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Planning for Long Term Care Needs

I committed in a recent letter to write about planning for Long Term Care Needs.  I was prompted by an extremely negative experience filing my mother’s recent long term care claim although that experience was likely unusual for the reasons noted below.  At Healthcare Navigation, we have worked with clients who needed long term care services since our beginning in 1999.  We also have extensive experience filing long term care claims for clients and have always been successful in getting our clients reimbursement under their policies.   

At any rate, my parents did everything correctly in terms of planning.  They bought a policy through CalPERS, the California Public Employees Retirement System as soon as it became available to them and paid premiums for many years.  My father died before filing a claim and my mother had advanced cancer and was on hospice before filing a claim. 

Although my only experience with CalPERS long term care claim was with my mother’s claim, that claim should have been straightforward for them to handle.  After all, the claim was filed with a Certificate of Terminal Illness so by definition, my mother was already dying when the claim was filed.   Since she (and before that my father) had already paid premiums for sixteen years, the company was going to do well by her. No issue with that – that is the nature of insurance, i.e., spreading the risk.  My strong impression in dealing with CalPERS long tem care program, however, is that they are designed to deny claims and frustrate. They denied a totally legitimate and well documented claim twice, they asked for information that only they had access to and they repeatedly requested information they already had and acknowledged they had. 

A lesson from this experience is that it is very important if you purchase a long term care policy to know it’s from a reputable company and to know what entity provides regulatory oversight.   Because the CalPERS Long Term Care Program is self-funded, there is no regulatory oversight.  Yes, I have verified this with the California Department of Insurance.  They have no jurisdiction.

Background

Many people will experience periods in their adult lives where they are unable to care for themselves or are unsafe to be left alone.  This is typically when we’re older but not always. An adult who is in an accident or recovering from surgery may require this type of assistance. Long term care services assist individuals with so-called “activities of daily living,” normally transferring, dressing, bathing, toileting, and eating.  

There is a broad range of services that can come under the heading of long term care – adult day care, home health services, assisted living and nursing home care. 

Long term care services are not medical in nature although this can be confusing because most who need services tend to be older, frail, and not in good health. This can also be confusing because medical policies pay for some home healthcare services but if medical coverage or Medicare is paying for homecare services the services are more medical in nature – medication management, wound dressing, rehab, etc., with very few exceptions.

Why Plan for Long Term Care Needs

Statistics indicate that many of us will need these services at some point and services can be extremely expensive (hundreds of dollars/day for full time aides or a nursing home) and long term.    For example, a person who suffers from early onset dementia may need assistance for decades while a person who is diagnosed with advanced cancer that is unresponsive to any treatment may die before needing much support. Long term care services should not be confused with Hospice services which are designed to keep a terminally ill patient comfortable. Hospice services typically include nursing and social work but don’t cover the personal assistance services most hospice patients require.

The important point is:  everyone needs a plan for how they’ll fund such care should they need it.   “My daughter will take care of me” is a plan if the daughter knows about it and will be available to take care of you.  One client’s response to me, “I’ll be calling Dr. Kevorkian” is probably not a realistic plan, not only because Dr. Kevorkian is not alive but we can’t assume we’ll be so eager to end our lives should we need long term care services.

How to Pay for Long Term Care Services

There are three general ways to pay for long term care services:  1) some type of savings; 2) a long term care policy; 3) a hybrid insurance product which includes an annuity vehicle to provide some coverage for long term care services.   

Savings:    This is the simplest approach since one will pay for what one needs and there are no hassles dealing with a long term care claim. However, there are disadvantages. Funds may be limited or exhausted. Adult children may be responsible for a parent’s care and spending funds for services that are their inheritance which can cause conflict. Remember, once the services provided exceed the IRS threshold for medical deductions, the cost is tax deductible. 

Long Term Care Policy:  This is buying insurance in anticipation of needing long term care services.  For an individual policy, you must be healthy when you apply and you have a number of decisions to make such as the daily payment amount, whether to purchase inflation protection, a lifetime maximum, etc., which all add to the cost of the policy.  For those who need expensive, long term care services, a policy through a reputable company can provide important asset protection and the company can be an additional resource for the family.  Filing the initial claim for long term care services, however, can be involved.  The long term care company’s liability is significant once a claim is approved so they require substantial documentation that services are actually needed.  This typically involves an assessment from a firm they hire, then a claim including invoices, notes, proof of licensure, etc.

A common problem we’ve seen is families using the services of an agency that will not be covered by the policy.  This is usually a problem with older policies.  My advice is to not rely on the representation of the provider of service.  They do not know your policy provisions.  Read the policy language and verify with the insurance company or your broker that the provider’s services will be covered.  And hire an expert if you need to.  There’s often too much money at stake to pinch pennies.

Newer policies are more flexible and are less likely to require aides from only a licensed home health agency, for example. Again, it is a shame when people have paid for policies and then had to pay out of pocket for services that might have been covered had they been more informed about the long term care policy provisions.

The main advantage of having a long term care insurance policy is that you are spreading the risk so that you may receive far more in services than you paid in premiums. The reverse is also true as my mother paid tens of thousands of dollars in premiums for claims that paid $7484 of her lifetime $546,342 benefit. That’s the nature of insurance. However, some newer policies allow a refund of premiums to one’s estate if services are never used. 

Many states provide tax advantages to individuals who purchase coverage because it is less likely that individuals with long term care coverage will end up exhausting their assets and going on Medicaid at taxpayers expense. You should always know what your state provides and how a move out of state might affect the situation.

Other Insurance Products:  Annuities with long term care benefits are an attractive option to those concerned about paying for long term care premiums for many years and never using those benefits.    As you might expect, there are a number of products and options available but the concept is that an individual purchases a policy with an income stream during retirement that provides additional benefits should long term care services be required. Like any other insurance product to be considered, considerable due diligence should be done to understand that one is purchasing the level of protection desired from a reputable company. Again, know how the product is regulated should a dispute arise.

Other Considerations:

Healthcare Navigation does not sell or endorse any products. We do believe, however, that it is very important for Americans who have the financial means to plan for their possible long term care needs.  Exhausting one’s assets and going on Medicaid is not an attractive option for those who want to maintain more control of their medical care as many, many doctors do not accept Medicaid and you can lose control of your choice of nursing homes should you require such care.

Let others know if you have a policy.  Another important consideration:  discuss your plan with your adult children or whoever will be responsible for you should you need long term care. We dealt with one family paying an expensive assisted living facility out of pocket because the adult son was not aware his mother had a long term care policy or what long term care policies were. My meeting with him was about prescription drug coverage.  It was by chance that we discussed his mother’s long term care costs. He didn’t even know what a long term care policy was. When he found the policy, we filed a claim which was disputed for lack of timely filing. However, because of her dementia we ultimately prevailed and the policy paid the maximum of several hundred thousand dollars. What a shame if these premiums had been paid for years and the policy never tapped.

Assisted Living. If you have a policy that covers assisted living AND you need daily aide services, if you want most of these costs to be covered through a policy, you must carefully project what the daily maximum reimbursement will be. The higher that amount, the more the premiums will be.

Lifecare Communities.  These programs can look very similar to assisted living which is a rental arrangement but are distinct because the resident is “buying in” but typically has high monthly charges too. A skilled nursing facility is often on site and a guarantee to live there is part of the package if you pass the health examination when moving in.  Should you have a rich long term care policy and move in to one of these communities, you might be able to reduce the daily maximum reimbursement rate and hence reduce the premium. But – don’t overlook the need to cover daily aides which will not ordinarily be included in the “package” in assisted living or a Lifecare Community.  

Summary

Planning for long term care needs is not a pleasant topic but is extremely important for you and your adult children. Be realistic and thorough. I have heard men say, “Oh, long term care is only necessary for women. We die first.”  Don’t count on it.  I’ve also heard clients say, “If only I had a daughter, I know I’d be taken care of.” I have three daughters and a dutiful son but I can’t know what will be going on in their lives should my husband or I need support. 

Remember, if you’re interested in the insurance route, you have to be healthy enough to qualify and the older you are when you buy policies, the more expensive they are likely to be.  The new healthcare reform program includes an optional long term care benefit but it is minimal – assuming a maximum of $50/day as a home-based benefit.

We live in modern times.  Life is complicated – both the healthcare coverage world and the medical world can be complex and confusing. Given that, our advice is to see that anyone you love who is ill has an advocate.  Devoted mothers are often ferocious protectors of their children. Everyone who is compromised by illness should have a ferocious mother surrogate/protector/advocate(s) in place. 

Call us with questions.