Long-term care funding wrapped up in deficit debate

August 3, 2011

The following is a guest post by Brad Allen. The opinions expressed are his own.

The debate over funding long-term care has gotten renewed energy – but no greater clarity – from the current deficit reduction discussions roiling Washington.

Seventy percent of Americans over the age of 65 will need some level of long-term care in their lifetime with 20 percent requiring two to five years of care, according to the U.S. Dept. of Health and Human Services. Annual costs can vary widely, but the national average in 2008 ranged between $18,000 for part-time in-home health aides to $68,000 for a semi-private room in a nursing home.

Some long-term care insurance premiums have shot up by as much as 40 percent in the past year. A few providers have stopped writing new policies, recognizing that they underestimated the cost of delivering care covered by policies written a decade ago.

AARP recently released a study estimating the economic value of unpaid help with daily activities provided by family caregivers totaled approximately $450 billion in 2009, up nearly 17 percent in two years. That was nearly four times the amount paid by Medicaid for long-term care and more than double the $203 billion paid by all sources, AARP says.

“We don’t have a long-term care system in this country. We have a great unfilled need and not lot of people planning to meet that need,” says David Certner, AARP legislative policy director. The non-medical portion of long-term care is covered by a combination of Medicaid – if the consumer meets financial eligibility – out-of-pocket savings, unpaid family caregivers and private insurance, which covers less than 10 percent of total cost.

The swelling demographic bubble of aging Baby Boomers will exacerbate budget challenges while consumers already face complex eligibility rules, confusing insurance options and fears of draining personal savings that would leave their surviving spouse destitute.

One proposed solution, the CLASS Act (Community Living Assistance Services and Supports), became law as part of healthcare reform in 2009. It established a voluntary payroll deduction option enabling consumers to purchase long-term care policies. The plan would cover home care or adult day care as well as partially offset more expensive assisted living or nursing home care.

The program has not yet gone into effect, but it attracted opposition almost immediately from both the insurance industry and deficit hawks in Congress. Supporters cite Congressional Budget Office projections that the program would reduce Medicare spending by $83 billion through 2021 before rising slowly, while opponents claim the program is actuarially unsound and will eventually have to be bailed out by taxpayers.

The CLASS Act has become a prime target of both Senate and House deficit reduction proposals and a repeal looks increasingly likely.

So where does that leave consumers? Repeal would retain “the non-system we’re in,” AARP’s Certner says.

Dr. Robert Kane, a physician who teaches health and policy management at the University of Minnesota and is author of the book The Good Caregiver, argues that the U.S. lacks “any kind of support system for family members providing care. If they suddenly disappeared, this system would be in chaos.”

Kane supports a more “family friendly” structure, including compensation for family caregivers. He predicts that as aging Baby Boomers increase demand on services, it will force a major debate on long-term care funding.

Choosing long-term care insurance starts with a plan
David Gardner, a fee-only financial adviser from Boulder, Colorado, takes a methodical approach with clients when discussing long-term care — they need to have a plan first, regardless of net worth. He asks them to answer the question: “How can we support each other and make decisions on long-term care, if and when we need it?” even before they start talking about how that plan is going to be funded, he said.

The “mass affluent,” who Gardner says are counting on savings to cover long-term care expenses, should also consider insurance to cover costs they cannot afford or would be “extremely stretched” to meet.

He urges his clients to push out the waiting time before they start receiving benefits, in essence taking a higher deductible, but to opt for maximum affordable coverage. Married couples should explore a joint policy that pools the maximum payout available to each.

Adult children be involved in the discussion — and funding, if necessary — of a long-term care policy for their parents. It’s to their benefit, Gardner says, in helping “alleviate the burden” of providing care as well as protecting inheritable assets left to the next generation. “Many of my high-net-worth clients haven’t spent lot of money, so it’s hard for them to decide when they need help, when it’s OK to get someone to come in, or harder — go into assisted living.” Having an insurance policy helps them make that decision, he says.

Like term life insurance, long-term care insurance is less expensive the younger and healthier you are when you purchase the policy. But Gardner says the “sweet spot” for getting insurance is from about age 50 to the early 60’s. “The landscape will change so much over the next 30 years, that I’m reluctant to recommend clients in their 30s or 40s seriously consider it,” he says.

Forty-two states have “partnership programs” that allow you to shelter assets, dollar-for-dollar, equal to the amount of insurance coverage you have. Given the complexity of rules, insurance plans and changing regulatory landscape, work with an insurance broker who specializes in long-term care.

Sources of additional information:


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[…] 9.Long-term care funding wrapped up in deficit debate | Reuters Money Aug 3, 2011 … The debate over funding long-term care has gotten renewed energy – but no greater … for long-term care and more than double the $203 billion paid by all sources, AARP says. … One proposed solution, the CLASS Act (Community Living Assistance … Choosing long-term care insurance starts with a plan … http://blogs.reuters.com/reuters-money/2 011/08/03/long-term-care-funding-wrapped -up-in-deficit-debate/ […]

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