurance benefits run out. Transferring certain assets into an irrevocable trust within 60 months of applying for Medicaid creates a waiting period or period of ineligibility for Medicaid, based on a formula set by the state. In Marge's case above, the applicable waiting period would be 50 months from the date of the transfer. Since Marge was in a nursing home when she transferred all her assets, she'll have no funds left to pay her nursing home bills during the next 50 months and Medicaid won't kick in until the 50 months have elapsed. However, Marge's LTCI policy will cover her nursing home bills during the ineligibility period. And, when her insurance benefits run out 60 months from now, she will qualify for Medicaid. Tip: The Deficit Reduction Act of 2005 gave all states the option of enacting long-term care partnership programs that combine private LTCI with Medicaid coverage. Partnership programs enable individuals to pay for long-term care and preserve some of their wealth. Although state programs vary, individuals who purchase partnership-approved LTCI policies, then exhaust policy benefits on long-term care services, will generally qualify for Medicaid without having to first spend down all or part of their assets (assuming they meet income and other eligibility requirements). Although partnership programs are currently available in just a few states, it's likely that many more states will offer them in the future.
When can it be used? Long-term care insurance is a viable option if you anticipate the need for long-term care, you wish to preserve some assets for your loved ones, and you would like to qualify for Medicaid at some point. Cost is certainly a factor for most people. When buying such an LTCI policy, you must consider not only whether you can afford to pay the premium now, but also whether you'll be able to continue paying premiums in the future, when your income may be substantially decreased. For more information about LTCI in general, see Long-Term Care Insurance.
Strengths Subsidizes nursing home bills Aging is inevitable, and the gradual inability to function independently is a great concern for many people. While the prospect of entering a nursing home is a daunting one, equally frightening is the expense of nursing home care. Purchasing an LTCI policy can give you some peace of mind; it's comforting to know that at least some of the cost of the first few years of care will be paid. You can buy the amount of coverage that you want. Moreover, although most nursing homes have waiting lists, it is easier for a private-pay patient to enter a nursing home than one who needs Medicaid assistance immediately. Allows you to shelter assets from the state Purchasing an LTCI policy may enable you to transfer your assets to your loved ones after you enter a nursing home. Ideally, the benefit period you select should cover your nursing home bills during the ineligibility period caused by the transfer. Without such a policy, you would either have to transfer your assets years before entering a nursing home or else deplete some of your assets by privately paying the nursing home during the period of ineligibility caused by your late transfer of assets. The LTCI policy may allow you to preserve your assets for your loved ones instead of spending them on nursing home bills.
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(The purchase of an older "qualified" long-term care insurance policy (i.e., one purchased prior to OBRA '93) provides special protection in some states. However, although a Medicaid lien against a recipient's house can be avoided with such policies, the benefits typically represent only a small fraction of the expected cost of nursing home care.) Allows you to maintain control over your assets Purchasing an LTCI policy while you are still healthy helps you maintain control over your assets until such time as you actually require nursing home care. Thus, there is no need for you to divest yourself of assets years ahead of time. This is an important advantage because it's difficult to predict whether you'll need nursing home care at all in the future. Irrevocably relinquishing control over your assets could be a mistake. Premiums may be deductible for income purposes If you purchase a contract treated as a "qualified" LTCI policy for income tax purposes, some or all of your LTCI premium may be deductible as a medical expense on your federal income tax return. Simply add the applicable portion of your premium to your other deductible medical expenses. To claim a deduction, the total of your medical expenses must exceed 7.5 percent of your adjusted gross income (AGI). For more information, see Taxation and Long-Term Care Insurance.
Tradeoffs May be too expensive for people of modest means An LTCI policy can be costly, especially for older individuals. When buying an LTCI policy, you must consider not only whether you can afford to pay the premium now, but whether you'll be able to continue paying premiums in the future (when your income may be substantially decreased). As with any investment, risk is involved Paying insurance premiums each year in the expectation that you might (at some future time) require nursing home care is a risky move. There is always the possibility that you will remain healthy and able to function independently when you are aged. Or perhaps you could die suddenly, after paying expensive premiums for many years. The money you pay out in the form of premiums is money that you cannot give to your children or other loved ones, so be aware of the tradeoff.
How to do it If you are interested in purchasing LTCI, there are a couple of steps you should follow: Compare policies and check out the financial security of the companies in which you're interested You can determine the financial security of a company by reviewing its A. M. Best and Company's rating, along with the opinion of other rating services such as Moody's or Standard and Poor's, at your local library. You should select a company that has received a rating of A or A+ from A. M. Best and Company. For more information, see Comparing and Replacing Long-Term Care Insurance Policies. Review the policy carefully to ensure that it has the features you require There are a number of factors that should concern you, such as inflation protection, a full range of care (including home health care), and exclusions for pre-existing conditions. For details about these and other topics, see Medicaid and Long-Term Care Insurance. Consult a Medicaid law attorney In recent years, the Medicaid laws have undergone a number of changes. Indeed, because certain planning vehicles have been eliminated and most rules tightened, it is reasonable to expect that further changes will occur
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in the years ahead. If you are interested in planning, it is vital that you consult with an attorney experienced in the Medicaid area. An attorney will advise you of your various options, make recommendations, and ensure that purchasing LTCI would be in your best interest.
Tax considerations Income Tax Benefits you receive from a "qualified" LTCI policy are generally not subject to income tax; they are treated as excludable benefits received for personal injury and sickness. However, benefits received from a policy that is not tax-qualified might be subject to income tax. Deductibility Federal law generally allows you to treat all or part of the premium for a tax-qualified long-term care insurance contract as a medical expense. As a consequence, the portion of your LTCI premium treated as a medical expense should be deductible for federal income tax purposes. To claim a tax deduction, you must itemize your deductions and the total of your medical expenses (including the applicable portion of any LTCI premiums) must exceed 7.5 percent of your adjusted gross income (AGI). Caution: Not all long-term care contracts are tax-qualified; your policy must meet certain federal standards. See Taxation and Long-Term Care Insurance.
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Medicaid Planning Goals and Strategies Why is Medicaid planning important? Aging is inevitable, and a gradual (or not so gradual) inability to function independently is a great concern for many people. While the prospect of entering a nursing home is a daunting one, equally frightening is the expense of nursing home care. Although purchasing long-term care insurance might be the most logical move, not everyone can afford the cost of its premiums. Many people feel that their only option is to spend down their life savings in order to private-pay nursing home care. Once this money has been exhausted, they'll apply for Medicaid. But this isn't the way it has to be. To qualify for Medicaid, both your income and the value of your assets must fall below certain limits, which vary from state to state. In determining your eligibility for Medicaid, a state may count only the income and assets that are legally available to you for paying your bills. Consequently, a number of tools have arisen to rearrange your finances, shelter your assets from the state, and facilitate Medicaid qualification.
What are the goals of Medicaid planning? Medicaid planning serves to accomplish a number of goals: (1) qualifying for Medicaid, (2) sheltering "countable" assets, (3) preserving assets (including the family home) for loved ones, and (4) protecting the healthy spouse (if any). Qualifying for Medicaid Qualifying for Medicaid is not automatic; your income and asset levels must fall below the threshold set by your state. However, a state may consider only the income and assets that are legally available to you for paying your bills. Medicaid planning helps you to devise ways of making your assets and income inaccessible. If they're inaccessible to you, they're also inaccessible to the state, and this will help you to qualify for Medicaid. Sheltering countable assets The term countable assets refers to anything valuable you own that is not exempt by law or otherwise made inaccessible; the total value of your countable assets (together with your nonexempt income) will determine your eligibility for Medicaid. Under federal guidelines, each state composes a list of exempt assets. It is possible, therefore, to rearrange your finances so that countable assets are exchanged for exempt assets (or otherwise made inaccessible to the state). Preserving assets (including the family home) for loved ones Why are so many people averse to simply liquidating their assets to pay for nursing home care? After all, Medicaid will eventually step in (in most states), once you've exhausted your personal resources. The reason is simple: People want to financially assist their loved ones. After working long hours for many years, over the course of a lifetime, most people don't want to see their nest eggs vanish; rather, they want to be able to pass something down to their loved ones. And this can be particularly true with respect to the family home, which is often the single largest asset a nursing home resident might own. Protecting the healthy spouse (if any) With respect to a married couple, financial protection of the healthy or at-home spouse is always an important concern. A married couple's assets are pooled together when the state is considering the eligibility of one spouse for Medicaid. The healthy spouse is entitled to keep a spousal resource allowance, which generally amounted to one-half of the assets (not to exceed $109,560 in 2009). This really isn't much money, especially if the healthy spouse is a younger woman (who'll probably live much longer anyway because of her gender). Medicaid planning seeks to financially assist the healthy spouse.
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What are the primary tools and strategies for attaining these goals? Although there have been a number of Medicaid planning strategies devised over the years by attorneys (and others), the following tools are the most widely used: Purchase of exempt assets It has become standard practice for a Medicaid applicant to use countable resources to purchase exempt assets. This exchange is a perfectly lawful method of shielding your assets from the Medicaid authorities and improving the quality of life for your spouse or other loved ones. Exempt assets are those that do not affect your eligibility for Medicaid; each state composes a list of exempt assets, based on federal guidelines. Typically, this list may include such items as a family home, prepaid burial plots and contracts, one automobile, and term life insurance. Instead of spending your money solely on nursing home bills, therefore, you can pay off the mortgage on your family home, make home improvements and repairs, pay off your debts, purchase a car for your healthy spouse, and prepay burial expenses. Caution: For Medicaid applications filed on or after January 1, 2006 (this date may be slightly different in your state), a family home with equity above $500,000 (or $750,000 if increased by your state) makes you ineligible for Medicaid. An exception applies if your spouse, child under age 21, or child who is blind or disabled resides in the home. Using immediate annuities to shelter countable assets A healthy spouse may want to take jointly owned, countable assets to purchase a single premium immediate annuity for the benefit of himself or herself alone. You convert countable assets into an income stream. This is beneficial, since each spouse is entitled to keep all of his or her own income. (This stands in contrast to the treatment of assets, whereby all assets of a married couple are pooled together and totaled.) By purchasing an immediate annuity in this manner, the institutionalized spouse can qualify more easily for Medicaid, and the healthy spouse can enjoy a higher standard of living. Caution: Generally, for annuities purchased on or after February 8, 2006 (this date may be slightly different in your state), the annuity will be counted as an asset unless the state is named as the primary beneficiary (unless the beneficiary is your spouse or minor or disabled child), in which case the state must be named as the secondary beneficiary. There is an exception for annuities held within a retirement plan. Further, any interest you have in an annuity must be disclosed at the time you apply for Medicaid. Transfer of assets under "half-a-loaf" Prior to the enactment of the Deficit Reduction Act of 2005 (the Act), a strategy used often to protect assets and facilitate eligibility for Medicaid is known as the "half-a-loaf" strategy. Basically, you would give approximately one-half of your assets away (to loved ones) in order to shelter those assets from the state; you used the remaining money to pay for your nursing home care during the period of ineligibility for Medicaid caused by the transfer. This strategy worked because the period of ineligibility was triggered when the transfer was made. Under the Act, the period of ineligibility now starts when you apply for benefits, effectively eliminating the half-a-loaf strategy in most cases. However, another strategy referred to as "reverse half-a-loaf" may replace the half-a-loaf strategy. With a reverse half-a-loaf, you transfer assets in an amount that will qualify you for Medicaid in the same month that you apply for benefits. Due to this transfer, a period of ineligibility will apply. You "cure the transfer" by having a portion of the transfer returned to you, which shortens the eligibility period. Caution: The reverse half-a-loaf strategy will not work in states that do not allow partial cures.
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Trusts An irrevocable trust can help you to qualify for Medicaid and preserve assets for your loved ones; it serves to shelter your assets (and/or income), making them unavailable to you. The state Medicaid authorities cannot consider assets that are truly inaccessible to the Medicaid applicant; therefore, anything that stays in an irrevocable trust will lie outside of your financial picture, for Medicaid eligibility purposes. Although a number of trusts have been devised by Medicaid planning attorneys, four have received particular note and the most widespread acceptance: (1) irrevocable income-only trusts, (2) irrevocable trusts (in which the creator of the trust is not a beneficiary), (3) Miller trusts, and (4) special needs trusts. Protection of principal residence through outright transfers, life estates, special powers of appointment, and transfers into trust For many people, a house is generally the most valuable and important asset they own. Not only does it have sentimental value, but it is sometimes the only means of passing down some financial security to children or other loved ones. However, the skyrocketing cost of nursing home bills can jeopardize your ability to preserve your house. Additionally, a state may be entitled to seek reimbursement for Medicaid payments by, in some cases, placing a lien on your principal residence. Therefore, Medicaid planning tools have been devised to protect your home. The following tools are usually recommended: • Outright transfers (gift of the home)--Making a gift of your home to your children protects this asset for them; the state cannot place a lien (or force a sale) on a home that no longer belongs to you and is not part of your estate. • Transfer subject to life estate--With this planning tool, you transfer the remainder interest in your house to your loved ones, and you keep a life estate for yourself. You have the legal right to live in the house, and when you die, your loved ones will own the home automatically. • Transfer subject to special power of appointment--Here, you transfer your house to someone else but reserve the right to later redirect the ownership of the house to a different person. Since the house no longer belongs to you, the state cannot place a lien (or force a sale) on it. And this tool provides you with tax advantages as well. • Transfer in trust--From a Medicaid perspective, the most effective form of trust for protecting your principal residence would be the irrevocable income-only trust. It can facilitate your Medicaid eligibility and remove the house from your probate estate, protecting it from a Medicaid-forced sale in some states.
Durable power of attorney Your possible incapacity in the future should be a concern. If you become mentally incompetent before you enter a nursing home, it may be very difficult (if not impossible) to effect a transfer of your assets. A durable power of attorney is a written instrument you sign, authorizing someone else to act for you in the event that you become incapacitated. That way, for example, a wife can transfer the family home out of her husband's name and into her own even after her husband becomes too ill to manage his own affairs.
How does long-term care insurance factor in? Because Medicare and other forms of health insurance do not pay for custodial care (assistance with daily activities), many nursing home residents have only three alternatives for paying their nursing home bills: cash, Medicaid, and long-term care insurance (LTCI). By purchasing LTCI while you are still healthy, you can hold onto the bulk of your assets for as long as possible--there is no need for you to divest yourself of assets through trusts and other planning tools years ahead of time. Since your insurance will subsidize your nursing home bills during
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your first few years, you can transfer assets to your loved ones after you enter a nursing home. Any Medicaid ineligibility period created by your transfer of assets will be harmless; your insurance company will pay your bills during that time period. On the downside, the insurance premiums might be too expensive for a person of modest means. You must consider not only whether you can afford the premiums now but also whether you'll be able to continue paying the premiums in the future (when your income might be substantially decreased). Tip: All 50 states are permitted to participate in the Long-Term Care Partnership Program. The Partnership Program combines private LTC insurance with Medicaid. Those who purchase LTC insurance through the program receive certain benefits such as the ability to protect some or all of their assets from the "spend down" requirements of the eligibility process.
What are the drawbacks to Medicaid planning? Medicaid planning can involve certain risks and drawbacks. In particular, you need to be aware of "look-back" periods and possible disqualification for Medicaid, potential criminal penalties, and adverse tax consequences. Because the Medicaid transfer rules have been tightened in recent years (and may continue to contract in the years ahead), it is wise for you to consult with an attorney experienced in the Medicaid area if you are interested in planning.
Look-back period When you apply for Medicaid, the state has the right to review or look back at your finances (and those of your spouse) for a period of months before the date you applied for assistance. In general, for transfers made prior to February 8, 2006, there exists a 36-month look-back period for transfers of countable assets for less than fair market value and a 60-month look-back period for similar transfers into trusts. For transfers made on or after February 8, 2006, the look-back period is 60 months for all transfers. Tip: Because the new look-back period is being phased in, practically speaking, the 36-month look-back period will still be in effect until February 8, 2009. Further, the effective date for the new look-back period is established under federal law, but may be slightly different under your state's law. Certain transfers of countable assets for less than fair market value, made during the look-back period, will result in a waiting period or period of ineligibility before you can start to collect Medicaid benefits. The formula for determining the waiting period may be explained as the fair market value of the transferred assets divided by what Medicaid determines to be the average monthly cost of nursing homes in your locale, the quotient representing the number of months for which you will be ineligible for certain Medicaid benefits. Example(s): Assume that Ralph used $288,000 to create an irrevocable trust, naming himself as beneficiary and his friend as trustee. Ralph entered a nursing home two years later at the rate of $6,000 per month (which is the average in his locale) and applied for Medicaid. But because Ralph transferred assets to an irrevocable trust during the look-back period (60 months), he will be ineligible to receive Medicaid benefits for 48 months ($288,000 divided by $6,000 equals 48 months). It is possible, therefore, that engaging in Medicaid planning can actually cause you to become ineligible for Medicaid for a time.
Penalties If you transfer assets for less than fair market value, you should apply for Medicaid only after the ineligibility period (if any) has elapsed.
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Adverse tax consequences If you give away your assets during your lifetime, the recipients (beneficiaries) will step into your shoes in a tax sense--they'll get the same tax basis in the assets that you had possessed. That can be a drawback, since your holding onto the assets until death would provide the recipients with a stepped-up basis; that is, the fair market value of the assets on your date of death would become the tax basis for your beneficiaries. Nevertheless, certain Medicaid planning tools can preserve the stepped-up basis, even when you effect lifetime transfers. It is important, therefore, to evaluate your Medicaid planning strategies from all perspectives, including a tax viewpoint. What may be the most wise decision from a Medicaid standpoint might be a poor move from a tax standpoint. (Tools that won't prevent the ultimate recipients of your assets from getting a stepped-up tax basis upon your death include the following: Transfer Subject to Life Estate, Transfer Subject to Special Power of Appointment, and Transfer in Trust.) For more information, consult a financial professional or an elder law attorney experienced with Medicaid planning.
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Incapacity What is incapacity? Simply stated, incapacity (sometimes referred to as incompetency) means that you are either mentally or physically unable to take care of yourself or your day-to-day affairs. More accurately, incapacity means the inability to properly care for one's property or person or to make or communicate rational decisions concerning one's person. Generally, incapacity can result from serious physical injury, mental or physical illness, mental retardation, advancing age, and alcohol or drug abuse. The following examples should help illustrate incapacity: Example(s): Example 1: Sue, age 40, has been in a car accident. She has received serious head injuries and will probably be in a coma for the rest of her life. Example(s): Example 2: Ken, age 58, was diagnosed with cancer a year ago. His chemotherapy and radiation treatments worked for awhile, but now his cancer is slowly spreading and he's unable to get out of his hospital bed. The pain medicine he's taking keeps him asleep most of the time, but even when he's awake, he doesn't know what day it is. Example(s): Example 3: Jane just turned 91 years old. She's in a nursing home and can get around only in a wheelchair. She has been diagnosed with Alzheimer's, does not know any family members when they come to visit, and cannot care for herself. Technical Note: An incapacitated or incompetent person is also called a ward, usually in the context of a court proceeding to establish guardianship or conservatorship. Tip: Protective services exist for persons with diminished capacity (someone who needs only some help, such as an elderly person). The social services office in your state can help you locate someone whose responsibilities are tailored to the person's needs (such as home day care or chore services). Your state's social services office should be listed in your phone book.
Why should you care? You need to be concerned about incapacity because in today's modern age of medical miracles, it is a very real possibility that incapacity may strike you or your spouse. Medical science has increased your life expectancy and consequently increased your chances of becoming physically or mentally incapable of managing your medical or financial affairs. A devastating illness or serious accident can happen suddenly at any age. Old age can bring senility, Alzheimer's disease, or other ailments that affect your ability to make sound decisions. You may not be able to make decisions about your health, pay your bills, write checks, make deposits, sell assets, or otherwise conduct your business. This can prolong your life against your wishes, devastate your family, create debt, exhaust your savings, or undermine your financial, tax, and estate planning strategies. Unless you have authorized someone to carry on your affairs, a relative or friend will have to resort to a drastic measure--asking the court to appoint a guardian. This public procedure can be embarrassing, emotionally draining, time-consuming, and expensive. By planning in advance for incapacity, you select the person you trust to make decisions for you and keep the courts out of it.
How is incapacity determined? Incapacity is determined in one of the following ways.
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Physician certification By including a provision in a durable power of attorney, you can designate a physician (or physicians) who will determine whether you are incapacitated or not. You may also state that your incapacity will be determined by your attending physician at the relevant time, whomever that might be. Judicial finding The court may be petitioned for a determination as to whether you are incapacitated. The proper court in which to file varies from state to state, but it is generally the probate court. Who has standing to petition the court also varies from state to state. Generally, any interested person may file a petition (an interested person is defined by state law and, in practice, is usually your spouse, parent, or child). After a legal proceeding, called a hearing, where medical and other testimony is heard, a judge will decide whether you are incapacitated according to standards determined by your state's laws. Check with an attorney or the clerk of courts at the court nearest you to find out how to, and who may, file such a petition.
Why do you need to plan for incapacity? Managing medical decisions Say that you become very ill and incapacitated and are unable to make your own medical care decisions. What will happen? Without someone authorized to make those decisions for you, your medical care providers are obligated to prolong your life, using artificial means if necessary. With today's modern technology, this means that physicians can sustain you and prolong your dying for days and weeks (if not months or even years!). Rather than experiencing a sudden death, you may die slowly over an extended period of time. If you were to fall into a coma, you could be kept alive for years. If you want to avoid the possibility of this happening to you, you must plan in advance. You need to understand and implement one of the devices that may be available to help you if you become unable to help yourself. Managing your property Who will manage your property if you become incapacitated and can no longer handle these responsibilities for yourself? If you have not planned ahead, the answer is either no one or a court-appointed guardian. If no one looks after your financial affairs while you can't, your property may be wasted, abused, or lost, and your family may suffer. A court-appointed guardian may offer some help, but this procedure is very difficult on you and your family. If you want to protect your property and avoid guardianship, you need to know about and implement at least one of the options you may have to protect your property against incapacity.
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Caring for Your Aging Parents What is it? Caring for your aging parents is something you hope you can handle when the time comes, but something you probably hope you never have to do. Caring for your aging parents means helping them plan for the future, and this can be overwhelming, both physically and emotionally. When the time comes for you to take care of your parents, you may be certain of only two things: Your parents need you, and you need help.
Start planning Talk to your parents about the future Start caring for your aging parents by talking with them about their needs and wishes if they are able. In some cases, however, they may not be willing to talk to you about their future, either because they are afraid to face it or because they resent your interference. If this is the case, you may need to do as much planning as you can without them, or, if their safety or health is in danger, step in as caregiver anyway. Prepare a personal data record The first step you should take is to ask your parents to help you prepare a personal data record (if they are unable to help you, you'll have to search for the information yourself). A personal data record is a document that lists information that you might need in case your parents become incapacitated or die. Information that should be included is financial information, legal information, medical information, insurance information, and information regarding professional advisors and the location of important records. Example(s): When Marcia and her mother prepared a personal data record, Marcia realized that her mother did not have a durable power of attorney or health care proxy in case she became incapacitated and could not make decisions about her medical care. The next day, Marcia made an appointment with her mother's lawyer to discuss this issue. Get advice You can't know everything, and you probably don't have enough time to learn everything you need to know to care for your parents. That's why you should seek advice from professionals. Some advice will be free, and some you will have to pay for. If you live far from your parents or are too overwhelmed to handle all your parents' affairs, you can hire a geriatric care manager who will evaluate your parents' situation, suggest options, and coordinate professionals who can help. In addition, talk to your employer. Some employers have set up employee assistance programs that offer advice and assistance to people who are dealing with personal challenges, including caring for aging parents. Get support Don't try to care for your parents alone. Many local and national caregiver support groups and community services are available to help you cope with caring for your aging parents. If you don't know where to start finding help, call the Eldercare Locator, an information and referral service sponsored by the federal government that can direct you to resources available nationally or in your area. Call the Eldercare Locator at (800) 677-1116.
What kind of advice will you need? Housing and health care advice If your parents are like many older individuals, where they live will depend upon how healthy they are. As your parents grow older, their health may deteriorate so much that they can no longer live on their own. At this point,
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you may need to find them in-home health care or health care within a retirement community or nursing home. On the other hand, you may want them to move in with you. For a detailed discussion of housing options, see Housing Options for Older Individuals. In addition, you will need information on managing the cost of health care, long-term care insurance, major medical insurance, Medicare, and Medicaid. Contact: • National Association for Home Care • Visiting Nurse Associations of America • Centers for Medicare & Medicaid Services (formerly known as the Health Care Financing Administration) • American Association of Homes and Services for the Aging • American Association of Retired Persons (AARP) • Health Insurance Association of America Financial advice If your parents need help managing their finances, you may need to contact professionals whose advice both you and your parents can trust, including one or more of the following individuals or organizations. Contact: • Your financial planner • Your banker • Your investment counselor • Your tax attorney • The Social Security Administration Legal advice Legal advisors can help you plan for your parents' incapacity (including preparing documents such as power of attorneys, medical directives, and living wills), contact nursing home ombudsmen, set up and monitor guardianship, prepare wills, give tax advice, and provide bill payment and representative payee assistance. For information on these topics, see Planning for Incapacity. Many states provide funds for the delivery of free legal services to the elderly and many attorneys specialize in elder law, so finding legal advice shouldn't be difficult. Contact: • Your attorney • National Association of State Units on Aging • American Bar Commission on the Legal Problems of the Elderly • Legal Counsel for the Elderly
What kinds of support and community services will you need?
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Caring for your aging parents will be easier if you know what kinds of support and community services are available and where to locate them. The following is a list of the kinds of support and community services you can find locally and nationally, along with specific suggestions of who to contact for information. For other useful information and a more comprehensive list of organizations you can contact for help, see When You Need Help: Community Resources for Older Individuals. Adult day care If you need to work or run errands and you can't leave your parents alone, consider using adult day care. These programs are located in hospitals, churches, temples, nursing homes, or community centers. Many are private nonprofit organizations. Adult day care can be expensive but is sometimes subsidized by the government, and fees may be based on a sliding scale. In addition, Medicare, Medicaid, long-term care insurance, or your health insurance may pay part of the cost. Contact: • Your local senior center or community center • National Institute on Adult Day Care • The Alzheimer's Association Caregiver support groups (self-help) Many self-help groups are available to provide information and emotional support on broad topics (such as aging) or specific topics (such as heart disease). You may find these support groups helpful if you know little about caring for your aging parents. Such groups might also provide an opportunity to help others by sharing your experiences. Contact: • The Alzheimer's Association • Children of Aging Parents • National Self-Help Clearinghouse Caregiver training/health education You may feel better about taking care of your parents if you are armed with knowledge. You may want to complete first-aid courses or take classes in gerontology. Contact: • Your local college or university • Your local hospital • The American Red Cross Geriatric assessment If you are uncertain of your parent's mental or physical capabilities, ask his or her doctor to recommend somewhere you can take your parent to undergo an assessment. These assessments can be done at hospitals or clinics. Your parent will be evaluated to determine his or her capabilities. The evaluation determines whether the individual can take care of himself or herself on a day-to-day basis, including such things as bathing, dressing, eating, using the telephone, doing housework, and managing money. Based on this evaluation, you and your parent will receive advice regarding care options.
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Contact: • Your doctor • Your lawyer • The National Association of Professional Geriatric Care Managers • Aging Network Services Respite care When you are caring for your aging parents, you may feel guilty or even resentful because you don't have limitless energy. Taking care of your parents is hard work, however, and everyone needs a break once in a while. If you are caring for your aging parents, look into respite care. Medicaid may pay for some respite-care services. Contact: • Your doctor • Your local hospital • The Alzheimer's Association • National Association for Home Care
Financial and tax considerations for you Caring for your aging parents is not only an emotional burden for you but may be a financial one as well, depending upon how well off your parents are and how much caring for them costs. Because many adults today are becoming first-time parents in their thirties, and others are remarrying and rearing second families, increasing numbers of adults are finding themselves in the "sandwich generation." They face having to pay expenses of growing children (including college expenses), plan for their own retirement, and support their aging parents financially. Thus, it's important to plan not only your parents finances, but your own as well. Financial planning for your parents Making sure that your parents won't outlive their money is a critical step in ensuring that your own finances will remain sound. In particular, you'll need to make sure that your parent is receiving all the benefits to which he or she is entitled and that his or her money is invested wisely. You'll also need to create a financial profile for your parents, a statement that includes income, expenses, and net worth. For information on how to do this, see Budgeting. If, after considering your parent's financial condition, it's clear that they won't have enough resources to pay for their own care, you'll need to find ways to supplement their income. You may need to look at Supplemental Security Income (SSI), for instance, or ask other relatives for help. You'll also have to determine how much financial support you can give your parents (see below). Financial planning for you Besides caring for your parents, you have a lot of other financial obligations. Before you can determine the best way to help your parents financially, you'll have to look at your own financial picture. Not only will you need to consider your current expenses, but you'll have to look down the road a few years, considering how much you'll need to save for your own retirement and, perhaps, for your child's education. For more information on this subject, see Saving for College and Retirement and Determining Your Retirement Income Needs. Tip: Due to the complexities inherent in providing adequately for several generations in the same family, consider seeking the advice of a financial professional.
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Tax benefits for children supporting aging parents Federal income tax law provides several tax benefits to you if you are supporting your parents financially. If you have a dependent care account at work, you can put pretax dollars into the account that you can use to pay for some costs associated with caring for your dependent parents. You may be able to claim an exemption for your parents as dependents, and you may be entitled to claim a dependent care credit. In addition, you may be able to file your taxes as head of household and deduct medical expenses you paid for your parents. For more information, see Deductions and Exemptions and Child and Dependent Care Tax Credit, and consult your tax advisor.
Questions & Answers If you are financially supporting your parent, is he or she entitled to receive Social Security benefits based on your earnings? If you are providing at least one-half of your parent's support at the time of your death, and he or she is age 62 or over and is not entitled to a retirement benefit that is equal to or larger than the amount he or she would receive based on your earnings record, then he or she may be entitled to receive a parent's Social Security benefit equal to 82.5 percent of your primary insurance amount (PIA). For more information, see Social Security Survivor's Benefits and the Lump-Sum Death Benefit.
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What to Avoid When Buying a Long-Term Care Insurance Policy Avoid these
Here's why
Non-tax-qualified policies
Tax-qualified policies provide tax benefits. Moreover, certain minimum standards are required of tax-qualified policies.
Gatekeepers (e.g., a hospital admission) prior to a claim for benefits
Gatekeepers make it more difficult to claim benefits.
Claims-made policies
A policy is issued now, but your application is evaluated at claim time--when you can be denied coverage.
Care facility restrictions
These provisions limit care to home care or nursing home care, rather than including all types of facilities.
Pre-existing condition exclusions
These exclusions limit care for a specified period of time for medical conditions that exist before the purchase of the policy.
Mental or emotional disorder exclusions
These exclusions deny claims for illness without an organic disease, except for Alzheimer's disease.
Requirement that more than two activities of daily living (ADLs) can't be performed before you qualify for benefits Insurance companies that are poorly rated, or companies that generate excessive consumer complaints.
Inability to perform just two ADLs means that benefits from the policy are probably needed. When the benefits of the policy are needed, you want to make sure that they are available. Research ratings services and call your state's insurance division before you buy your policy.
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Comparing Long-Term Care Insurance Policies Long-term care insurance (LTCI) policies come in many shapes and sizes. The number of options available can make it difficult to compare policies. Print this list of features and benefits, and refer to it as you compare LTCI policies. To find the right policy for you, make sure that you compare similar policies that combine the benefits and features you want.
Features and benefits to compare
Explanation
Financial rating of insurance company
Is the insurance company financially stable? To determine this, review ratings published by A. M. Best, Standard & Poor's, Fitch, and others. If you have questions about the ratings, ask your insurance professional for assistance.
Tax-qualified or nonqualified policy
Is part of your premium payment tax deductible? Most policies are eligible for favorable tax treatment, which can lower your cost.
Availability of multiple facilities for care
Does the policy cover nursing homes, assisted-living facilities, and home health care? Many policies will cover care in all three settings.
Benefit period
How long will benefits be paid? Common options are 2, 3, 4, 5, 6, 8, 10 years, or lifetime benefits. The longer the benefit period, the more you will pay.
Benefit amount
How much will the policy pay per day if you need care? The most common maximum benefit amounts are $50 to $350 per day.
Benefit method
How are benefits paid? If the reimbursement method is used, only actual expenses are covered and the provider is reimbursed directly. If the indemnity method is used, the daily benefit amount specified in the contract is paid directly to the insured.
Pooled benefit
If the policy uses the reimbursement method of claims payment, does it include a pooled benefit feature? Under the reimbursement method, only your actual expenses are covered. If your actual expenses are less than your coverage amount, the pooled benefit feature allows you to save unused daily benefits for later. Without it, you forfeit any unused benefits.
Elimination (waiting) period
How long will you have to wait before benefits begin once you become medically eligible? Common options are 0, 30, 60, 90, 100, 180, or 365 days. The shorter the elimination period, the more you will pay.
Recurrent claims
What happens if you recover but then need care again? Some policies require only one waiting period during the life of the policy, while others require a new waiting period when no benefit has been received for a period of time, usually 180 days.
Waiver of premium
Will you need to keep paying your LTCI premiums once you're receiving care? A waiver of premium option provides that no premium payments will be due while you are receiving benefits.
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Activities of daily living (ADLs) requirement
What will trigger your eligibility for benefits? Find out how many ADLs (e.g., eating, bathing, and dressing) you must be unable to perform without assistance before a claim can be made. The fewer required the better. Available options range from two or three ADLs out of five or six.
Gatekeepers
What conditions must be satisfied in order to qualify for benefits? For example, you may need to be hospitalized for three days, receive paid professional services during the elimination period, and use caregivers who have certain credentials.
Inflation options
Will your benefit keep pace with the cost of living? A variety of options are available. No inflation protection means that your benefit amount will not increase, regardless of the increases in the cost of care. If you do not purchase inflation protection, you may be offered the opportunity to purchase increased benefits for an additional premium based on the increase in the cost of living at periodic intervals, such as every year or every three years. Other typical options include 5% simple or 5% compounded annual increases in benefit amounts. These options may allow for unlimited increases or an increase capped at two or three times the original benefit.
Reduced paid-up option
Does the policy include a reduced paid-up option? If so, the policy will pay some benefits even if you decide to stop paying the premiums.
Return of premium at death option
Does the policy include a return of premium at death option? This refunds premiums if you die prematurely, but it generally applies only for deaths that occur before age 70.
Bed reservation benefit
Does the policy include a bed reservation benefit? This option will hold your place at the nursing home if you a have a hospital stay.
Other benefits
Does the policy offer any nonstandard benefits? These include respite care and care advisory services.
Exclusions to the contract
What coverage exclusions apply? Examples include pre-existing conditions excluded for a period of time after your policy is issued, and mental or emotional disorders without an organic disease.
Premium per $10/day of benefit
What premium will you pay? The biggest factor in determining premiums is age, but the options you choose count, too. Compare the cost of each option for each policy, and not just the total premium that includes all of the options you want.
Spousal discounts
Will you receive a discount if both you and your spouse buy a policy? Discounts of 10% to 20% are sometimes available to one or both spouses if both buy a policy.
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Medicare, Medigap, and Medicaid Medicare
Medigap
Medicaid
What is it?
Federal health insurance program for Social Security recipients. Parts A and B comprise the original Medicare program. Medicare Advantage (also referred to as Part C) plans are also available in some areas. They provide managed care and fee-for-service options through private insurers.
Medicare supplement insurance issued by private companies. Typically, individuals who have Medicare Advantage would not need a Medigap plan.
Joint federal-state need-based health insurance program. Eligibility requirements and covered services vary from state to state.
What does it cover?
All or some portion of: Part A: Hospital and skilled nursing facilities, home health agency care, hospice care, inpatient psychiatric care, and blood transfusions.
All or some portion of: Medical care not covered by Medicare, deductibles, co-payments, and coinsurance; plans may also cover other services such as eye and dental exams.
All or some portion of: A broad range of medical services including inpatient and outpatient hospital care, prescription drugs, nursing home care, and skilled care.
Individuals who are enrolled in Medicare Parts A and B.
Individuals who have limited income and resources and who meet other eligibility requirements.
Part B: Doctors, outpatient mental health services, therapy, part-time skilled home health care, certain preventative services, and other medical services. Part C: All the benefits offered by the original Medicare plan. Some offer added benefits such as prescription drugs, eye exams, and hearing aids. Part D: Prescription drug coverage (optional). Who is eligible?
Generally, persons age 65 or older, and those with certain disabilities or diseases are eligible for Medicare Parts A and B. Anyone eligible for Parts A and B is eligible for Part C and Part D.
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LifeFocus.com What is the cost?
Page 72 of 119 Part A: Most participants don't pay for this coverage because of prior Social Security covered employment. Part B: Monthly premium: $96.40 if beneficiary had Social Security Administration withhold it in 2009 or $110 for all others (higher premiums may apply based on income); Annual deductible: $155.
Premiums vary by company, region, and plan. There are generally 12 available plans (A-L), each offering different levels of coverage. Not all plans are available in every state.
No premium. Deductibles vary from state to state.
Purchase a policy from an insurance company. You can find information on Medigap policies offered in your area by visiting the Medicare website or calling (800) 633-4227.
Application procedures vary from state to state. For information, contact the agency responsible for administering Medicaid in your state.
Part C: Varies by insurer, state, and plan. Part D: Varies by insurer, state, and plan. What does it take to enroll?
If you are receiving Social Security or Railroad Retirement benefits (or are applying for benefits) at or prior to age 65, you will be automatically enrolled in Part A and Part B. Contact the Social Security Administration to enroll if: • You will not receive Social Security or Railroad Retirement benefits at age 65 • You want to enroll in Medicare Part C • You want to apply for benefits prior to age 65 due to a covered medical condition
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Medicaid Eligibility for Nursing Home Care
The Medicaid program is the largest single payer of nursing home bills in America, and is the payer of last resort for those who do not have the resources to pay for their own care. Medicaid eligibility rules are complicated and differ from state to state. It is important to get the advice of an experienced Medicaid planning professional before applying for Medicaid benefits. Because the Medicaid rules require an applicant's finances to be reviewed as far back as five years before the application date, now is the time to get advice if there may be a need for Medicaid benefits in the future.
Medicaid is a need-based government health-care program. Medicaid accounts for approximately 42% of nursing home expenditures.*
To qualify for Medicaid nursing home coverage, an applicant must meet three eligibility tests. • Category test: Applicants must be at least one of the following: age 65 or older, disabled, or blind. • Income test: In "spend-down" states, the applicant must spend his or her monthly income (minus a small personal needs allowance) on medical or nursing home expenses. In "income-cap" states, a spend down of income is not allowed. Income of even $1 over the monthly income amount allowed by the state will disqualify an applicant from receiving Medicaid (although planning opportunities may exist to allow eligibility under certain conditions). • Asset test: The applicant is allowed to own only minimal assets (generally $2,000 for an individual, $3,000 for a married couple if both are applying), but certain assets are exempt from this calculation. Exempt assets (such as certain prepaid burial contracts) may be purchased to reduce the applicant's assets below the allowable figure. Certain transfers (such as limited transfers to a spouse who is not covered by Medicaid, transfers to a disabled child, etc.) are also allowed to reduce the applicant's assets. * Source: Centers for Medicare & Medicaid Services, 2009
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Housing Options for Aging Parents In-Home Care
Assisted-Living Facility
Nursing Home
When to consider
Parent can live independently but needs some assistance
Parent can live independently but needs some assistance
Parent can't live independently and requires regular nursing care
Types of care provided
• Medical care (nursing or health aide) • Household help • Companion or caretaker services • Meal delivery • Transportation
• Rental rooms, apartments, or houses • Housekeeping services • Meals • Social activities • Transportation • May provide limited health-care services
• 24-hour access to medical care • Custodial care: some help eating, bathing, dressing, or taking medications • Skilled nursing care
Potential advantages
• Can remain in familiar surroundings • May be less expensive than assisted-living or nursing home care if limited services are needed
• Staff available 24 hours a day • Social interaction with other residents • May have home-like atmosphere
• Social interaction with other residents • Access to round-the-clock medical care • May have special care units for individuals with Alzheimer's disease or related conditions
Potential disadvantages
• Strangers in home • Can be difficult to coordinate care
• Limited privacy • Long waiting lists • High fees for extra services
• Limited privacy • Long waiting lists • Very expensive
What you need to do
• Assess hazards and functionality of home, renovate if necessary • Check credentials of agency or individual providing service
• Research facility thoroughly • Consult an attorney before signing a contract
• Research facility thoroughly • Consult an attorney before signing a contract
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Tips for Caregivers
Ways to safeguard the home • Post important telephone numbers in case of emergency (e.g., Install an emergency alert system that physician, emergency services). can be activated from anywhere in the home. • Safeguard your parent's home. • Complete first-aid and CPR courses. • Talk to your parent about the future; understand his or her wishes. • Make sure your parent has a will, durable power of attorney, health-care proxy, and living will.
Install grab bars and handrails, place nonslip strips in tubs and showers. Secure or remove rugs, keep paths clear, and make sure lighting is adequate to prevent falls.
• Join a support group or cultivate friendships where you can talk openly about your caregiving responsibilities and challenges. • Seek assistance from friends and relatives, community services (home health care, meal delivery, adult day care, etc.), and other sources. • Talk to your employer. Some employers will help by offering flexible schedules or other assistance. • Be aware that the Family and Medical Leave Act requires employers of 50 or more employees to grant eligible employees unpaid leave to care for a member of their immediate family who has a serious health condition.
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Common Incapacity Documents Durable Power of Attorney for Health Care (DPAHC)/Health-Care Proxy Advantages
Disadvantages
• Is flexible--allows your representative to act on your behalf and make medical decisions based on current circumstances • Generally, your representative can make any decision you would be allowed to make • Generally can be used any time you become incompetent
• Not practical in an emergency--your representative must be present to act on your behalf • Not permitted in some states
Living Will Advantages
Disadvantages
• Allows you to convey decisions regarding your medical care without relying on any one person to carry out your wishes
• Generally can be used only if you are terminally ill or injured, or in a persistent vegetative state • Generally used only to make decisions regarding life-sustaining treatments • Emergency medical personnel generally cannot withhold emergency care based on a living will • Not permitted in some states
Do Not Resuscitate (DNR) Order Advantages
Disadvantages
• Allows you to decline CPR if your heart or breathing fails • Effective in an emergency--your doctor should note an in-hospital DNR order on your chart. Out-of-hospital DNR orders take various forms, depending on the laws of your state. ID bracelets, MedicAlert ®necklaces, and wallet cards are some methods of noting DNR status.
• Some states allow DNR orders only for hospitalized patients--others do not restrict eligibility • Only used to decline CPR in case of cardiac or respiratory arrest • Not permitted in some states
Durable Power of Attorney (DPOA) Advantages
Disadvantages
• You control who acts and what they can do with your property • Low cost to implement • Decreases the chance of court intervention
• Some states do not permit a "springing" DPOA (i.e., a DPOA that is effective only after you have become incapacitated)
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Inflation Protection Options
When you buy a long-term care insurance policy, you choose a daily benefit level (the amount that the policy will pay for your daily care if you need it), but it's hard to know today what the future cost of care will be. Although the national average daily cost of a semi-private room in a nursing home is approximately $187, the cost may be much higher in your area, and may rise substantially in the future.* An inflation rider automatically increases your benefit amount by a specific percentage each year, by either simple interest or compound interest. Cost-of-living inflation protection, usually pegged to the Consumer Price Index, is also available. Five percent is a typical inflation factor. The chart above shows the effect of several different types of inflation riders: No Inflation Option
The straight red line illustrates a policy with no inflation protection. The daily benefit will never exceed the original amount, which is $150 per day in this illustration. 5 Percent Simple
The green area shows the effect of 5 percent simple interest inflation protection. With this option, the daily benefit amount increases 5 percent per year. 5 Percent Compound
The blue area illustrates the daily benefit of a policy with a 5 percent compound inflation rider, which in later years will provide a significantly higher daily benefit than the percent simple option. Cost of Living
Finally, the tan area shows the effect of a cost-of-living rider. For this illustration, it is assumed that the daily benefit amount increases at an annual rate of 3 percent for the first 10 years and 4 percent during years 11 through 20.
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*The National Clearinghouse for Long-Term Care Information, 2008
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Housing Options for Older Individuals As you grow older, your housing needs may change. Maybe you'll get tired of doing yardwork. You might want to retire in sunny Florida or live close to your grandchildren in Illinois. Perhaps you'll need to live in a nursing home or an assisted-living facility. Or, after considering your options, you may even decide to stay where you are. When the time comes to evaluate your housing situation, you'll have numerous options available to you.
There's no place like home Are you able to take care of your home by yourself? If your answer is no, that doesn't necessarily mean it's time to move. Maybe a family member can help you with chores and shopping. Or perhaps you can hire someone to clean your house, mow your lawn, and help you with personal care. You may want to stay in your home because you have memories of raising your family there. On the other hand, change may be just what you need to get a new perspective on life. To evaluate whether you can continue living in your home or if it's time for you to move, consider the following questions: • How willing are you to let someone else help you? • Can you afford to hire help, or will you need to rely on friends, relatives, or volunteers? • How far do you live from family and/or friends? • How close do you live to public transportation? • How easily can you renovate your home to address your physical needs? • How easily do you adjust to change? • How easily do you make friends? • How does your family feel about you moving or about you staying in your own home? • How does your spouse feel about moving?
Hey kids, Mom and Dad are moving in! If you are moving in with your child, will you have adequate privacy? Will you be able to move around in your child's home easily? If not, you might ask him or her to install devices that will make your life easier, such as tub or shower grab bars and easy-to-open handles on doors. You'll also want to consider the emotional consequences of moving in with your child. If you move closer to your child, will you expect him or her to take you shopping or to include you in every social event? Will you feel in the way? Will your child expect you to help with cooking, cleaning, and baby-sitting? Or, will he or she expect you to do little or nothing? How will other members of the family feel? Get these questions out in the open before you consider moving in. Talk about important financial issues with your child before you agree to move in. This may help avoid conflicts or hurt feelings later. Here are some suggestions to get the conversation flowing: • Will he or she expect you to contribute money toward household expenses? • Will you feel guilty if you don't contribute money toward household expenses? • Will you feel the need to critique his or her spending habits, or are you afraid that he or she will
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critique yours? • Can your child afford to remodel his or her home to fit your needs? • Do you have enough money to support yourself during retirement? • How do you feel about your child supporting you financially?
Assisted-living options Assisted-living facilities typically offer rental rooms or apartments, housekeeping services, meals, social activities, and transportation. The primary focus of an assisted-living facility is social, not medical, but some facilities do provide limited medical care. Assisted-living facilities can be state-licensed or unlicensed, and they primarily serve senior citizens who need more help than those who live in independent living communities. Before entering an assisted-living facility, you should carefully read the contract and tour the facility. Some facilities are large, caring for over a thousand people. Others are small, caring for fewer than five people. Consider whether the facility meets your needs: • Do you have enough privacy? • How much personal care is provided? • What happens if you get sick? • Can you be asked to leave the facility if your physical or mental health deteriorates? • Is the facility licensed or unlicensed? • Who is in charge of health and safety? Reading the fine print on the contract may save you a lot of time and money later if any conflict over services or care arises. If you find the terms of the contract confusing, ask a family member for help or consult an attorney. Check the financial strength of the company, especially if you're making a long-term commitment. As for the cost, a wide range of care is available at a wide range of prices. For example, continuing care retirement communities are significantly more expensive than other assisted-living options and usually require an entrance fee above $50,000, in addition to a monthly rental fee. Keep in mind that Medicare probably will not cover your expenses at these facilities, unless those expenses are health-care related and the facility is licensed to provide medical care.
Nursing homes Nursing homes are licensed facilities that offer 24-hour access to medical care. They provide care at three levels: skilled nursing care, intermediate care, and custodial care. Individuals in nursing homes generally cannot live by themselves or without a great deal of assistance. It is important to note that privacy in a nursing home may be very limited. Although private rooms may be available, rooms more commonly are shared. Depending on the facility selected, a nursing home may be similar to a hospital environment or may have a more residential feel. Some on-site services may include: • Physical therapy • Occupational therapy • Orthopedic rehabilitation
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• Speech therapy • Dialysis treatment • Respiratory therapy When you choose a nursing home, pay close attention to the quality of the facility. Visit several facilities in your area, and talk to your family about your needs and wishes regarding nursing home care. In addition, remember that most people don't remain in a nursing home indefinitely. If your physical or mental condition improves, you may be able to return home or move to a different type of facility. Contact your state department of elder services for guidelines on how to evaluate nursing homes. Nursing homes are expensive. If you need nursing home care in the future, do you know how you will pay for it? Will you use private savings, or will you rely on Medicaid to pay for your care? If you have time to plan, consider purchasing long-term care insurance to pay for your nursing home care.
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Medicare Medicare is a federal program that provides health insurance to retired individuals, regardless of their medical condition. Here are some basic facts about Medicare that you should know.
What does Medicare cover? Medicare coverage consists of two main parts: Medicare Part A (hospital insurance) and Medicare Part B (medical insurance). A third part, Medicare Part C (Medicare Advantage), is a program that allows you to choose among several types of health-care plans. A fourth part, Medicare Part D, offers prescription drug coverage that can help you handle the rising costs of prescriptions.
Medicare Part A (hospital insurance) Generally known as hospital insurance, Part A covers services associated with inpatient hospital care. These are the costs associated with an overnight stay in a hospital, skilled nursing facility, or psychiatric hospital, including charges for the hospital room, meals, and nursing services. Part A also covers hospice care and home health care.
Medicare Part B (medical insurance) Generally known as medical insurance, Part B covers other medical care. Physician care--whether you received it as an inpatient at a hospital, as an outpatient at a hospital or other health-care facility, or at a doctor's office--is covered under Part B. Laboratory tests, physical therapy or rehabilitation services, and ambulance service are also covered.
Medicare Part C (Medicare Advantage) The 1997 Balanced Budget Act expanded the kinds of private health-care plans that may offer Medicare benefits to include managed care plans and private fee-for-service plans. Medicare Part C programs are in addition to the fee-for-service options available under Medicare Parts A and B. Medicare Part C programs vary, but generally provide all Medicare-covered benefits. Many also offer extra benefits, including prescription drug coverage, and coverage for additional days in the hospital.
Medicare Part D (prescription drug coverage) All Medicare beneficiaries are eligible to join a Medicare prescription drug plan offered by private companies or insurers that have been approved by Medicare. Although these plans vary in price and benefits, they all cover a broad number of brand name and generic drugs available at local pharmacies or through the mail. Medicare prescription drug coverage is voluntary, but if you decide to join a plan, keep in mind that some plans cover more drugs or offer a wider selection of pharmacies (for a higher premium) than others. You can get information and help with comparing plans on the Medicare website, www.medicare.gov, or by calling a Medicare counselor at 1-800-Medicare.
What is not covered by Medicare Parts A and B? Some medical expenses are not covered by either Part A or B. These expenses include: • Your Part B premium • Deductibles, coinsurance, or co-payments that apply
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• Most prescription drugs • Dental care • Hearing aids • Eye care • Custodial care at home or in a nursing home Medicare Part C may cover some of these expenses, or you can purchase a supplemental Medigap insurance policy that will help cover what Medicare does not.
Are you eligible for Medicare? Most people age 65 or older who are citizens or permanent residents of the United States are eligible for Medicare Part A (hospital insurance) without paying a monthly premium. You are eligible at age 65 if: • You receive or are eligible to receive Social Security or Railroad Retirement Board benefits based on your own work record or on someone else's work record (as a spouse, divorced spouse, widow, widower, divorced widow, divorced widower, or parent), or • You or your spouse worked long enough in a government job where Medicare taxes were paid In addition, if you are under age 65, you can get Part A without paying a monthly premium if you have received Social Security or Railroad Retirement Board disability benefits for 24 months, or if you are on kidney dialysis or are a kidney transplant patient. Even if you're not eligible for free Part A coverage, you may still be able to purchase it by paying a premium. Call the Social Security Administration (SSA) at (800) 772-1213 for more information. Although Medicare Part B (medical insurance) is optional, most people sign up for it. If you want to join a Medicare managed care plan or a Medicare private fee-for-service plan, you'll need to enroll in both Parts A and B. And Medicare Part B is never free--you'll pay a monthly premium for it, even if you are eligible for premium-free Medicare Part A.
How much does Medicare cost? Medicare deductible amounts and premiums change annually. Here's what you'll pay for Medicare in 2010: Premium
Deductible
Part A (hospital) None for most people, but $1,100 per benefit period noneligible individuals pay either $254 per month (if they have 30 to 39 quarters of Medicare-covered employment) or $461 per month (if they have 29 or fewer quarters of Medicare-covered employment)
Coinsurance $275 a day for the 61st to 90th day each benefit period; $550 a day for the 91st to 150th day for each lifetime reserve day (total of 60 lifetime reserve days); up to $137.50 a day for the 21st to 100th day each benefit period for skilled nursing facility care
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Page 84 of 119 $155 per year
After satisfying a deductible, you normally pay 20 percent of the approved amount for medical expenses (50 percent for outpatient mental health services, 20 percent for hospital charges for outpatient hospital services, nothing for laboratory services)
Note: Your monthly Medicare Part B premium will be $110.50 if you did not have the Social Security Administration withhold your premium in 2009. You will pay an even higher premium if you file an individual income tax return and your annual modified adjusted gross income is more than $85,000, or if you file a joint income tax return and your annual modified adjusted gross income is more than $170,000 (in 2010). For more information, visit www.medicare.gov. Since Medicare doesn't cover every type of medical care, and you'll have to pay deductibles and coinsurance, you may want to buy a Medicare supplemental insurance (Medigap) policy.
Who administers the Medicare program? The Centers for Medicare & Medicaid Services (formerly known as the Health Care Financing Administration), a division of the U.S. Department of Health and Human Services, has overall responsibility for administering the Medicare program and sets standards and policies. But it's the SSA that processes Medicare applications and answers questions about eligibility. However, as a beneficiary, you deal mostly with the private insurance companies that actually handle the claims on the local level for individuals with Medicare coverage. Insurance companies that handle Medicare Part A claims are known as Medicare intermediaries, and insurance companies that handle Part B claims are known as Medicare carriers. Managed care plans handle Part C claims. Although the same private insurance company may handle both Part A and Part B claims, Part A and Part B are very different in regard to administration (e.g., different deductibles and co-payment requirements). There is virtually no overlap; it is as if you have two separate health insurance policies.
How do you sign up for Medicare? Any individual who is receiving Social Security benefits will automatically be enrolled in Medicare Parts A and B at age 65 when he or she becomes eligible. If you are not receiving Social Security benefits before age 65, you will be automatically enrolled when you apply for benefits at age 65. But if you decide to delay retirement until after age 65, remember to enroll in Medicare Parts A and B at age 65 anyway, because your enrollment won't be automatic. If you're going to be automatically enrolled in Medicare, you'll receive an initial enrollment package by mail from the SSA, usually three months before your 65th birthday. Of course, even if you sign up for Part A, you don't have to enroll in Part B, or you can decide to delay enrolling. But first, carefully read the information contained in your initial enrollment package. It explains the consequences of not enrolling at age 65 (e.g., you may have to pay a higher premium later) and will help you learn more about the Medicare program. For more information about enrolling in Medicare, call the SSA at (800) 772-1213.
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Buying Supplemental Health Insurance: Medigap Medicare won't cover all of your health-care costs during retirement, so you may want to buy a supplemental medical insurance policy known as Medigap. Offered by private insurance companies, Medigap policies are designed to cover costs not paid by Medicare, helping you fill the gaps in your Medicare coverage.
When's the best time to buy a Medigap policy? The best time to buy a Medigap policy is during open enrollment, when you can't be turned down or charged more because you are in poor health. If you are age 65 or older, your open enrollment period starts when you first enroll in Medicare Part B. If you are not yet 65, your open enrollment period starts when you turn 65 and then lasts for six months. A few states also require that a limited open enrollment period be offered to Medicare beneficiaries under age 65. If you don't buy a Medigap policy during open enrollment, you may not be able to buy the policy that you want later. You may find yourself having to settle for whatever type of policy an insurance company is willing to sell you. That is because insurers have greater freedom to deny applications or charge higher premiums for health reasons once open enrollment closes.
What's covered in a Medigap policy? Under federal law, only 12 standardized plans can be offered as Medigap plans (except in Massachusetts, Minnesota, and Wisconsin, which have their own standardized plans). Each Medigap policy is labeled with the letters A through L. Plan A is the basic benefit plan, while Plan J offers the most coverage. All cover certain services, including Medicare coinsurance amounts. Plans B through J also offer some combination of other benefits. These include coverage of Medicare Part A and B deductibles, and preventive medical care. Plans K and L are designed to provide protection against catastrophic expenses. They have lower premium costs than other Medigap plans, but require you to pay some higher coinsurance costs until you meet an annual out-of-pocket limit. You can buy the Medigap plan that best suits your needs. But it's important to note that not all Medigap plans are available in every state.
Are all Medigap policies created equal? Generally, yes. Although Medigap policies are sold through private insurance companies, they're standardized and regulated by state and federal law. A Plan B purchased through an insurance company in New York will offer the same coverage as a Plan B purchased through an insurance company in Texas. All you have to do is decide which plan that you want to buy. However, even though the plans that insurance companies offer are identical, the quality of the companies that offer the plans may be different. Look closely at each company's reputation, financial strength, and customer service standards. And check out what you'll pay for Medigap coverage. Medigap premiums vary widely, both from company to company and from state to state. You can find a tool on the Medicare website (www.medicare.gov) that will help you compare Medigap policies offered in your area.
Does everyone need Medigap? No. In fact, it's illegal for an insurance company to sell you a Medigap policy that substantially duplicates any existing coverage you have, including Medicare coverage. In general, you won't need a Medigap policy if you participate in a Medicare managed care plan or private fee-for-service plan, or if you qualify for Medicaid or have group coverage through your spouse.
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You may also not need to buy a Medigap policy if you work past age 65 and have employer-sponsored health insurance. You can still enroll in Medicare, but your employer-sponsored insurance will be your primary payer, so you'll submit claims to them first. Medicare will be the secondary payer, paying costs covered by Medicare but not covered by your employer's plan. If you find yourself in this situation, you may want to enroll in Medicare Part A, since it's free. Remember that if you enroll in Medicare Part B, your open enrollment period for Medigap starts. If you don't buy a Medigap policy within six months, you may be denied coverage later or charged a higher premium. In addition, you may not need to buy a Medigap policy if you are covered by an employer-sponsored health plan after you retire (e.g., as part of a retirement severance package). In this case, your employer's plan will be your primary payer, and Medicare will be your secondary payer. However, if you wish, you can convert your employer-provided plan into a Medigap policy. In fact, some insurance policies automatically change coverage when you reach age 65 because they assume that you will sign up for Medicare. Keep in mind, though, that coverage and premium amounts may change.
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Medicaid and Nursing Home Care As you enter your 60s and 70s, health may become more of an issue than it once was, and your thoughts may turn to the future. Who will take care of you when you can no longer care for yourself? If you must enter a nursing home, how will you pay for it? By learning as much as you can about Medicaid right now and planning appropriately, you may be able to resolve these issues and create a more secure future.
Nursing homes provide different levels of long-term care You may need to enter a nursing home if you become physically or mentally incapacitated and can no longer care for yourself properly. If the services of an in-home caregiver are inadequate or unavailable, or if you require around-the-clock care, entry into a nursing home on a long-term basis may be your only option. A nursing home is a state-licensed facility that may provide skilled nursing care, intermediate care, and/or custodial care. • Skilled care: This around-the-clock care, ordered by a physician and performed by skilled medical personnel, is designed to treat a medical condition. • Intermediate care: This involves occasional nursing and rehabilitative care provided by registered nurses and certain other medical personnel under the supervision of a physician. • Custodial care: This type of care is designed to help you perform the activities of daily living (e.g., bathing, eating, dressing). It can be provided by someone without professional medical skills but is supervised by a physician.
Medicaid can help you pay for nursing home care Medicare (Part A), Medigap insurance, and Medicaid can each provide some assistance in paying for long-term care. However, Medicare and Medigap provide only short-term coverage for skilled care at nursing homes--only a certain number of days per year are covered. Also, they do not provide coverage for intermediate and custodial care in nursing homes. In contrast, Medicaid (in most states) will pay for skilled care and intermediate care in nursing homes, and for custodial care at home. The bottom line is that most nursing home residents are left with only three alternatives for paying their nursing home bills: Medicaid, their own assets (e.g., cash, investments), and long-term care insurance (LTCI). Although an LTCI policy may be an ideal solution, you may not be able to purchase such a policy later in life if you're uninsurable for health reasons, or if you find the premiums too high. If you don't want to spend your life savings on nursing home bills and can't afford LTCI premiums, qualifying for Medicaid may be your best bet. With proper planning, you may be able to qualify for Medicaid, protect your healthy spouse (if you have one), and even leave some assets to your loved ones after you're gone.
You must satisfy several requirements to qualify for Medicaid Medicaid is a joint federal-state program that provides medical assistance to various low-income people, including those who are aged (i.e., 65 or older), disabled, or blind. It can pay for a number of costs, including hospital bills, physician services, and long-term care. Medicaid is the single largest payer of nursing home bills in America and is the last resort for people who have no other way to finance their long-term care. Although the eligibility rules vary from state to state, federal minimum standards and guidelines must be observed. In addition to you meeting your state's medical and functional criteria for nursing home care, your assets and monthly income must each fall below certain limits if you are to qualify for Medicaid. However, several assets
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(which may include your family home) and a certain amount of income may be exempt or not counted. Although many people are ineligible for Medicaid when they first enter a nursing home, several states allow elders to enter and then spend down their income and assets on nursing home bills to become eligible. This can be a great advantage. On the downside, though, you may have to kiss your life savings good-bye. That's where Medicaid planning comes in. In determining your eligibility for Medicaid, a state may count only the income and assets that are legally available to you for paying bills. You can make assets unavailable by giving them away or by holding them in certain trusts. However, in some cases, such transfers may create a period of ineligibility before you can collect Medicaid. So, to engage in proper Medicaid planning, you should consult an experienced elder law attorney.
Choosing the right nursing home takes research Because nursing homes have long waiting lists, you should research the nursing homes in your area before an emergency arises. If you plan on using Medicaid to pay for your nursing home care, make sure that the facility you select accepts Medicaid--not all nursing homes do. Many others restrict the number of Medicaid "beds" in the nursing home (some states, however, prohibit this). Also, be aware that if Medicaid will be paying for your nursing home care, you will not be entitled to a private room. You should consider several factors when choosing a nursing home. These include: • Level of medical care: Some homes provide mainly custodial care. If you think that you may need skilled nursing care in the future, don't choose a home that offers only custodial care. • Cost of care: You will pay less at some facilities than at others. Compare the cost of each facility with the quality of care and the services provided. • Recreational opportunities: Consider whether the nursing home organizes outside or in-house recreational activities for its residents. • Appearance of grounds and facilities: The nursing home should be clean and well maintained. A bad smell is one sign of a poor-quality nursing home. • Resident/staff ratio and interaction: Determine if the resident/staff ratio meets or exceeds state and federal requirements. Also, notice how staff members treat residents. When you find a nursing home that you like, you should find out if a bed will be available for you, or if you can add your name to a waiting list. And remember, Medicaid planning should be done well before the need for a nursing home arises. For more information on how to evaluate a nursing home, contact your state department of elder services.
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Medicaid Planning Basics Unfortunately, many nursing home residents end up exhausting their assets on long-term care. But it doesn't have to be that way. The best time to plan for the possibility of nursing home care is when you're still healthy. By doing so, you may be able to pay for your long-term care and protect assets for your loved ones. How? Through Medicaid planning. You worked hard all of your life to pay off your mortgage and build a retirement fund. You expected to live off your savings in the comfort of your own home, and you planned to leave something to your kids at the appropriate time. Suddenly, the unthinkable happens--you suffer a stroke at age 70 and must spend the rest of your years in a nursing home. What will happen to your life savings?
Eligibility for Medicaid depends on your state's asset and income-level requirements Medicaid is a joint federal-state program that provides medical assistance to various low-income individuals, including those who are aged (i.e., 65 or older), disabled, or blind. It is the single largest payer of nursing home bills in America and is the last resort for people who have no other way to finance their long-term care. Although Medicaid eligibility rules vary from state to state, federal minimum standards and guidelines must be observed. In addition to you meeting your state's medical and functional criteria for nursing home care, your assets and monthly income must each fall below certain levels if you are to qualify for Medicaid. However, several assets (which may include your family home) and a certain amount of income may be exempt or not counted.
Medicaid planning can help you meet your state's requirements To determine whether you qualify for Medicaid, your state may count only the income and assets that are legally available to you for paying bills. Medicaid planning helps you devise ways of making your assets and income inaccessible. Over the years, attorneys have developed several strategies to rearrange finances and legally shelter assets from the state. These strategies--and the Medicaid rules themselves--can be complicated, especially since the passage of the Deficit Reduction Act of 2005, which significantly tightened restrictions on Medicaid planning. You should consult an experienced elder law attorney if you wish to take steps to protect your assets from the state. Along with qualifying you for Medicaid benefits, Medicaid planning seeks to accomplish the following goals: • Sheltering your countable assets • Preserving assets for your loved ones • Providing for your healthy spouse (if you're married) Let's look at these in turn.
One way to shelter countable assets is to exchange them for exempt assets Countable assets are those that are not exempt by state law or otherwise made inaccessible to the state for Medicaid purposes. The total value of your countable assets (together with your countable income) will determine your eligibility for Medicaid. Under federal guidelines, each state compiles a list of exempt assets. Usually, this list includes such items as the family home (regardless of value), prepaid burial plots and contracts, one automobile, and term life insurance. Through Medicaid planning, you can rearrange your finances so that countable assets are exchanged for exempt assets or otherwise made inaccessible to the state. For example, instead of spending your savings solely on
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nursing home bills, you can pay off the mortgage on your family home, make home improvements and repairs, pay off your debts, purchase a car for your healthy spouse, and prepay burial expenses. There are many other ways to shelter countable assets. Consult an experienced attorney for more information.
Irrevocable trusts can help you leave something for your loved ones Why not simply liquidate all of your assets to pay for your nursing home care? After all, Medicaid will eventually kick in (in most states) once you've exhausted your personal resources. The reason is simple: You want to assist your loved ones financially. You want to be able to leave something to them, rather than to strangers. There are many ways to protect assets for your loved ones. One way is to use an irrevocable trust. (It's irrevocable in the sense that you can't later change its terms or decide to end it.) Property placed in an irrevocable trust will be excluded from your financial picture, for Medicaid purposes. If you name a proper beneficiary, the principal that you deposit into the trust (and possibly any income generated) will be sheltered from the state and can be preserved for your heirs. Typically, though, the trust must be in place and funded for a specific period of time for this strategy to be an effective Medicaid planning tool. For information about Medicaid planning trusts, consult an experienced attorney.
If you're married, an annuity can help you provide for your healthy spouse Nursing homes are expensive. If you must go to one, will your spouse have enough money to live on? With a little planning, the answer is yes. Here's how Medicaid affects a married couple. A couple's assets are pooled together when the state is considering the eligibility of one spouse for Medicaid. The healthy spouse is entitled to keep a spousal resource allowance that generally amounts to one-half of the assets. This may not amount to much money over the long term. A healthy spouse may want to use jointly owned, countable assets to buy a single premium immediate annuity to benefit himself or herself. Converting countable assets into an income stream is a plus because each spouse is entitled to keep all of his or her own income, in contrast to the pooling of assets. By purchasing an immediate annuity in this manner, the institutionalized spouse can more easily qualify for Medicaid, and the healthy spouse can enjoy a higher standard of living. Be aware, however, that for annuities purchased on February 8, 2006 and thereafter (the date of enactment of the Deficit Reduction Act of 2005), the state must be named as the remainder beneficiary of the annuity after your spouse or a minor or disabled child.
Beware of certain Medicaid planning risks Medicaid planning is not without certain risks and drawbacks. In particular, you should be aware of look-back periods, possible disqualification for Medicaid, and estate recoveries. When you apply for Medicaid, the state has the right to review, or look back, at your finances (and those of your spouse) for a period of months before the date you applied for assistance. In general, a 60-month look-back period exists for transfers of countable assets for less than fair market value (for transfers made prior to February 8, 2006, there's a look-back period of 60 months for transfers into an irrevocable trust and a look-back period of 36 months for all other transfers). Transfers of countable assets for less than fair market value made during the look-back period will usually result in a waiting period before you can start to collect Medicaid. So, for example, if you give your house to your kids the year before you enter a nursing home, you'll be ineligible for Medicaid for quite some time. (A mathematical formula is used.) Note: Some states must amend their laws to implement the changes to Medicaid under the Deficit Reduction Act of 2005. In these states, the date the new rules will go into effect may be different than the federal enactment date of February 8, 2006. Ask an elder law attorney in your state for more information.
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Also, you should know that Medicaid planning is more effective in some states than in others. In addition, federal law encourages states to seek reimbursement from Medicaid recipients for Medicaid payments made on their behalf. This means that your state may be able to place a lien on your property while you are alive, or seek reimbursement from your estate after you die.
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Understanding Long-Term Care Insurance It's a fact: People today are living longer. Although that's good news, the odds of requiring some sort of long-term care increase as you get older. And as the costs of home care, nursing homes, and assisted living escalate, you probably wonder how you're ever going to be able to afford long-term care. One solution that is gaining in popularity is long-term care insurance (LTCI).
What is long-term care? Most people associate long-term care with the elderly. But it applies to the ongoing care of individuals of all ages who can no longer independently perform basic activities of daily living (ADLs)--such as bathing, dressing, or eating--due to an illness, injury, or cognitive disorder. This care can be provided in a number of settings, including private homes, assisted-living facilities, adult day-care centers, hospices, and nursing homes.
Why you need long-term care insurance (LTCI) Even though you may never need long-term care, you'll want to be prepared in case you ever do, because long-term care is often very expensive. Although Medicaid does cover some of the costs of long-term care, it has strict financial eligibility requirements--you would have to exhaust a large portion of your life savings to become eligible for it. And since HMOs, Medicare, and Medigap don't pay for most long-term care expenses, you're going to need to find alternative ways to pay for long-term care. One option you have is to purchase an LTCI policy. However, LTCI is not for everyone. Whether or not you should buy it depends on a number of factors, such as your age and financial circumstances. Consider purchasing an LTCI policy if some or all of the following apply: • You are between the ages of 40 and 84 • You have significant assets that you would like to protect • You can afford to pay the premiums now and in the future • You are in good health and are insurable
How does LTCI work? Typically, an LTCI policy works like this: You pay a premium, and when benefits are triggered, the policy pays a selected dollar amount per day (for a set period of time) for the type of long-term care outlined in the policy. Most policies provide that certain physical and/or mental impairments trigger benefits. The most common method for determining when benefits are payable is based on your inability to perform certain activities of daily living (ADLs), such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed). Typically, benefits are payable when you're unable to perform a certain number of ADLs (e.g., two or three). Some policies, however, will begin paying benefits only if your doctor certifies that the care is medically necessary. Others will also offer benefits for cognitive or mental incapacity, demonstrated by your inability to pass certain tests.
Comparing LTCI policies Before you buy LTCI, it's important to shop around and compare several policies. Read the Outline of Coverage portion of each policy carefully, and make sure you understand all of the benefits, exclusions, and provisions. Once you find a policy you like, be sure to check insurance company ratings from services such as A. M. Best,
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Moody's, and Standard & Poor's to make sure that the company is financially stable. When comparing policies, you'll want to pay close attention to these common features and provisions: • Elimination period: The period of time before the insurance policy will begin paying benefits (typical options range from 20 to 100 days). Also known as the waiting period. • Duration of benefits: The limitations placed on the benefits you can receive (e.g., a dollar amount such as $150,000 or a time limit such as two years). • Daily benefit: The amount of coverage you select as your daily benefit (typical options range from $50 to $350). • Optional inflation rider: Protection against inflation. • Range of care: Coverage for different levels of care (skilled, intermediate, and/or custodial) in care settings specified in policy (e.g., nursing home, assisted living facility, at home). • Pre-existing conditions: The waiting period (e.g., six months) imposed before coverage will go into effect regarding treatment for pre-existing conditions. • Other exclusions: Whether or not certain conditions are covered (e.g., Alzheimer's or Parkinson's disease). • Premium increases: Whether or not your premiums will increase during the policy period. • Guaranteed renewability: The opportunity for you to renew the policy and maintain your coverage despite any changes in your health. • Grace period for late payment: The period during which the policy will remain in effect if you are late paying the premium. • Return of premium: Return of premium or nonforfeiture benefits if you cancel your policy after paying premiums for a number of years. • Prior hospitalization: Whether or not a hospital stay is required before you can qualify for LTCI benefits. When comparing LTCI policies, you may wish to seek assistance. Consult a financial professional, attorney, or accountant for more information.
What's it going to cost? There's no doubt about it: LTCI is often expensive. Still, the cost of LTCI depends on many factors, including the type of policy that you purchase (e.g., size of benefit, length of benefit period, care options, optional riders). Premium cost is also based in large part on your age at the time you purchase the policy. The younger you are when you purchase a policy, the lower your premiums will be.
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Long-Term Care Insurance: How Does It Work? Whether you've had a long-term care insurance (LTCI) policy for years or you're thinking of buying one, it's critical to understand exactly what set of conditions will trigger coverage. This information is the bread and butter of any LTCI policy. In addition, you should know how to file a claim, preferably before you're on the verge of needing care.
What determines if you're entitled to benefits? LTCI policies differ on how benefits are triggered, so it's crucial to examine your individual policy. Here are some typical ways you can become eligible for benefits: • You're unable to perform a certain number of activities of daily living (ADLs) without assistance, such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed). Look in your policy to see what ADLs are included, the number you must be unable to perform, and how your policy defines "unable to perform" for each ADL, as criteria can vary from one company to another (e.g., does the definition require someone to physically assist with the activity or simply to supervise the activity?). • Your doctor has ordered specific care. • Your care is medically necessary. • Your mental or cognitive function is impaired. • You've had a prior hospitalization of at least three days (this is rare with newer policies). An LTCI policy may contain one or more of these provisions. The more specific the language in the provision, the less room for disagreements about coverage.
Who determines if you're entitled to benefits? Just as important as what triggers benefits is the question of who decides if you've triggered them. These gatekeepers are an integral part of any LTCI policy--after all, they're the ones whom insurance companies rely on before paying out claims. In some cases, a policy may have more than one gatekeeper. The best policies let you qualify for benefits if your own doctor orders specific care, rather than require that you be examined by an insurance company physician. Similarly, it's insurance companies that define performance criteria for ADLs, as well as create and administer tests to see if you satisfy the mental impairment threshold. Make sure you know who the ultimate decision maker is under your policy.
When will benefits start? Most LTCI policies have a waiting period, commonly known as an elimination period, before you can start receiving benefits after you're judged medically eligible. Common waiting periods are 20, 30, 60, 90, or 100 days. During any waiting period, you're responsible for paying for your care, whether it's in a nursing home, an assisted-living facility, or in your home. Some LTCI policies have no waiting period--you can start receiving benefits on the first day you need care. However, this type of policy is more expensive than a policy with a waiting period. Generally speaking, the longer the waiting period, the less expensive the policy. Keep in mind that the calculation of the waiting period can vary from company to company. Some companies may count the days cumulatively (e.g., adding up the total number of days you spend in a nursing home, even
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with gaps), while others may count the days consecutively (e.g., adding the total number of days you spend in a nursing home without interruption). Also, some companies require only one waiting period for the life of the policy, while others require a waiting period every time you apply for benefits (unless you become eligible for benefits again within a certain period of time, such as six months or a year, in which case only one waiting period will need to be satisfied).
The mechanics of filing a claim Ideally, you should know how to file a claim before you actually need benefits--you don't want to lose coverage on a technicality. Typically, filing a claim means submitting a written notice to the insurance company, along with a proof-of-loss form (supplied by the insurance company) and relevant medical records. Most policies require you to give written notice of a claim within a specific time after needing care (e.g., 30 or 60 days). In addition, you may need to verify your condition in writing every 30 to 90 days. The company may also require you to submit to an independent medical evaluation by a physician of its choosing to verify your claim. Follow the instructions in your policy carefully. If you don't, your insurance company can deny you benefits, in which case your only recourse will be to make a complaint with your state insurance department or file a lawsuit (and most companies limit the period of time in which you can file a lawsuit). Don't let all those premium payments go to waste--take the time now to understand the claims-filing process for your policy.
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What Do Long-Term Care Insurance Policies Cover? Long-term care refers to a broad range of medical and personal services designed to assist people who've lost their ability to function independently. If you're thinking of buying long-term care insurance (LTCI), you'll want to make sure it covers the services you may need.
Types of long-term care Because some LTCI policies subsidize only certain forms of care, it's important to understand the terms. Long-term care may be divided into three levels: • Skilled care may be continuous round-the-clock care designed to treat a medical condition; it's ordered by a doctor and administered by skilled medical workers, such as registered nurses or professional therapists, as part of an established treatment plan • Intermediate care is intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse's aides under a doctor's supervision • Custodial care helps the patient perform daily living activities (e.g., bathing, eating, and dressing); it can be provided by someone without professional medical skills, but it's supervised by a doctor Generally, LTCI policies will, for a specified period of time (called the benefit period), pay a selected dollar amount per day toward skilled, intermediate, or custodial care in nursing homes, assisted-living facilities, or the insured's home. Typical benefit periods run from two to five years, and most policies pay $40 to $150 per day or more in daily benefits.
Where it's happening LTCI policies sometimes limit the facilities where you can choose to receive such care. Generally, though, LTCI will pay for care in nursing homes, assisted-living facilities, and at home. Many nursing homes provide all three levels of long-term care. When a patient no longer needs skilled care, he or she can be transferred to an intermediate or custodial care section within the same facility, or perhaps released to an assisted-living facility or to home care. Assisted-living facilities generally provide rental rooms or apartments, housekeeping services, meals, social activities, and transportation; some, most notably continuing care retirement communities, also provide long-term nursing care and guaranteed lifetime services. Home health care makes sense when you're recovering from an injury or an illness and don't need 24-hour care. If you have a medical condition that requires nursing care, daily monitoring, or therapy, you can hire a nurse or an aide to help you. You may also need custodial care and perhaps household help with cleaning, laundry, or shopping. In some instances, you might live with a relative who works and cannot care for you all day. Home health care might then be coupled with adult day care in centers that provide social interaction, therapeutic activities, preventive health services, and nutritious meals.
What long-term care insurance policies don't cover To know what a particular LTCI policy covers, be sure to check the details of the policy. Do you have any medical conditions from which you experienced symptoms, or for which you sought medical advice or treatment, within one to five years before applying for LTCI? If so, check what the policy covers. Some ignore pre-existing conditions, while others refuse to pay for treatments related to them--it might all depend on how long ago the condition first appeared. Many companies impose a waiting period (up to six months) before coverage for pre-existing conditions goes into effect. In all cases, you should disclose your true medical history to the insurance company on your application. If you do not disclose a pre-existing condition and the company
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discovers this later on, it may not pay for treatment related to that condition or may even cancel your policy. Check to see what, if anything, isn't covered. Alzheimer's disease, senility, and Parkinson's disease are common reasons for needing long-term care; make sure your policy doesn't exclude paying for care associated with these conditions. Also, most policies won't pay benefits for a person with an alcohol or drug addiction, an injury caused by an act of war, or injuries that were self-inflicted or the result of an attempted suicide.
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Should You Buy Long-Term Care Insurance? The longer you live, the greater the chances you'll need some form of long-term care. If you're concerned about protecting your assets and maintaining your financial independence in your later years, long-term care insurance (LTCI) may be for you.
Who needs it? Approximately 40 percent of Americans age 65 or older will need long-term care at some point during their lives. (Source: The National Clearinghouse for Long-Term Care Information, 2008.) And with life expectancies increasing at a steady rate, this figure can be expected to grow in the years to come.
But won't the government look out for me? Medicare pays nothing for nursing home care unless you've first been in the hospital for 3 consecutive days. After that, it will pay only if you enter a certified nursing home within 30 days of your discharge from the hospital. For the first 20 days, Medicare pays 100 percent of your nursing home care costs. After that, you'll pay $137.50 per day (in 2010) for your care through day 100, and Medicare will pick up the balance. Beyond day 100 in a nursing home, you're on your own--Medicare doesn't pay anything. If you're at home, Medicare provides minimal short-term coverage for intermediate care (e.g., intravenous feeding or the treatment of dressings), but only if you're confined to your home and the treatments are ordered by a doctor. Medicare provides nothing for custodial care, such as help with feeding, bathing, or preparing meals. Medicaid covers long-term nursing home costs (including both intermediate and custodial care costs) but only for individuals who have low income and few assets (eligibility guidelines vary from state to state). You will have to use up most of your savings before you qualify for Medicaid, and aside from a small personal needs allowance (typically $30 to $60 dollars a month), you will have to use all of your retirement income, including Social Security and pension payments, to pay for your care before Medicaid pays anything. And once you qualify for Medicaid, you'll have little or no choice regarding where you receive care. Only facilities with Medicaid-approved beds can accept you, and your chances of staying in your own home are slimmer, because currently most states' Medicaid programs only cover limited home health care services.
Looking out for yourself If you want to retain your independence, protect your assets, and maintain your standard of living while at the same time guaranteeing your access to a range of long-term care options, you may want to purchase LTCI. This insurance might be right for you if you meet the following criteria: • You're between the ages of 40 and 84 • You have significant assets that you would want to preserve as an inheritance for others or gift to charity • You have an income from employment or investments in addition to Social Security • You can afford LTCI premiums (now and in the future) without changing your lifestyle Once you purchase an LTCI policy, your premiums can go up over time, but the rates can only rise for an entire class of policyholders in your state (i.e., all policyholders who bought a particular policy series, or who were within certain age groups when they bought the policy). Any increase must be justified and approved by your state's insurance division. Several factors affect the cost of your long-term care policy. The most significant factors are your age, your
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health, the amount of benefit, and the benefit period. The younger and healthier you are when you buy LTCI, the less your premium rate will be each year. The greater your daily benefit (choices typically range from $50 to $350) and the longer the benefit period (generally 1 to 6 years, with some policies offering a lifetime benefit), the greater the premium.
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Understanding Long-Term Care Riders and Options There's no such thing as a standard long-term care insurance (LTCI) policy. Some policies are comprehensive (including most group LTCI policies), building many important features into the base plan--while charging a higher premium. Other lower-priced policies provide only basic coverage but offer you the choice of buying greater benefits at an additional cost. That's why it's important when comparing policies to look at both the basic coverage an LTCI policy offers and the optional benefits you can add.
A quick look at long-term care insurance basics Most LTCI policies today cover a full range of services, including full-time nursing home care (skilled care), part-time nursing home care (intermediate care), or assistance with daily living activities (custodial care). Coverage for mental incapacity (including Alzheimer's disease) is now standard in most policies. Also, a good basic policy won't require you to spend time in a hospital before receiving long-term care benefits. And nearly all LTCI policies are renewable, as long as premium payments continue. You should be able to find a basic LTCI package that includes many of these features. If not, find out how much it will cost to add these provisions. Now that you have an idea of what a good basic LTCI policy should include, consider some of the following options and riders. But because they can significantly increase your LTCI premium, you'll need to balance the cost of these options with their importance to you.
Home health care and other alternative care options Most LTCI policies will cover care in alternative care settings, such as the home, adult day-care facilities, and assisted-living facilities. But this important option is not standard in every policy. Alternative care makes sense when you don't require the constant skilled nursing care that a nursing home provides but still need the services of a health aide at least a few times a week. It can also help you transition from a hospital or nursing home and become self-sufficient. So what's the price tag? Home care and other alternative care coverage that provides half the benefit of full nursing home care can increase your premium by 30 percent. Coverage that equals the nursing home benefit could raise the premium by 50 percent.
Inflation protection When you buy an LTCI policy, you choose a daily benefit level--the amount the policy will pay for your daily care if you need it. But how do you know this will be enough to adequately cover your costs? An inflation rider automatically increases your benefit amount by a specific percentage each year, either by simple interest or compound interest to help your benefit amount keep pace with rising costs. Five percent is a typical inflation factor. The younger you are when you buy an LTCI policy, the more important inflation protection may be. Keep in mind, though, that a simple-interest inflation rider can increase your premium by 20 to 30 percent or more, while a compound-interest inflation rider could more than double your premium. A possible alternative is to buy a policy with a larger benefit amount today in anticipation of rising nursing home costs in the future.
Nonforfeiture of premium feature Should you decide you no longer need LTCI or if you are unable to keep up the premium payments, you may be able to salvage a portion of the policy's benefits. Some contracts contain a return-of-premium option whereby the insurer returns all of the premiums you have paid beyond a certain date, minus any benefits used up to that point. Others may pay a stipulated percentage of the paid premiums, depending on the number of years you've held the contract. Aside from the cash option, another method of preserving the benefits of your LTCI policy is through a nonforfeiture conversion. This involves changing your policy to one with a lower coverage amount or coverage for a shorter period of time compared with your original policy. These reduced benefits will be available when needed, and no further premium payments are necessary.
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Waiver of premium This provision allows you to stop paying premiums once you are in a nursing home and the insurance company has started paying benefits to you. Depending on the provisions of your contract, the insurance company may waive the premium as soon as it makes your first benefit payment, or you may have to wait 60 to 100 days after the onset of your nursing care. Note that the waiver of premium might not apply if you are receiving home care.
Guaranteed insurability With this rider, you may increase your level of coverage without submitting to further health questions. This may be important to you if you're concerned that your health condition may change after you purchase your LTCI policy and you may want to purchase more insurance in the future. This option is particularly attractive if you're buying your LTCI policy when you're young.
Third-party notification This benefit allows you to name a third party who would be notified by the insurance company if your policy is about to lapse because of your nonpayment of the premium due to mental or cognitive impairment. Many states require that insurance companies offer this option at no additional cost to you.
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Comparing Long-Term Care Insurance Policies Because long-term care insurance (LTCI) is a relatively new product, policies are not standardized. This can make it especially difficult to compare policies when you're shopping for this type of insurance. However, comparing LTCI policies is a lot easier when you know what to look for and follow a few simple guidelines.
Compare insurance companies One of your first steps should be to compare and evaluate insurance companies. But since there are many companies that sell LTCI, how do you narrow the field down to a few good ones? You can start by talking to friends, family members, or anyone else you know who's bought LTCI. How satisfied have these people been with their companies' handling of claims and overall customer service? To learn more about company reputations, check out consumer websites and publications. You can also contact your state's insurance department for information about different companies, such as customer complaints lodged within the last year. In addition, there are private firms that make a business of rating insurance companies, usually on a letter-grade scale. Some of the well-known rating service firms are A. M. Best, Moody's, The Street.com (formerly Weiss), Fitch, and Standard& Poor's. You can contact one of these firms directly, though their ratings may be available at your local public library. The ratings are typically based on a company's financial strength and other factors. Financial strength is particularly important because it tells you whether a company is likely to meet its future claims payments and other obligations.
Compare policy ins and outs As mentioned, there is no standard LTCI policy or contract--specific benefits and features often vary widely from one policy to another. That's why detailed policy comparisons are more important with LTCI than with any other type of insurance. Once you've narrowed your list of insurance companies down to a few (e.g., three or four), ask each company for some sample policies to review. Each sample should include an Outline of Coverage section at the beginning of the policy. This section briefly summarizes the policy's benefits and highlights the major features. After you read this section, read through the entire policy to make sure you understand all of the provisions. Here are some key items to look for: • Waiting period: This is the period of time that must pass before the insurance company will begin to pay benefits. It can be anywhere from 0 to 365 days. You'll be asked to select a waiting period--the shorter the period, the more the policy will cost. • Duration of benefits (known as the benefit period): You'll also be asked to select a benefit period (e.g., two years or a lifetime)--the longer the period, the more costly the policy. Watch out for caps placed on the total lifetime benefits you can receive if the policy lets you carry over unused daily benefits beyond the scheduled benefit period. • Nursing home and home health-care daily benefit: This is the amount of coverage you select as your daily benefit limit (e.g., $50, $200). • Cost-of-living rider: This feature provides protection against loss of purchasing power due to inflation. It increases your coverage every year to keep pace with inflation (either based on the Consumer Price Index or at a fixed percentage rate). • Range of care: A policy may provide coverage for different levels of care, such as skilled, intermediate, and/or custodial. A good policy should cover all levels of care. • Pre-existing conditions: A waiting period (e.g., six months) may be imposed before you can receive coverage for any pre-existing conditions you might have.
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• Other exclusions: Some policies may not cover certain medical conditions (e.g., Alzheimer's or Parkinson's disease). Others may specify that you have to be in certain types of facilities. • Premium increases: Some policies may have a level premium for the period that the policy is in effect. In other cases, the premium may increase during the policy period. • Waiver of premium: Most policies waive your premium after you've received benefits for a certain number of days, but sometimes only if you're receiving care in certain types of facilities. • Guaranteed renewability: Most policies give you the option to renew the policy and maintain your coverage, despite any changes in your health. • Grace period: Most policies give you a grace period if you're late with a premium payment (usually 30 days). This means that the policy will remain in effect during that period. • Restoration of benefits: This is a feature that restores your benefits if you recover from your condition and do not require care for a consecutive period (e.g., 180 or 365 days). • Return of premium: You may be entitled to a return of premiums paid (or a nonforfeiture of benefits or a continuation of benefits for a limited period of time) if you cancel your policy after paying premiums for a number of years. • Prior hospitalization: Some policies require a hospital stay before you can qualify for benefits under the policy. This requirement is less common than it used to be, and you should probably avoid policies that include this provision. How do the policies you're considering stack up against each other? Which benefits and features mean the most to you? How much can you customize each policy to your needs? These are very important questions. Knowing how to evaluate LTCI coverage in light of your own needs is the key to comparing and weeding out policies. Your final list of policies should include only ones that can offer exactly what you're looking for.
Compare premiums Because LTCI policies vary so much, simple premium comparisons usually don't provide useful results. You run the risk of comparing premiums for policies that don't provide comparable coverage. For example, suppose you're comparing two LTCI policies with different premiums. If the more expensive policy has a larger daily benefit and longer benefit period, it may be difficult to tell which policy is the better buy. Variations in the length of the elimination period and other features may further muddy the waters. The point is that you want a policy that gives you the best total value, and the premium is only one part of the equation. Still, the premium is important because you don't want to pay more for coverage than you have to. And you want to be sure you can afford the premiums as time goes on. Once you know your coverage needs and find a few policies that offer a good fit, you should then compare premiums. The price of an LTCI policy typically depends on the specifics of the coverage, your age at the time you buy the policy (most companies won't sell you a policy if you're under 40 or over 84), your medical history, the cost of long-term care where you live, and other factors. Note that premiums may vary widely between companies, even for policies that provide comparable coverage. The more similar the policies you're comparing, the more the premium will tell you about a policy's true value.
Consider getting help Because LTCI is complicated, comparing and evaluating policies is no easy task. You can do it alone if you choose, but you're probably better off getting professional help. A qualified insurance professional, or financial professional can assist you with this entire process. To find the right person to help you, seek word-of-mouth references and be very selective.
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Five Things to Watch Out for When Buying Long-Term Care Insurance You've researched long-term care insurance (LTCI) and are seriously thinking of buying a policy. Just make sure you're doing it for the right reasons--don't be swayed by unsubstantiated sales pitches. Here are some claims you'll want to think twice about.
A long-term care policy is a great tax write-off Though it's true that premiums paid on a tax-qualified LTCI policy can reduce your tax burden, you must itemize deductions to be eligible. When you're older, perhaps you'll no longer itemize deductions. And even if you do, LTCI premiums fall under the write-off for medical and dental expenses, which is limited to expenses that exceed 7.5 percent of your adjusted gross income. So, for example, if your adjusted gross income is $60,000, you are able to deduct only that portion of your unreimbursed medical and dental expenses (including LTCI premiums) that exceeds $4,500. And there's another caveat. Even if your LTCI premiums exceed 7.5 percent of your adjusted gross income, you can't include all of the premiums in your deduction for medical and dental expenses. Instead, your premiums are deductible according to a sliding scale that depends on your age. So what might look like a great tax write-off at first glance may not be so great after all.
You should buy a policy now so you can lock in the price forever With most LTCI policies, your age at the time you purchase the policy is a factor in determining your premiums. However, this doesn't mean that your premiums will stay the same as long as you own the policy. In fact, your premiums can increase if your insurance company establishes a rate increase for everyone in your class, and that increase is approved by the state insurance commissioner. As a relatively new type of insurance, LTCI may be particularly susceptible to rate increases, because insurance companies lack a sufficient amount of underwriting data to predict the number and size of claims they can expect in the future. And unfortunately for you, if your insurance company does raise your premium, it may not be so simple to take your business elsewhere. Any premium on a new LTCI policy will still be based on your age, which will be higher, and your health, which may be worse. So no matter when you buy your policy, make sure you can afford the premiums both now and in the future.
It doesn't matter how the policy defines "facility" Currently, there are no national standards on what constitutes a long-term care facility. This means that an "assisted-living facility" or "adult day-care facility" may mean one thing in a particular policy or state and another thing in a different policy or state. This can pose a problem if you buy the policy in one state and then retire to another state--there may be no facilities in your new state that match the definitions in your policy. To protect yourself, make sure you understand exactly what types of facilities the LTCI policy covers before you buy it.
It's not necessary to check the financial rating of the insurance company A large number of unexpected long-term care claims could potentially devastate an insurance company that isn't financially strong. So before you buy an LTCI policy, it's always a good idea to check the company's financial rating by using a rating service like Standard & Poor's, Moody's, A. M. Best, or Fitch. You can also check with your state's insurance department for more specific financial information on particular companies.
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You should get rid of the policy you have now and buy a new one Although in some cases a new LTCI policy might have an attractive added benefit that your old policy doesn't, red flags should go up if an insurance agent encourages you to ditch your old policy for a new one without providing a clear explanation of the added benefits. For one thing, your premiums are based on your age and your health at the time you purchase the policy, so all other things being equal, your new policy will be more expensive. For another, you run the risk that a pre-existing condition won't be covered under the new policy. If you're unhappy with your current policy, an alternative may be to upgrade it rather than replace it (though the agent earns a larger commission if you replace it). Unfortunately, there are unethical agents who make misleading comparisons of LTCI policies in an attempt to get you to switch policies for no reason other than their commission. If you're considering switching policies, make sure you understand exactly what the new policy offers, whether this additional coverage is important to you, and what you're giving up.
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Tax Tips: Long-Term Care Insurance Your chances of requiring some sort of long-term care increase as you age, and long-term care insurance (LTCI) can help you cover your long-term care expenses. Although tax issues are probably not foremost in your mind when you buy LTCI, it still pays to consider them. In particular, you should explore whether your premiums will be deductible and your benefits taxable.
You may be eligible for an income tax deduction You may be able to deduct all or part of the LTCI premiums you pay for yourself, your spouse, or a dependent, but only if your policy meets the IRS criteria for a qualified policy. If you bought the policy before January 1, 1997, and it met the requirements of the state where it was issued, it is automatically considered a qualified policy. If you bought the policy later, it must satisfy several requirements to be considered qualified. First of all, the policy must provide coverage only for qualified long-term care services. These include necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, as well as maintenance or personal care services that are required by a chronically ill individual, in connection with a plan of care prescribed by a licensed health-care practitioner. Also, your policy must satisfy the following conditions: • It must be guaranteed renewable, meaning that you can renew your policy as needed without undergoing additional medical exams • It must not have a cash surrender value or any provision that allows you to cash in, pledge, assign, or borrow against the policy, or receive anything more than a refund of premiums paid if you cancel the policy • It must provide that any refunds and dividends (other than refunds upon termination of the policy) can be used only to reduce future premiums or increase future benefits • It must not pay for (or reimburse) expenses that are reimbursable under Medicare, unless Medicare is a secondary payer, or unless the policy pays a specified amount per day regardless of actual expenses • It must meet certain consumer protection requirements set out in the Internal Revenue Code
The amount of your deduction depends on a few factors If your LTCI policy meets the conditions listed above, or if it was issued before January 1, 1997, at least part of your premium may be tax deductible as a medical expense. To qualify for a medical expense deduction, your unreimbursed medical expenses (including LTCI premiums) must exceed 7.5 percent of your adjusted gross income. Also, you must itemize your deductions. The maximum amount of LTCI premiums that you can deduct in a year depends on your age at the end of the year. In 2009, deduction limits (which are indexed each year for inflation) are as follows: Age
Limit on Deduction
40 or younger $320 41 to 50
$600
51 to 60
$1,190
61 to 70
$3,180
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$3,980
Watch out--your long-term care insurance benefits may be taxable A qualified LTCI contract is treated as an accident and health insurance contract, and the benefits are typically treated as tax free. However, if your contract pays a set dollar amount per day (per diem), the tax-free treatment is subject to a certain limit, indexed annually for inflation. Benefits over and above this limit are generally considered taxable income. Under this limit, the amount of your LTCI benefits that is excluded from taxation in a given period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts: • The actual cost of qualified long-term care services during the period • The dollar amount for the period ($280 per day for any period in 2009) It's a different story if you have a nonqualified LTCI policy, though. Such benefits may be subject to income tax.
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If Long-Term Care Insurance Isn't for You: Other Options Long-term care insurance (LTCI) isn't for everyone. Not only is it expensive and sometimes hard to qualify for, but there's no guarantee you'll ever use the benefits. But if you decide not to buy LTCI, what are your alternatives?
You saved for a rainy day--it's here Should the need arise, you could use your personal savings to pay for long-term care (self-insurance). If you choose this option, you'll have to estimate how much money you might need to cover long-term care expenses and start an appropriate savings plan. And though there's a good chance that the amount you'll have to put aside each month to cover future medical expenses will equal (or exceed) what you'd pay in LTCI premiums, buying LTCI is not an option in some cases (e.g., if a pre-existing condition prevents you from qualifying for coverage). Keep in mind, however, that if you do choose to self-insure, there's always the chance that your savings won't be enough to cover your actual long-term care expenses.
Did you hear? Medicaid pays for long-term care Medicaid is a government-sponsored program that pays for medical treatment. People with low incomes who are elderly, disabled, or blind may be eligible if they meet the financial and medical requirements. These eligibility decisions are primarily based on: • Income • Net worth • Need for nursing or custodial care In most states, Medicaid subsidizes care in nursing facilities and at home (for those who meet Medicaid guidelines). Unfortunately, meeting Medicaid's financial requirements is difficult. Many people are forced to exhaust their life savings to qualify for Medicaid. A comprehensive LTCI policy may prevent this from happening.
Life insurance--it's not just for estate planning anymore If you have a cash value life insurance policy, familiarize yourself with the rules on policy loans and cash withdrawals. Most policies allow you to access your cash value in one of these ways, but the amounts may be limited, and there may be interest and tax consequences. Also, find out if your policy allows you to use part of the death benefit for medical expenses or long-term care while you are alive. (Policies with an accelerated benefits rider typically allow this.) Should you become terminally ill, you may also have the option to sell your life insurance policy to a viatical settlement funding company and use the money to pay for your care. You will typically get 40 to 85 percent of the policy's face value from a viatical settlement.
Get paid to live in your home If you own your home outright or have a lot of equity in your home, you could consider a reverse mortgage. Basically, a reverse mortgage gives the lender a lien (or mortgage) on your home, and you receive either a lump sum or prearranged monthly payments. You typically don't have to repay the loan as long as you live in the home. However, if you move or if the house is sold, the loan must be repaid out of the proceeds of the sale. A reverse mortgage can be an easy source of cash, but it could also complicate matters if you plan on leaving your home to your heirs.
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Caring for Your Aging Parents Caring for your aging parents is something you hope you can handle when the time comes, but it's the last thing you want to think about. Whether the time is now or somewhere down the road, there are steps that you can take to make your life (and theirs) a little easier. Some people live their entire lives with little or no assistance from family and friends, but today Americans are living longer than ever before. It's always better to be prepared.
Mom? Dad? We need to talk The first step you need to take is talking to your parents. Find out what their needs and wishes are. In some cases, however, they may be unwilling or unable to talk about their future. This can happen for a number of reasons, including: • Incapacity • Fear of becoming dependent • Resentment toward you for interfering • Reluctance to burden you with their problems If such is the case with your parents, you may need to do as much planning as you can without them. If their safety or health is in danger, however, you may need to step in as caregiver. The bottom line is that you need to have a plan. If you're nervous about talking to your parents, make a list of topics that you need to discuss. That way, you'll be less likely to forget anything. Here are some things that you may need to talk about: • Long-term care insurance: Do they have it? If not, should they buy it? • Living arrangements: Can they still live alone, or is it time to explore other options? • Medical care decisions: What are their wishes, and who will carry them out? • Financial planning: How can you protect their assets? • Estate planning: Do they have all of the necessary documents (e.g., wills, trusts)? • Expectations: What do you expect from your parents, and what do they expect from you?
Preparing a personal data record Once you've opened the lines of communication, your next step is to prepare a personal data record. This document lists information that you might need in case your parents become incapacitated or die. Here's some information that should be included: • Financial information: Bank accounts, investment accounts, real estate holdings • Legal information: Wills, durable power of attorneys, health-care directives • Funeral and burial plans: Prepayment information, final wishes • Medical information: Health-care providers, medication, medical history • Insurance information: Policy numbers, company names
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• Advisor information: Names and phone numbers of any professional service providers • Location of other important records: Keys to safe-deposit boxes, real estate deeds Be sure to write down the location of documents and any relevant account numbers. It's a good idea to make copies of all of the documents you've gathered and keep them in a safe place. This is especially important if you live far away, because you'll want the information readily available in the event of an emergency.
Where will your parents live? If your parents are like many older folks, where they live will depend on how healthy they are. As your parents grow older, their health may deteriorate so much that they can no longer live on their own. At this point, you may need to find them in-home health care or health care within a retirement community or nursing home. Or, you may insist that they come to live with you. If money is an issue, moving in with you may be the best (or only) option, but you'll want to give this decision serious thought. This decision will impact your entire family, so talk about it as a family first. A lot of help is out there, including friends and extended family. Don't be afraid to ask.
Evaluating your parents' abilities If you're concerned about your parents' mental or physical capabilities, ask their doctor(s) to recommend a facility for a geriatric assessment. These assessments can be done at hospitals or clinics. The evaluation determines your parents' capabilities for day-to-day activities (e.g., cooking, housework, personal hygiene, taking medications, making phone calls). The facility can then refer you and your parents to organizations that provide support. If you can't be there to care for your parents, or if you just need some guidance to oversee your parents' care, a geriatric care manager (GCM) can also help. Typically, GCMs are nurses or social workers with experience in geriatric care. They can assess your parents' ability to live on their own, coordinate round-the-clock care if necessary, or recommend home health care and other agencies that can help your parents remain independent.
Get support and advice Don't try to care for your parents alone. Many local and national caregiver support groups and community services are available to help you cope with caring for your aging parents. If you don't know where to find help, contact your state's department of eldercare services. Or, call (800) 677-1116 to reach the Eldercare Locator, an information and referral service sponsored by the federal government that can direct you to resources available nationally or in your area. Some of the services available in your community may include: • Caregiver support groups and training • Adult day care • Respite care • Guidelines on how to choose a nursing home • Free or low-cost legal advice Once you've gathered all of the necessary information, you may find some gaps. Perhaps your mother doesn't have a health-care directive, or her will is outdated. You may wish to consult an attorney or other financial professional whose advice both you and your parents can trust.
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Is there such a thing as nursing home insurance? Question: Is there such a thing as nursing home insurance?
Answer: There's really no such thing as nursing home insurance. What you're probably referring to is long-term care insurance (LTCI), which typically provides coverage for several different types of long-term care, including nursing home care. For example, home health care, adult day care, and assisted-living care will also be covered under a typical LTCI policy. Although LTCI policy types vary, they usually work something like this: You pay a premium, and when you need it, the policy pays a selected dollar amount each day (for a set period of time) for the type of care outlined in the policy. Because the probability is high that a policyholder might file a claim, LTCI can be relatively expensive. The cost depends on many factors, including the type of policy that you purchase (e.g., size of benefit, length of benefit period, optional riders), your health, and your age at the time you purchase the policy.
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What types of nursing care does long-term care insurance cover? Question: What types of nursing care does long-term care insurance cover?
Answer: It depends on the policy. Long-term care insurance (LTCI) policies define three levels of long-term care. Because some LTCI policies pay for only certain forms of care, it's important to understand these definitions: • Skilled care: Continuous round-the-clock care designed to treat a medical condition; it's ordered by a doctor and administered by skilled medical workers (e.g., registered nurses, professional therapists) as part of an established treatment plan • Intermediate care: Intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse's aides under a doctor's supervision • Custodial care: Care designed to help the patient perform activities of daily living, such as bathing, dressing, or eating; it can be provided by someone without professional medical skills, but it's supervised by a doctor Most LTCI policies cover skilled, intermediate, and custodial care in licensed nursing homes. Some of these policies may limit or exclude additional settings for long-term care (e.g., home health care, assisted-living facilities). To find out what type of care your LTCI policy covers and what facilities are approved to provide the care, be sure to read your policy carefully.
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Should I buy long-term care insurance? Question: Should I buy long-term care insurance?
Answer: As we get older and our health declines, the greater the chances are that we will require home care, nursing home care, or other assisted-living arrangements. This care is quite expensive, and Medicare, HMOs, and Medigap don't pay for it. You might want to look into purchasing long-term care insurance (LTCI) to protect your assets in case you need long-term care. Whether or not you should purchase LTCI depends on your age, medical history, assets, and income. Ask a financial professional about whether LTCI is right for you. If you meet some of the following criteria, you might want to seriously consider it: • You are between the ages of 40 and 84 (generally, LTCI is not available to those over 84) • You have a family history of Alzheimer's disease • You own substantial assets that you'd like to protect • You have family members to whom you wish to leave your assets • You can afford the cost of LTCI premiums now and will be able to afford them in the future • You are in good health and are insurable
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Should I buy medical payments coverage? Question: Should I buy medical payments coverage?
Answer: Medical payments coverage is one of several coverage parts found in your automobile insurance policy. It insures against medical bills that you, your family members, your passengers, or any pedestrians incur as a result of an accident involving your car. It also covers any medical bills incurred if you or your family members are injured as pedestrians. Medical payments coverage pays regardless of fault. Whether you should buy medical payments coverage depends on how your policy provides coverage, which varies by state. In some states, your medical payments coverage will pay only after certain other automobile coverage parts and your health insurance have been exhausted. If you have adequate limits for the other coverage parts, and your health insurance is sufficient, you may not need medical payments coverage. Before you decide if it's necessary, check to see when the medical coverage begins in your state and how it coordinates with your health insurance. Something else to consider is the type of vehicle you drive. For example, if you own a motorcycle, your automobile insurance policy can be much more limited in coverage than if you own a car. As a result, you may need medical payments coverage to fill the gaps. If you frequently drive passengers who are not members of your family, consider adding medical payments coverage to your policy. If you have an accident and your passengers do not have adequate health insurance, the medical payments part of your auto policy could be required to pay their medical bills.
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What is long-term care insurance? Question: What is long-term care insurance?
Answer: Long-term care insurance is designed to pay for the cost of your care in a variety of settings, including a nursing home if you can no longer care for yourself independently. Long-term care policies vary widely in their coverages, limitations, and exclusions. A good policy covers the costs of round-the-clock nursing home care, including that given at custodial, intermediate, and skilled levels. The policy may also cover any expenses associated with assisted-living residences provided that the facility is state certified. Adult day-care centers are often covered as well, as is respite care, which is the temporary professional care you'll need if your regular caregiver is on vacation. Policies will also pay for at-home care provided by registered nurses; respiratory therapists; physical, occupational, or speech therapists; registered dietitians; or licensed social workers. Policies may also cover the cost of caregiver training for a family member or friend. Finally, the insurance may cover the cost of an independent health-care professional, such as a registered nurse, who will act as your personal care consultant. Such a benefit gives you an objective person with whom you can discuss the quality of your care. Insurance companies will require that you meet certain conditions before they issue the benefits. For example, they usually require that you be unable to perform certain regular daily activities by yourself, such as normal bathroom functions, bathing, dressing, and eating. Companies will also issue benefits because of cognitive loss as a result of Alzheimer's disease, senility, and other forms of dementia. All of these requirements are explained in the policies. Make sure you speak with a trusted insurance professional before you purchase this coverage.
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What is critical illness insurance? Question: What is critical illness insurance?
Answer: Critical illness insurance will pay you a lump sum if you become ill from--and then survive--certain illnesses or injuries. Some examples of covered illnesses are heart attack, life-threatening cancer, loss of a limb, and Alzheimer's disease. Also covered are loss of your sight, a major organ transplant, and paralysis. You can use the lump sum whatever way you want, whether it's related to your illness or not. The lump sum is tax free. Ironically, the need for critical illness insurance came about because people are living longer, even with serious diseases. But it also means people have more medical expenses that can deplete their health insurance and personal savings. Critical illness insurance helps pay for uncovered medical bills and household bills. It can even provide capital to start a new home-based business. If you are considering this type of insurance, it's vital that you understand exactly what is covered and what is not. The insurance will pay only if you contract the illnesses listed in the policy. Even then, further limitations will be defined in the policy. For example, what does the insurance company consider to be a life-threatening cancer? If you have a family history of a certain illness, will the policy exclude that illness? Are there pre-existing condition limitations? What are the age limitations? How much does it cost? Does the premium increase as you get older? When do you receive the lump sum? Is it really offering you more than your existing health plan? Finally, be aware that if you own one of these policies and never get sick, you won't get any money back. Before you purchase critical illness insurance, consult your insurance agent or financial advisor.
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Do I need cancer insurance? Question: Do I need cancer insurance?
Answer: If you are currently insured under a comprehensive medical policy, you don't need cancer insurance. Any major medical policy includes coverage for cancer and cancer-related illnesses. If you are covered under Medicare, you won't need cancer insurance, either. If you're thinking about buying cancer insurance, consider the following: • Cancer insurance pays only for cancer. It's less expensive than a major medical plan, but the major medical plan is far more comprehensive in its coverage. • You're not necessarily increasing your coverage if you purchase both a cancer insurance policy and a comprehensive medical policy. Any policy can have a coordination of benefits clause that states it will not pay if you own another policy with the same benefits. • Cancer insurance is limited. You'll want to read the policy carefully to find out exactly what it includes. Does it cover outpatient care? Many types of cancer treatments, including radiation and chemotherapy, are done on an outpatient basis. Does it have fixed dollar limits for certain benefits? Is coverage reduced after you reach a certain age? Does the policy cover illnesses you may get as a result of treatment? You'll want to know the answers to such questions. In the past decade, state and federal regulations on the sale of cancer insurance have loosened, and you may hear more from companies that want to sell it to you. Be cautious. Chances are good that you already have coverage under your existing health plan.
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Can I deduct premiums paid for long-term care insurance (LTCI)? Answer: It depends on several factors. Your LTCI contract must be a qualified one, and the total of your medical expenses (including your LTCI deduction) must exceed 7.5 percent of your adjusted gross income (AGI). Qualified LTCI premiums are deductible as medical expenses (subject to the 7.5 percent of AGI floor) within certain limits, based on your age. If you bought your policy before January 1, 1997, and it met the requirements of the state in which it was issued, it is automatically considered a qualified policy. LTCI contracts issued subsequently are only considered qualified for a tax deduction if they meet certain federal standards. In 2010, qualified LTCI premiums are deductible as medical expenses (subject to the 7.5 percent of AGI floor) within the following limits, based on your age at the end of the tax year: Age:
Limit on Deduction:
40 or less
$330 (up from $320 in 2009)
41-50
$620 (up from $600 in 2009)
51-60
$1,230 (up from $1,190 in 2009)
61-70
$3,290 (up from $3,180 in 2009)
71 and older $4,110 (up from $3,980 in 2009) For more information, consult a tax professional.
See disclaimer on final page March 28, 2010