Understanding Long Term Care
Long-Term Care in California
Many people have seen news stories on long term care but they are often confused about what it means financially, physically, and emotionally for their family.
When we look at our chances of needing long term care, it is surprisingly high.
Someone turning 65 today, has a 70% chance of needing long term care.*
Women will need an average of 5 years of long term care.*
Men use about 4 years of long term care.*
People with Alzheimer’s Disease need long term care about 8 years.*
Those with Parkinson's Disease will use about 11 years of long term care.*
A simple explanation of long term care is when a person needs assistance accomplishing daily acts of living.
The affected person either cannot physically complete daily acts of living tasks on their own as in the case of a stroke OR lacks the cognitive ability to conduct tasks by themselves as in the case with Alzheimer’s patients.
For the safety of the patient, the individual will need stand by assistance from a caregiver.
The triggers for long term care needs are:
1. Inability to conduct two of six daily tasks on your own OR
2. Diagnosed with significant cognitive difficulties such as moderate dementia or Alzheimer's Disease.
Long term care is composed of three levels of care.
1. Home Care The beginning of long term care often begins with assistance at home from a home health aid with activities of daily living.
2. Assisted Living Facility These are all inclusive residential places where clients have stand by assistance 24 hours a day. The medical staff is present during business hours only and no medical procedures can be performed.
Included with assisted living facilities are:
Social and exercise activities
Physician and grooming visits
Transportation to stores and doctor appointments.
2a. Memory Care Units are a subset at many assisted living facilities that house residents with severe dementia or Alzheimer's Disease. Memory care units are secured areas where residents are unable to wander off and the ratio of staff to resident is much lower.
3. Skilled Nursing Facility (Nursing Homes) Skilled nursing facilities house residents having medical needs and are staffed by physicians or nurses 24 hours a day. Minor medical care is available such as changing feeding tubes or catheters.
The Cost of Long Term Care
The cost of long term care and inflation rate will depend on the region of the country a person lives. Overall an inflation rate of 3-7% yearly is a good rule of thumb in which costs double every twenty years.
Below are average prices for the San Francisco Bay Area based on Genworth Financial Calculations*.
Planning for Long Term Care
Many people have concerns about long term care and how it could affect their families. Some of the common worries are:
1. The High Costs of Long Term Care—No one knows how long they will require care, and many are concerned that their hard earned assets and those of their family could be depleted. Clients would prefer to pass their savings and investments to their family.
2. Avoid Dependence—Individuals want to make sure their family and friends are not burdened by having to provide their daily care for them. Many "sandwich generation" adults are caught shouldering the responsibilities of work, their own children, and caring for an elderly parent.
3. Freedom of Choice—Many clients like the ability to have full control of who will take care of them or where they will live if they need to move out of their home. Often times planning alleviates the burden adult children must go through when they have to make financial and health decisions for parents.
Paying for Long Term Care
2. Stand alone long term care insurance
3. Hybrid life insurance with long term care riders built in
4. Asset base long term care insurance plans
Many people feel that a government or state program will pay for long term. We hope to bring some clarity.
Medicare is the national health insurance for people over 65, or for those disabled individuals under 65.
According to Longterm Care.Gov Medicare's long term care only pays:
For the first 20 days in a skilled nursing facility.
After 20 days, you'll need to pay $170.50 of coinsurance per day, for up to 100 days.
Once you surpass 100 days, you're responsible for the cost of your care*
*Longterm Care.Gov 2019
If you need long term care after 100 days, there's California's Medi-Cal health care program. Medi-Cal offers
limited in home health care and skilled nursing facility. Assisted living facilities are not part of the program.
Some of the challenges with the Medi-Cal program:
The person must financially qualify for the program financially. One should contact an elder law attorney in cases where they may have too much income to qualify for Medi-Cal.
Less than $2,000 in countable assets individually ($3,000 per couple)
Less than $1,294 in monthly income individually ($1,747 per couple)
Other financial restrictions such as the home, retirement, car and property.
More details can be found here. https://ca.db101.org/ca/programs/health_coverage/medi_cal/program2a.htm
The program is heavily utilized in California and competition for available beds are high, so finding a qualifying facility near home or family may be a challenge.
Stand Alone Long Term Care Insurance
Stand alone long term care insurance policies have been around since the 1980’s with these characteristics.
These are reimbursable expense policies. A reimbursable expense is when patients claiming benefits will pay for long term care expenses first and turn in expenses to be paid back. Benefits are only for long term care expenses.
Policies typically have inflation options to help keep up with the cost of inflation 2%, 3%, 5% yearly.
Benefit amount is restricted by the years of coverage 2, 3, 5, or 6 years and/or the amount of benefits. (ie: $200,000, $300,000 or $500,000)
Premiums may rise.
Health requirements moderate to stringent.
Similar to home insurance, premium is due for the year of coverage.
Stand Alone Long Term Care Example
Stan (65) has a stand alone long term care insurance. Stan’s policy pays $200/day for 3 years. Stan is eligible for
$72,000/yr for 3 years for a total lifetime benefit of $216,000.
He suffers a stroke at age 66 and needs long term care. Because of a 90 day (3 month) elimination period, Stan must pay for his own care during this time period, similar to a deductible.
Stan’s insurance will begin paying benefits at the fourth month. He uses $5,000 of care, in which his family will pay first and is then reimbursed from his long term care company.
Even though Stan is eligible for $6,000 a month in benefits, his family is reimbursed only what has been paid to to the healthcare provider $5,000.
Hybrid Life Insurance
Hybrid life insurance with long term care riders has these characteristics.
These work primarily as life insurance policies that will advance death benefits in the event the insured needs long term care.
Benefits can be paid in a lump sum or monthly with no restrictions on how money is used. The amount advanced will reduce the death benefit of the life insurance policy.
Typically no cost of inflation increase.
Depending on the type of insurance, the premiums are fixed and the policy paid off.
Health requirements are moderate with different levels of health ratings
Hybrid Life Insurance with Long Term Care Rider Example
Eva (60) has a $500,000 hybrid life insurance policy with dollar for dollar long term care benefits.
She is diagnosed with moderate dementia and needs long term care.
Her long term care costs about $6,000/month or about $72,000 per year and she needs money to pay for her monthly mortgage of $1,000.
Because she can accelerate her death benefits early for long term care, Eva decides to accelerate $300,000 of her death benefits to pay for her care and mortgage which will cover her for about 3 1/2 years.
She gets a report from her doctor, files a claim with her insurance company and receives a lump sum of $300,000 to use as she needs for her long term care and pay her mortgage.
The life insurance policy is now adjusted to a $200,000 death benefit.
Eva will not have to pay the accelerated amount back to his insurance company.
Asset Based Life Insurance for Long Term Care
Asset based long term care works to create long term care coverage from a life insurance or annuity and has these characteristics:
The program consist of two parts, a life insurance component and a long term care portion.
If long term care benefits are not used, the policy pays a life insurance benefit.
In some instances one policy will cover two people for a fixed time or offer full lifetime unlimited benefits.
Policies have inflation options to help keep up with the cost of inflation 2%, 3%, 5% yearly.
Premiums are fixed and can be paid off.
Taxable retirement funds such as IRA/401k/403b or old insurance policies can be used to pay the premiums.
Health requirements are more flexible.
Asset Based Life Insurance Example
Christine (65) and Joe (70) purchased an asset based long term care program in 2010 using Joe’s 401k
money. This program covered both Christine and Joe providing both unlimited long term care benefits of $5,000/month and a life insurance benefit of $200,000 as well.
Joe now 79, was diagnosed with ALS Lou Gehrig’s disease in 2019 and now needs care for about 16 hours a day in their home. Christine is unable to help Joe on her own.
After waiting 30 days for the benefits to kick in Joe receives $5,000/month in benefits. After 10 months, of care Joe passes away. Joe used a total of $50,000 in long term care benefits.
Ten years later Christine (85) needs long term care herself and uses $6,000 for 15 months of care for a total of $90,000 in benefits. Christine passes away.
Joe had used $50,000 while Christine used $90,000 of long term care benefits for a total of $140,000.
Christine and Joe's two children will receive the balance of the life insurance death benefit of $60,000.
$200,000 (life insurance) - $140,000 (long term care) = $60,000 (death benefit)
Christine and Joe were able to keep their wishes and safeguard their assets for their children.