Long Term Care
This year, about nine million men and women over the age of 65 will need long-term care. By 2020, 12 million older Americans will need long-term care. Most will be cared for at home; family and friends are the sole caregivers for 70 percent of the elderly. A study by the U.S. Department of Health and Human Services says that people who reach age 65 will likely have a 40 percent chance of entering a nursing home. About 10 percent of the people who enter a nursing home will stay there five years or more.
Long-term care refers to the many services beyond medical care and nursing care used by people who have disabilities or chronic (long-lasting) illnesses. Long-term care insurance helps you pay for these services, which can be very expensive. A policy also ensures that you can make your own choices about what long-term care services you receive and where you receive them.
Life expectancies are continuing to rise due to improved medical techniques, more healthy living, and simply dropping bad habits just to name a few. However, as some people progress through the senior living aging process they may start to need a hand with everyday activities. This type of long-term care can come suddenly and unexpectedly. And, let’s not forget to mention that the cost of extended long-term professional care can cost as much as $60,000 per year or more.
While Medicare and Medicare supplemental insurance are protective for the elderly in helping them with the costs of medical care, neither of these programs covers long-term custodial or nursing home care. The only available solutions other than Medicare will be to self-insure or seek out long-term care insurance.
Eligibility
Policies are required to pay benefits based upon the inability to perform, without substantial assistance from another person, certain Activities of Daily Living (ADLs). An individual would be considered “Chronically Ill” if they are unable to perform at least two of the six ADLs for a period of at least 90 days.
The six “Activities of Daily Living” (ADLs) are:
- Bathing- Washing oneself by sponge bath, or in either a tub or shower, including the task of getting into or out of the shower.
- Continence- The ability to maintain control of bowel and bladder functions.
- Dressing- Putting on and taking off all articles of clothing and any necessary braces, fasteners, and artificial limbs.
- Eating- Feeding oneself by getting food into the body from a receptacle such as a plate or cup.
- Toileting- Getting to and from the toilet and performing required acts of hygiene.
- Transferring- Moving into or out of a bed, chair, or wheelchair.
All policies must pay benefits if you are unable to perform three of the six ADLs, however; many policies will pay benefits if you are unable to perform two of the required ADLs. As a result of HIPAA (The Health Insurance Portability and Accountability Act of 1996), prior hospitalization can no longer be used as a benefit trigger for individual LTC policies; instead, the individual must be diagnosed as chronically ill.
Benefit Period
Most LTC policies set benefit limits, in terms of how long the benefits are paid or how much the dollar benefit will be for any one covered care service or a combination of services. The benefit period determines the length of time you will receive benefits from your policy. For most policies, the benefit period spans from two to six years. More expensive policies are also available that will cover you for your entire life.
Elimination Period
During this period, you must pay all of your long-term care expenses out of your own pocket (just like a deductible). The elimination periods for long-term care can range from 0 to 365 days. Most insurers will give the insured the option of selecting the waiting period that works best for them; however, the most common selected elimination period is 90 days. Shorter elimination periods will have higher premium payments than longer waiting periods.
Benefit Amount
The daily or monthly benefit is the amount of money the insurance company will pay for each day or month you are covered by a long-term care policy. If the cost of care is more than your daily or monthly benefit, you will need to pay the balance out of your own pocket.The daily/monthly benefit amount is initially determined on an individual basis by the policy owner and the insurance company. The agreed amount will be listed in your long-term care insurance contract along with the benefit period. Insurance premiums will be higher for larger daily benefits and cost less if daily benefits are less. The typical daily benefits range from $150 to $250 per day. Applicants are encouraged to research long-term care costs in their geographical region of care, as costs can vary significantly depending on location.
COVERAGES
You can choose long-term care policies that pay only for nursing home care, or only for home care. Or, you can opt to purchase coverage for a mixture of care options that includes nursing home, assisted living, and adult day care. Some will pay for a family member or friend to care for you in your home.
There are many levels of categories of long-term care:
1) Skilled Nursing Care- This is continuous, around-the-clock care provided by licensed medical professionals under the direct supervision and order of a physician. This type of care is commonly administered in nursing homes.
2) Intermediate Nursing Care- This care is provided by registered nurses, licensed practical nurses, and nurse’s aides under the supervision of a physician. This care does not require 24-hour supervision although it is provided in nursing homes for stable medical conditions that do require some type of daily care.
3) Personal or Custodial Care- This type of care provides assistance with the daily living activities, it does not require specialized medical training, but it must be given under a doctor’s order. Custodial care can be provided in nursing homes, adult day-care centers, respite centers, or at home.
4) Home Health Care- Home care that includes skilled nursing services, such as providing therapy treatments or administering medications; home health aide services such as checking blood pressure; personal care for helping with the ADLs; and physical therapy needs.
5) Adult Day Care- This care is given in a nonresidential community-based group program designed to meet the needs of functionally impaired adults. It is a structured, comprehensive program that may provide a variety of health, social, and related support services during any part of a day.
LIMITATIONS OF MEDICARE
Many individuals tend to overlook the need for long-term care insurance because they believe that Medicare will cover them should they need assistance. Well, they are not totally wrong- Medicare will cover up to 100 days of care broken down as follows:
First 20 days- Medicare pays 100% (skilled nursing care facility)
Next 80 days- Medicare requires a copayment (the amount you must pay) of up to $124 per day.
Generally, Medicare doesn’t pay for long-term care, since very few nursing home stays are actually covered by Medicare. Medicare pays only for medically necessary skilled nursing facility or home health care. However, you must meet certain conditions for Medicare to pay for these types of care. Most long-term care is to assist people with support services such as activities of daily living like dressing, bathing, and using the bathroom. Medicare doesn’t pay for this type of care called “custodial care”. Custodial care (non-skilled care) is care that helps you with activities of daily living. It may also include care that most people do for themselves, for example, diabetes monitoring.
In order to obtain Medicare coverage of a skilled nursing facility stay, the following five conditions must be met:
- Your condition must require daily skilled care which, as a practical matter, can only be provided in a skilled nursing facility on an inpatient basis.
- You must have been in a hospital at least three days in a row (not counting the day of discharge) before you are admitted to a certified skilled nursing facility.
- You must be admitted to the facility within a short time (generally within 30 days) after you leave the hospital.
- You must have received treatment in a hospital for the condition for which you are receiving skilled nursing care.
- You must receive certification from a medical professional that you need skilled nursing care or skilled rehabilitation services on a daily basis
Taxation of Premiums and Benefits
In 1996, the Federal government amended the Internal Revenue Code to allow favorable tax treatment of long term care policies which qualify under the law. Generally, benefits you receive from tax-qualified policies will not be considered as taxable income under either federal or state law. The premiums charged for tax-qualified policies are treated as medical expenses for purposes of itemized deductions up to certain dollar limits that are indexed annually.
Surprisingly, millions of Americans, especially those who own small and mid-sized businesses are unaware that the cost of long-term care insurance protection may be tax deductible. In some cases 100 percent of the cost of coverage can be deducted.
The deductible premium limits under Section 213(d)(10) for eligible long-term care premiums includable in the term ‘medical care’ are as follows:
Attained Age before close of Taxable Year & Maximum Limit:
- Age 40 or Less – $290
- Ages 41-50 – $550
- Ages 51-60 – $1,110
- Ages 61-70 – $2,950
- Age over 70 – $3,680
Source: IRS Revenue Procedure 2006-53
The benefits received under a long-term care policy are excluded from income because they are considered to be received for personal injuries and sickness. Employer payments for group premiums are tax deductible to the employer and not taxable income to the employee.