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Charlie Traffas
Charlie Traffas has been involved in marketing, media, publishing and insurance for more than 40 years. In addition to being a fully-licensed life, health, property and casualty agent, he is also President and Owner of Chart Marketing, Inc. (CMI). CMI operates and markets several different products and services that help B2B and B2C businesses throughout the country create customers...profitably. You may contact Charlie by phone at (316) 721-9200, by e-mail at ctraffas@chartmarketing.com, or you may visit at www.chartmarketing.com.
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2012-04-18 14:10:26
Long-term care is always a matter of risk management
This month I am going to take a break from other topics I have written about over the past few months, and write about a subject that I have spent much time in the past and even more recently, counseling users and influencers of users, in regard to their possible needs for long-term care and how to manage this risk. Long-term care is the type of care one receives outside of a hospital. You have your health insurance or Medicare to pay for doctors and hospitals. Once you leave the hospital, you may have a small amount of coverage from your health insurance or Medicare, if you require skilled care. But, for the most part, you have little if any coverage for what is known as long-term care, that care given in an assisted living residence, memory impairment care facility, nursing home or care at home. Whatever you lack in coverage you will bear the expense. When you no longer have the ability to pay, Medicaid will take over, but lots of things in your life will change. Here is a question I recently received and my answer. Q: A few years ago you wrote an article on long-term care. At that time, it wasn’t something pressing for my wife and I so we didn’t do anything. Now we’re in our late 60s. We just recently went through a long-term care confinement for her Dad of four years and my Mom for 7 years. Neither of them had any type of insurance to pay for the care. We couldn’t believe the costs. We went through everything my Mom had and most everything of what her Dad had. We are considering whether or not we need to get a long-term care policy. Would you reprint that article?
A: Thank you for your question. I wrote this article 8 years ago. I am honored that you remembered it. I have updated the information. If you already have a condition that forecasts a high likelihood of needing long-term care, you’ve gone a long ways towards answering your question yourself. These conditions might include but not be limited to such things as high blood pressure, heart conditions, arthritis, cancer, memory impairment, etc. But what if you are in good health…how big is the threat then? My answer is…it is always a matter of risk management. For example…1 in 88 houses will have a major fire this year. 1 in 70 cars will be involved in a major accident. 1 in 2 people will need convalescent care after age 65. A nice home might be valued from $150,000 to $250,000. The value of a vehicle is of course much less. Most people mean it when they say they would not be able to sleep at night if they did not have insurance to replace their home or vehicle in the event it burned down, blew away or was totaled for some reason. Yet, the potential loss of a home or a vehicle pales in comparison to the loss incurred for a long-term care confinement…and as you can see from the odds, the loss is apt to occur as much as 44 times more often. A long-term care confinement at today’s costs (these costs are rising at a pace of approximately 3 and 1/3% a year) could easily reach as much as $400,000 to $500,000 or more over the term of the confinement. More than 90% of all persons past the age of 65 have no insurance to cover any of this loss. It makes you wonder why some people so diligently plan their retirement, yet leave it all exposed to something that could be remedied for so little. Even so, here are just a few comments I have heard from people thinking about getting a long-term care policy, or from the kids trying to counsel Mom and Dad: “Upon my disability, my wife will take care of me. I weigh over 200 pounds and my wife weighs about 120, but she’s a strong woman.” “My kids will maintain the house, the property and watch after Mom.” “Mom can’t drive so our daughter will take time from her professional career to do our grocery shopping, run us to the doctor’s office, and around town.” “Our son will abandon his career and move his family back to town to take over our small business.” “The grandkids will stop by weekly to mow the lawn and shovel the driveway.” “Mom and Dad do not need a policy because us kids are going to take care of them. Everything will work out just fine.” The truth is… none of the above will continue for very long, if at all. A 120-pound, 70 year old woman, is not going to throw a 200-pound man over her shoulder and carry him to the bathtub, scrub him down, dress him, and carry him down the stairs to breakfast. The real issue here is people never see themselves leaving their home. Since they are not going to leave their home, why would they require long-term care insurance? They know the statistics. They all have friends or family in senior living residences, but it isn’t going to happen to them. I am sure the kids’ intentions are good… but that’s not the way it happens. The kids are glad to take care of Mom and Dad… as long as they are okay, but when an illness or affliction sets in… somehow… things turn out much differently. Although there may be several siblings, most have a reason why they just can’t do it today. It doesn’t take long before those that are carrying more than their share of the load are bickering with those that are not. Stress mounts…for not only the siblings…but Mom and Dad as well. After years of watching these types of situations, I feel I am qualified to say…if at all possible…get a policy. If the kids want to be involved on a daily basis…fine…but have the policy to take care of the times they don’t…or can’t. Then too, many people believe they are covered under Medicare for a long-term care confinement. They are always surprised to find they most probably have no coverage at all under Medicare. If they do…it’s very little. As you might remember from earlier articles, Medicare only pays for Skilled Care, and for only the first 20 days of this type of care. Most people do not need Skilled Care at the onset of an illness, injury or affliction. They most generally need a lower level of care, and then…as their condition worsens…need more care. Nearly 80% of all people receiving long-term care are receiving a care less than Skilled Care (i.e. Simple Care, Personal Care, Custodial Care, Assisted Living, Supervised Care, Intermediate Care, etc.), thus Medicare pays nothing. If one does need Skilled Care, and if all of the conditions are met, it is possible that Medicare will work with one’s Medicare Supplement to pay up to an additional 80 days of this type of care. After this…there is nothing else. There are only 4 ways to cover the costs from that point forward: • You use your own income and assets • Your family pitches in and pays the costs • You exhaust your resources and then try to qualify for Medicaid (Social Welfare) • You have a long-term care policy that will pay all or most of the costs So, we’re down to the four ways of managing any risk: Avoid, Reduce, Retain, Transfer. Let’s investigate the first three of these this month: Avoid: (Sources: Nursing Home Utilization by Current Residence: 2010; Publication #PB 90 163 015, National Center for Health Statistics, October 2011; Aging America, 2011 Ed.; U. S. Department of Health & Human Services; Health Insurance Association of America, 2010) • The average length of stay for men with a long-term care confinement is 3 years, 10 months; women average approximately 50% longer (Note: this does not include the time spent at home prior to confinement). • Of all persons past the age of 65, 7 out of 10 will require a long-term care confinement some time in their lives. • Of all persons past the age of 70, 8 out of 10 will require a long-term care confinement some time in their lives. • Of all persons past the age of 80, 9 out of 10 will require a long-term care confinement some time in their lives. It’s not too likely that one can avoid the risk. Reduce: About all you can do to reduce the risk is to do your best to keep fit and stay in shape. Take your medication. Get regular checkups. In the event of a long-term care confinement on one or both spouses, be sure you (or a member of your family) do everything possible to exhaust all benefits available from Medicare and your Medicare supplement. Your income and assets however are still exposed as illustrated below. Retain: You will see above that one of the options to pay for long-term care costs is to use your own income and assets. This would be called ‘retaining’ the risk in risk management. Unfortunately, this is what most people end up doing. They understand, but fail to act on the premise that it is much easier to plan and budget for a small monthly amount now (the premium for a long-term care policy), than it is to plan and budget for several thousand dollars a month later (the costs of a long-term care confinement). The worksheet below will assist in letting you know how long your income and assets could last…by paying for your own, and/or your spouse’s long-term care costs. Annual Costs per person for a long-term care confinement in this area are from $50,000 to $70,000 or more ($4,000 to $6,000 per month). Can you afford to retain the risk? Complete the form at the end of this article and find out. If you do nothing (retain the risk), what will happen when and if one or both of you need this type of care? Let’s assume it is your husband that will need this type of care first. Let’s also assume the cost of this care will be $4,000 to 6,000 per month. The first thing you would do is to make application for Medicaid (SRS) to pay the bill. Prior to them paying, you will go through a ‘spousal division of assets’ program. The maximum community spouse resource allowance this year is the first $22,728 of total non-exempt resources, or one-half of the total non-exempt resources owned at the time the spouse needed long-term care. The maximum share each can keep is $113,640. These amounts are subject to change annually. In addition, you can keep these, or most of these exempt resources or assets: • The home and its contents • One car (per family) • One burial plot, casket, etc. (per person) • A funeral plan within certain limits • Personal possessions, such as wedding rings and clothes • In some situations, property used in an on-going business This means that in the division of non-exempt assets between you and your husband, you would put $113,640 in the name of each spouse. All amounts over $227,280 (2 x $113,640) would have to be spent down on the cost of care prior to this division of assets. It would be wise to put the most liquid of these assets in the name of your husband so they can be converted to cash more quickly. However, once you remove your exempt resources and figure what is left, you may not have this much, so you would start with putting $113,640 in your name, and spend down the remainder on the cost of your husband’s care. He would have to spend his portion down to $2,000 on the cost of care, before he would be eligible for Medicaid. The exempt income allowance this year is at least $1,839 per month. I say at least because there are some other possibilities where you could protect more of your combined monthly income, if for instance, there are dependent family members living with the non-confined spouse. Income over this protected amount would have to be paid for his cost of long-term care. Medicaid would then pay the balance of the cost of the long-term care for your husband for the rest of his life. SRS would however file a first class claim on your exempt assets for what they pay. This first class claim goes ahead of all other claims to assets other than those for final expenses. This first class claim would not be settled as long as the well spouse (you) lived in the home. If you should need long-term care in the future, you would have to spend your assets down to $2,000 just like your husband. At that point you would also qualify for Medicaid. Once both spouses were not residing in the home and/or neither had an intent to return, SRS would satisfy their first claim from the sale of the proceeds of the exempt assets. There are varying views about Medicaid from its recipients and their families. The proponents of Medicaid say it should be looked upon as one of the best government programs there is because it guarantees each person that he or she will receive the type of care they need if they cannot pay for it. The opponents say the program requires that the recipient and ultimately the recipient’s spouse be at poverty in order to qualify; and that care received at many places when one is on Medicaid is substandard to care received when one is using his or her own assets/income to pay the bill. Next month, we will talk about the fourth way to manage this risk…and that is to transfer the risk to an insurance company by buying a long-term care policy, where you trade a small certain loss…the monthly premium…to avoid the large uncertain loss…which is the claim.
 
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