Advisor Today > > July 2001 Managing Money: LTC, Medicare and Medicaid

Managing Money: LTC, Medicare and Medicaid

For those over 65 who need extended custodial care, LTC offers the best option.

By Janet C. Arrowood

For most of our clients, long-term care (LTC) is not something they want to think about. But, depending on whose statistics you use, the average person over the age of 65 is frighteningly likely to need extended custodial care in his or her remaining lifetime. Let's explore some of the options available to the average person over 65.

Medicare

Most people blithely assume that Medicare will foot the bills for them in their later years. They couldn't be more wrong. Medicare is a medical insurance program, not a nursing home/home care insurance program. If, and only if, your Medicare-eligible client has spent at least three days in a hospital and still needs skilled nursing care after release from the hospital, Medicare will pay a portion of his bills. This three-day hospital stay, combined with the skilled (rather than custodial) nursing care requirement, means that almost no one qualifies for any Medicare reimbursement for nursing home expenses. Nonetheless, too many financial advisors continue to let their clients believe that Medicare will cover most of their nursing home costs for the initial nursing home stay. These are the same advisors who recommend that their clients assume Medicare will pay for the first 100 days in a nursing home, thereby justifying a 100-day-elimination period if an LTC insurance policy is purchased.

Medicaid

Many of our clients also believe that Medicaid will pay for their nursing home costs. There are attorneys who specialize in advising clients on how to "plan" for the use of Medicaid to pay for LTC costs. They develop complex gifting schemes to enable clients to effectively bankrupt themselves (or one or both spouses if they are married) so that the state or federal government will pay their LTC bills. Aside from sometimes questionable advice, there are several things to consider:

Medicaid beds are limited. Not all care facilities accept Medicaid. Does the one your client prefers accept Medicaid?

Medicaid beds are sometimes "frozen." This means that even if a facility accepts Medicaid, there may not be a bed available.

If a client "bankrupts" himself and then recovers sufficiently to leave the care facility, how will he live?

Your client may end up in a facility that is a long way from home (like my grandmother).

Your client's facility may abruptly close, forcing your client to be transferred to another facility that is not of her choosing. This can cause disorientation, confusion and anger in the elderly person. Just ask my grandmother (not that she's really able to communicate well any more).
There are a number of ways to keep a significant portion of the client's assets, provided there is a spouse or other dependent involved. However, the Medicaid system eventually gets its hands on many of the assets that were temporarily protected. For example, if a couple owns a house and the husband goes into a nursing home, the wife will not be kicked out of the house. However, if she goes into a nursing home on Medicaid, or if she dies, the Medicaid program will claim as much reimbursement as it can get from the estate (or the individual, if she is "care-facility" confined). This often requires an immediate sale of the house.

Pay as you go

Pay as you go is the way many middle- and upper-income clients have to pay for their nursing home costs, which can be anywhere from about $30,000 per year in very rural areas to over $100,000 per year.

Many of your clients end up paying until their money runs out and then they turn to Medicaid. The one advantage of this approach, assuming your clients are in a facility that accepts Medicaid, is that in most states, they are guaranteed a Medicaid bed even if there is a "bed-freeze" in place.

Long-term care insurance

Long-term care (LTC) insurance is becoming increasingly popular with many middle- and upper-income adults. It is also being widely marketed to employers as a desirable group benefit. In many cases, it is paid by the employee at favorable, guaranteed-issue group rates.

LTC insurance plans vary widely. Older plans tended to parallel the requirements of Medicare (three-day hospital stay). As a result, they rarely paid benefits. Newer plans are generally "tax-qualified." This means the benefits are not taxable and the premiums are deductible subject to the 7.5 percent limitation on medical expenses for those who itemize. In addition, many states have enacted tax breaks for LTC insurance premiums. This makes sense since the state plays the largest role and has the highest expenses in Medicaid programs.

Points to ponder

The key issues are the number of daily activities the policy reflects and how many of these the insured must be unable to perform to qualify for benefits. Another important consideration is what the level of coverage is for benefits like home health care, respite care, adult day care, group homes (cognitive impairment) and assisted living facilities. Finally, you must read the wording carefully. "And" and "Or" are often used interchangeably when "clarifying" the assisted daily living (ADLs), but they dramatically impact the ease of qualifying for coverage.

The market is wide open and the need is there. You can give your clients peace of mind and freedom of choice with a well-chosen LTC insurance plan.

Janet C. Arrowood is a registered representative with The Leaders Group, Inc., member NASD, SPIC. She can be reached by email at jc_arrow@hotmail.com

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