Long-Term Care Is Expensive and Becoming More So. Because The

Long-term care is expensive and becoming more so. Because the majority of Americans do not plan in advance for LTC, there is a critical need to find alternative funding sources to pay for it.BY CHRIS ORESTIS [ financial ] The Crisis in Long-Term Care Funding: Understanding Private Pay Alternatives

tatistics show that the majority of people do not maintain more control of the type and location of care understand the various forms of long-term care they need. For example: S(LTC), the different means to pay for it, and most do not plan for it. Adding to the growing fund- 1. Veterans Aid & Attendance Benefit (http://ben- ing crisis are the baby boomers who are now reaching efits.va.gov/pension/aid_attendance_housebound. Social Security and Medicare age—and 70 percent of asp). them will need long-term care services. Over ten mil- lion Americans now require long-term care annually, 2. Converting Life Insurance into a Long-Term and Medicaid is the primary source of coverage. With Care Benefit Plan (www.lifecarefunding.com/ these numbers increasing every year, the United States how-it-works). has officially crossed the tipping point into the era of the “long-term care funding crisis.” 3. Viatical/Life Settlements (www.lisa.org/con- Diminished financial resources across the board tent/13/What-is-a-Life-Settlement.aspx). have brought together a perfect storm of factors we must now confront. The simple fact is that more re- 4. Senior Living Loans (www.assistedlivingfacilities. sponsibility is going to be placed back on individuals org/resources/ways-to-pay-for-assisted-living/ and their families to find the resources necessary to private-funds-lines-of-credit). handle the costs of long-term care. Understanding the growing array of alternative private pay solutions is a 5. Single Premium Immediate Annuities (SPIA) critical part of LTC planning for advisors and providers. (www.annuityratewatch.com/rates/spia.cfm).

The Solution 6. Long-Term Care Insurance (www.aaltci.org). Twenty years ago, the only real alternative to Medicare and Medicaid was long-term care insurance. Today, Veterans Aid & Attendance a variety of private pay options exist to help people This is a monthly benefit for low-income veterans remain financially independent, preserve assets, and (and their spouses) who served at least one day during

CSA JOURNAL 62 / SPRING 2015 / SOCIETY OF CERTIFIED SENIOR ADVISORS / WWW.CSA.US PAGE 21 a wartime period. The VA benefit is a tax-free supple- devices. Your disability or disabilities require that mental income pension benefit intended to assist the you remain in bed apart from any prescribed costs of skilled nursing care for a disabled veteran. A course of convalescence or treatment. single veteran can receive upwards of $1,700 a month, and upwards of $2,000 a month with a spouse. The • You are a patient in a nursing home due to mental Veterans Administration has proposed a significant or physical incapacity. rule change that would include a three-year look back period (similar to Medicaid look back rules) for all ap- Long-Term Care Benefit Plan plicants that is expected to be in effect before the end A Long-Term Care Benefit Plan is the conversion of of 2015. an in-force life insurance policy into an irrevocable, Additional requirements to qualify include: FDIC-insured Benefit Account to fund the Long- Term Care Benefit Plan. An unneeded life insurance • Age sixty-five or older, OR policy is sold for a percentage of the death benefit (the range can be between 20-60 percent) and the funds are • Totally and permanently disabled, OR placed into an irrevocable, FDIC insured Benefit Ac- count held and administered at a nationally chartered • A patient in a nursing home receiving skilled and regulated bank and trust institution. nursing care, OR Once enrolled in the benefit plan, beneficiaries are able to immediately direct tax-free monthly pay- • Receiving Social Security Disability Insurance, ments to cover any form of senior care they choose: OR home care, assisted living, nursing home, memory care, or hospice. • Receiving Supplemental Security Income. This option extends the time a person would remain with private pay and delays their entry into Med- At least one of the following conditions must be icaid. It is a unique, tax-advantaged financial option to present: pay for care because all health conditions are accepted, and there are no wait periods, care limitations, costs to • You require the aid of another person in order to apply, and no premium payments. perform activities of daily living (ADLs), such as In addition, the Benefit Account is tax free because bathing, feeding, dressing, or adjusting prosthetic the funds are spent on care.

PAGE 22 Requirements to enroll in the Long-Term Care Senior Care Bridge Loans Benefit Plan: Senior care bridge loans are designed to help seniors and their families with the cost of assisted living, home 1. In-force life insurance policy (Term, Universal, care, or skilled nursing on a short-term basis. The loan Whole, and Group) with a death benefit between is unsecured with up to six cosigners permitted instead $50,000-$1,000,000. of collateral. While credit scores are considered, a lower credit score of any one cosigner is typically offset by 2. Current need for care (within ninety days of the other co-signers. The maximum term of the loan enrollment). is three years, and the interest rate is tied to the prime rate and is often on par with credit card interest rates. Life Settlements After three years, the loan must be repaid including all A life or viatical settlement is the sale of an existing interest and fees, but there are no early payment penal- life insurance policy to a third party for more than its ties. Once approved, loan payments are made directly cash surrender value, but less than its net death benefit. from the loan account to the care provider. At no point In exchange for paying the purchase price to the seller, do the borrowers take possession of the funds. as well as assuming responsibility for future premiums, the buyer will receive the full death benefit when the Immediate Annuities original insured dies. An immediate annuity is a contract with an insur- Most states regulate life and viatical settlement ance company under which consumers pay a certain transactions, and many of the specific regulations in amount of money to the company, and the company place are intended to protect individuals that are sell- sends the consumers a monthly check for the rest their ing their insurance policies. For example, in most lives. In most states, the purchase of an annuity is not states, the seller of an insurance policy through a life considered to be a transfer for purposes of eligibility settlement can cancel the transaction by returning the for Medicaid, but is instead the purchase of an invest- purchase price within fifteen days of receipt. More ment. It transforms otherwise countable assets into a than forty states have regulations in place regarding non-countable income stream as long as the income is the sale of life insurance policies to third parties. in the name of the community spouse. Under the Def- Oftentimes, the terms Life Settlement and Viatical icit Reduction Act (DRA), the state must be named Settlement are used interchangeably. However, some the remainder beneficiary up to the amount of Medic- state regulations use the term Viatical Settlement to re- aid paid on the annuitant’s behalf. fer to cases where the person covered by the insurance policy is terminally ill, or has a shorter expected life Long-Term Care Insurance span (e.g., less than two years). For those states that Long-term care insurance is a financial product sold make the distinction, Viatical Settlement transactions by an insurance agent to help cover the future costs of may be subject to additional regulatory requirements a variety of long-term care services. Most long-term (e.g. minimum pricing relative to the death benefit). care services are NOT covered by any other kind of Life Settlement transactions bring efficiency to insurance, including health insurance, long-term dis- the life-insurance marketplace. They offer a healthy, ability insurance, Medicare, or Medicare supplemen- competitive outlet to liquidate a life insurance policy tal coverage. Generally, the younger and healthier the that has outlived its purpose and/or to raise cash in a purchaser, the lower the premiums will be. Waiting too time of immediate crisis. Transactions involving poli- long can decrease the likelihood of being accepted and cies that were purchased based on insurable interest are increase the cost of coverage. the foundation of a legitimate transaction. In fact, this Before buying a policy, it is important to ask com- type of a transaction was supported by none other than panies about their rate increase history and whether Supreme Court Justice Oliver Wendell Holmes in his they have increased rates on previous long-term care 1911 landmark decision, Grigbsy v. Russell. Justice insurance policies. Be sure to compare benefits, the Holmes noted in his final opinion that life insurance types of facilities covered, limits on coverage, what is possessed all the ordinary characteristics of property, not covered, and the premium. Hybrid life insurance and therefore represented an asset that a policy owner and long-term care policies give the policy owner ac- could transfer without limitation. cess to the majority of the death benefit if long-term care services are needed. If long-term care services are not needed or all of the death benefit is not used up to pay for long-term care expenditures, the remaining

CSA JOURNAL 62 / SPRING 2015 / SOCIETY OF CERTIFIED SENIOR ADVISORS / WWW.CSA.US PAGE 23 Home Care by Seniors for Seniors

death benefit is paid out to the beneficiaries upon the Puerto Rico), and the son was forced to repay the entire death of the policy owner. costs of his mother’s care. The court finding even grant- ed discretion to the nursing home company to seek OUR LOVING, CARING COMPASSIONATE The Political Reality payment from any family members it wished to pursue. SENIORS ARE THERE TO HELP. The Commission on Long Term Care was appointed by Congress in 2013 to study and make recommenda- The Long-Term Care Reality There’s a huge difference in the kind of tions about the rapidly escalating crisis facing Ameri- When it comes to private pay financial solutions for cans and their ability to pay for long term care. Dur- long-term care, it is not about selling a product; rather home care you can receive from someone ing the Commission hearings, panelists explained that it is about providing information and access to resourc- the public safety net can no longer sustain the pres- es that will allow for effective long-term care financial who really understands what your life is sure put upon it, and private market alternatives must planning. Advisors should be focused on understand- come forth. “The question is whether most Americans ing the crisis situation we are dealing with as a country, like as a senior. The concerns you have. can afford to pay for them.” According to G. William and the variety of resources that can help people both Hoagland of the Bipartisan Policy Center, “Medicare plan for the future and react to an immediate situation. The need for independence. Someone who, and Medicaid have become the major source of long- The seven private pay funding solutions presented in like you, has a little living under his or her belt. term care, and cannot continue at the current pace.” this article are all viable alternatives to Medicare and/ or Medicaid. It is the responsibility of every advisor to ® The Legal Reality be familiar with how they can benefit a family con- ...a way to give and to receive Unexpected and dangerous threats in the form of pro- fronting the realities of long term care. •CSA fessional and personal liability have emerged in the ® wake of the growing LTC funding crisis. Lawsuits and At Seniors Helping Seniors services our in-home providers are carefully mandated claw-back actions have been brought against families in attempts to recover monies spent on long- Chris Orestis is CEO of Life Care Funding in matched with you to provide the best comfort, companionship and safety term care. Insurance and legal advisors have also been Portland, Maine. He is an eighteen-year veteran of so you can maintain your independence and stay in your own home. sued by clients in response to fiduciary responsibility both the insurance and long-term care industries, issues about options to fund long-term care, or how and author of the book, Help is on the Way. A to derive the highest value from a life insurance policy. nationally known senior care advocate, he has been featured in the • Personal Care These aggressive legal actions take root from State Wall Street Journal, New York Times, USA Today, Fox Business News, Filial Responsibility laws and federal estate recovery and PBS. Contact him at [email protected], or 888-670- • Companionship mandates that have existed for decades. In 1993, the 7773 x 6623. Or visit www.lifecarefunding.com. federal government passed a mandate in the Omni- • Light Housekeeping bus Budget Reconciliation Act of 1993 (OBRA 93) ■ that requires states to implement a Medicaid estate REFERENCES • Transportation recovery program, and the Deficit Reduction Act of 2005 (P.L. 109-171, DRA) contained a number of Ebeling, Ashlea. 2015. “VA Proposed Rule Is Attack On Veterans And • House Maintenance provisions designed to strengthen these rules. The Their Families.” Forbes. March 10, 2015. www.forbes.com/sites/ government has had the authority to take legal action ashleaebeling/2015/03/10/va-proposed-rule-is-attack-on- and Small Repairs against families to recover Medicaid dollars for over veterans-and-their-families. two decades. In fact, Medicaid recovers hundreds of ...and more! millions from families every year, but as budget pres- Health Care & Retirement Corporation of America v. Pittas Pa. sures increase, estate recovery actions are becoming Superior Ct., No. 536 EDA. May 7, 2012. Superior Court of even more aggressive. Pennsylvania. www.pacourts.us/assets/opinions/Superior/out/ Ironically, a high profile legal action recently taken A36025_11.pdf. against a family to recover costs spent on long-term ® care was not initiated by the government, but was in- Jaffe, Susan. Kaiser Health News “Facing a Tight Deadline, Long- Like getting a little help from your friends stead successfully undertaken by a nursing home com- Term Care Panel Holds First Meeting.” Kaiser Health News. June ® pany. In 2012, John Pittas, a forty-seven-year-old res- 28, 2013. http://kaiserhealthnews.org/news/long-term-care- Find a Seniors Helping Seniors In-Home Care near you. taurant owner, was sued by a nursing home company commission. for $93,000 in expenses incurred by his mother over a six month period after she was denied Medicaid eli- Pearson, Katherine. 2012. Table: Family Filial Responsibility/Support www.seniorshelpingseniors.com gibility. The Superior Court of Pennsylvania found in Statues in the United States. Pennsylvania State University, favor of the nursing home based on “filial responsibility Dickinson School of Law. March 5, 2012. http://law.psu.edu/file/ Pearson/FilialResponsibilityStatutes.pdf. ©2015 Seniors Helping Seniors. Each offi ce is independently owned and operated. law” (which is on the books in twenty-eight states and All trademarks are registered trademarks of Corporate Mutual Resources Inc. Not all services are available in all areas.

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