Have you ever thought about what would happen if you or a family member were no longer able to live independently?

What if your elderly parents were no longer able to drive or perform basic activities of daily living, such as bathing or toileting?

Would you or another family member be able to provide the care that your loved one might need?

With longer life expectancies for both men and women, it is likely that you or someone close to you will eventually need some type of long term care (LTC). You can start the LTC planning process by considering the following common options for receiving and funding care:

Long Term Care Education and Advocacy

To start, you can contact your state’s Ombudsman Program. The word, “ombudsmen,” is derived from the Swedish language and means “representative.” Under the Federal Older Americans Act, every state is required to have an Ombudsman Program, which is a valuable checkpoint for LTC planning and continuous care.

It is the Ombudsman’s job to provide information to educate the public about finding quality LTC facilities. An Ombudsman also advocates for residents’ rights, helps resolve complaints, and promotes community involvement through volunteering.

The National Long Term Care Ombudsman Resource Center offers support, education, and technical training to the 53 State LTC Ombudsman Programs and their statewide networks of nearly 600 regional programs. To learn more and find a local program in your area, visit www.ltcombudsman.org. (IFS does not endorse this website)

Family

Sometimes parents assume their children will take care of them in their old age, and although adult children may want to do as much as they can, certain practical questions need to be asked: Will your children have the time and financial freedom to give you the care you need? Will they be knowledgeable about age-related medical concerns? As you plan, it is important to factor in your family, gender, medical history, and personal health risks to realistically assess whether your children will be able to take care of you.

Public Programs

Most people underestimate the cost of LTC and overestimate the funding that will be available through public programs and private health insurance. Currently, there is no government program specifically designed to cover LTC expenses. Medicare may cover some nursing home or assisted living costs, but only for “skilled care” that is deemed medically necessary for the duration of an illness, usually limited to 100 days following a three-day hospital stay. As a result, Medicaid has become the primary source of public funding for LTC. However, because Medicaid is a program designed to help those in financial need, families must “spend down” their personal assets before they qualify for public assistance.

Personal Assets

You may be able to use your personal assets, such as retirement savings or trust funds to meet LTC expenses that exceed Medicare and Medicaid. Real estate can be sold, if necessary; however, real estate is an illiquid asset, and forced sales may have negative consequences. Permanent life insurance offers cash values that may be borrowed against the policy, but tapping into a policy’s equity may reduce the policy’s death benefit, increase chances of the policy lapsing, and result in a tax liability if the policy is terminated before the death of the insured.

Insurance

 Some types of insurance may offer protection. For example, disability income insurance may replace a portion of your income if you are unable to work due to an accident or illness, but this coverage is designed to be temporary, and is not available once you retire. Health insurance may pay for skilled care, but not chronic, custodial, or long term care. On the other hand, long term care insurance (LTCI), can help cover the expenses of home care, a nursing home or assisted living facility, or adult day services. LTCI can help minimize the financial risk associated with extended care and ease the burden of uncertainty for your family.

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Long-Term Care Insurance: How Does It Work?

This information is the bread and butter of any LTCI policy. In addition, you should know how to file a claim, preferably before you’re on the verge of needing care.

What determines if you’re entitled to benefits?

LTCI policies differ on how benefits are triggered, so it’s crucial to examine your individual policy. Here are some typical ways you can become eligible for benefits:

• You’re unable to perform a certain number of activities of daily living (ADLs) without assistance, such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed). Look in your policy to see what ADLs are included, the number you must be unable to perform, and how your policy defines “unable to perform” for each ADL, as criteria can vary from one company to another (e.g., does the definition require someone to physically assist with the activity or simply to supervise the activity?).
• Your doctor has ordered specific care.
• Your care is medically necessary.
• Your mental or cognitive function is impaired.
• You’ve had a prior hospitalization of at least three days (this is rare with newer policies).

An LTCI policy may contain one or more of these provisions. The more specific the language in the provision, the less room for disagreements about coverage.

Who determines if you’re entitled to benefits?

Just as important as what triggers benefits is the question of who decides if you’ve triggered them. These gatekeepers are an integral part of any LTCI policy–after all, they’re the ones whom insurance companies rely on before paying out claims. In some cases, a policy may have more than one gatekeeper.

The best policies let you qualify for benefits if your own doctor orders specific care, rather than require that you be examined by an insurance company physician. Similarly, it’s insurance companies that define performance criteria for ADLs, as well as create and administer tests to see if you satisfy the mental impairment threshold. Make sure you know who the ultimate decision maker is under your policy.

When will benefits start?

Most LTCI policies have a waiting period, commonly known as an elimination period, before you can start receiving benefits after you’re judged medically eligible. Common waiting periods are 20, 30, 60, 90, or 100 days. During any waiting period, you’re responsible for paying for your care, whether it’s in a nursing home, an assisted-living facility, or in your home.

Some LTCI policies have no waiting period–you can start receiving benefits on the first day you need care. However, this type of policy is more expensive than a policy with a waiting period. Generally speaking, the longer the waiting period, the less expensive the policy.

Keep in mind that the calculation of the waiting period can vary from company to company. Some companies may count the days cumulatively (e.g., adding up the total number of days you spend in a nursing home, even with gaps), while others may count the days consecutively (e.g., adding the total number of days you spend in a nursing home without interruption). Also, some companies require only one waiting period for the life of the policy, while others require a waiting period every time you apply for benefits (unless you become eligible for benefits again within a certain period of time, such as six months or a year, in which case only one waiting period will need to be satisfied).

The mechanics of filing a claim

Ideally, you should know how to file a claim before you actually need benefits–you don’t want to lose coverage on a technicality. Typically, filing a claim means submitting a written notice to the insurance company, along with a proof-of-loss form (supplied by the insurance company) and relevant medical records.

Most policies require you to give written notice of a claim within a specific time after needing care (e.g., 30 or 60 days). In addition, you may need to verify your condition in writing every 30 to 90 days. The company may also require you to submit to an independent medical evaluation by a physician of its choosing to verify your claim.

Follow the instructions in your policy carefully. If you don’t, your insurance company can deny you benefits, in which case your only recourse will be to make a complaint with your state insurance department or file a lawsuit (and most companies limit the period of time in which you can file a lawsuit). Don’t let all those premium payments go to waste–take the time now to understand the claims-filing process for your policy.

Benefits of LTC Planning

Whether you are in your 40s, 50s, or 60s, the time to begin planning is now. Because premiums are based on age and selected benefits, each year that you delay LTC planning, will cost you more in the long run. Although many people wish they could postpone the inevitable, the cost-effectiveness of early LTC planning may also help to preserve your assets for future generations.  Remember, you are not alone when it comes to LTC planning. Help is available.

 

As always, you can consult with me to discuss   your long term planning issues.

Look for future posts on the financial planning  and check out my recent post on retirement income planning.

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