Long Term Care

A Long-Term Care Planning

Primer For Members Of The
Los Angeles County Bar
Association

Presented by CounselAssure
A qualified member benefit discount
program of the LA County Bar Association
Today’s Course Outline

 What does long-term care truly mean

 The retirement liability paradigm
 Government solutions and myths
 The Deficit Reduction Act of 2005
 Understanding long-term care insurance
 Using insurance to transfer risk
 The California Partnership program
 Tax issues
 Questions & Answers
 A Starting Thought

“There are only four kinds of people in this world...

• Those who have been caregivers

• Those who currently are caregivers
• Those who will be caregivers
• Those who will need caregivers."

--Rosalyn Carter, February 13, 1997

 What is Long-Term Care?

Extended Chronic Care

Family, Friends & Professionals
Home
Assisted Living
Adult Day Care
Nursing Home
Agency for Health Care Policy and Research, 2005; National Association for Home Care, 2006;
Assisted Living Federation of America, 2005
 What is Long-Term Care?

Nursing
home care
Home Health Care
18%
Adult Day Care 82%
Home care, adult day
Assisted Living care, assisted living
Nursing Home Care

Agency for Health Care Policy and Research, 2005; National Association for Home Care, 2006;
Assisted Living Federation of America, 2005
 The Aging of America

Americans Age 65 or Over

(In Millions)
75

35

2000 2030
National Academy on an Aging Society, 2004
Why Is America Aging?

Longer Life Expectancy

Low Birth Rate
76 Million Baby Boomers
 Impact of Long-Term Care

“Elder care will replace child care as

the number one dependent care need
in the next century, as 1 out of 3
working adults will be caring for an
aging family member.”
 The Retirement Liability Paradigm

 Retirement planning is really a risk

management process when the goal is
properly stated as lifestyle security
 Managing liabilities is equally or more
important than managing assets
 Lifestyle security is the one goal that unites
all individuals
 Six key risks that we all face
 The Six Ls
The Six Ls: Retirement Liabilities

 Lack of capital
 Loss of income
 Losses on investments…at an inopportune
time
 Long-term care
 Longevity
 Litigation
Long Term Care

 Why can it impact lifestyle security?

 Dignity and independence
 Emotional impact
 Economic impact
 An open-ended potential liability
 Don’t know when, how long or how much
 The Financial Impact

Home Health Care…………..$66,000 / yr

Assisted Living…………………$73,000 / yr

Adult Day Care………………..$15,000 / yr

Nursing Home………………….$70,000 / yr

MetLife Mature Market Institute Cost Survey, 2006; American Association of Homes and Services for the Aging, 2006;
Centennial Adult Care Center, Nashville, TN 2006, LTCFP Care Cost Survey, 2006.
 Quantifying The Liability

Home Health Care 4.5 years………$297,000

Assisted Living 18 months……..$109,500

Nursing Home 2.4 years………$168,000

Sometimes all three in

the same household or for
the same person!

MetLife Mature Market Institute Cost Survey, 2006; American Association of Homes and Services for the Aging, 2006;
Centennial Adult Care Center, Nashville, TN 2006; Conning & Co., “Long Term Care Insurance: Baby Boom or Bust?”
2006, Nationwide Insurance Survey, 2004.
The Future Costs in California

2006 2016 2026

Nursing Home $75,190 $134,654 $241,145

Home Care $34,675 $62,098 $111,207

Assumes 6% rate of inflation; assumes only five hours per day for
home health care

Source: Mature Market Institute, 2007

How The Government Plays A Role…Or
Doesn’t Play A Role

 Medicare
 Medicaid
 State Partnership programs
 Deficit Reduction Act of 2005
 Medicare Nursing Home Benefits

• Days 1 – 20 All Costs @ 100%

• Days 21 – 100 100% after daily co-pay
• Days 100+ Nothing

SKILLED CARE ONLY!

 Medicare = Short-term Care
Short-term

Average Number of Days

Skilled Care is Provided

“The Nursing Facility Sourcebook, 2006”, American Health Care Association, p. 71

 Medicaid ((Medi-Cal)
Medi-Cal) Social Program

•Spend down – below $1500(single); $2000 in

CA
•Look back audit – 5 Years; 30 months in CA
•Ineligible if home equity > $500k
•Mandated estate recovery and annuity
remainder interest for the state
•Limited choices for care

Deficit Reduction Act of 2005. Centers for Medicare & Medicaid, 2006
 Private Health Insurance

• Group Health Plans (i.e. STRS,

PERS)
• Individual Health Plans
• HMO’s
• Retiree Group Health Plans
• Medicare Supplements
• Disability Income Plans
 Who Pays for Long-Term Care?
(Home Care and Nursing Home)

15% 25%
Medicare Out-of-pocket

12%
Private Insurance
42%
Medicaid
< 2%
VA
4%
Other
Source: Centers for Medicare and Medicaid Services, 2/2006 statistics
 Who Really Needs Long-Term Care?

60%
65 and older

39%
1% Working Age
Children < 18 Adults
Ages 18-64
Source: The Urban Institute, May 5, 2006; Met Life Mature
Market Institute Study, 2006.
 Demographic Tax Base

(Workers vs. Social Security Beneficiaries)

1945 40 to 1
1995 3.4 to 1
2040 2 to 1

National Academy on an Aging Society, January 2005

 The ““Big
Big Three
Three””

Social Security, Medicare and Medicaid’s

Percent of Total Federal Revenue

2007 – 44% 2030 – 75%

The Government’s Share:
Key Questions Moving Forward

Will they be able to pay their share as the tax base drops and the
expense load gets higher and higher?

Is more legislation like DRA 2005 on the horizon to tighten access

and costs?

These are the questions that we all need to think about as it

relates to transferring this risk to insurance companies by way
of long term care insurance

So, what is the current risk level?

 RISK: LONG-TERM CARE
LONG-TERM

1 in 2

LifePlans, Inc. 2006, New England Journal of Medicine, Jan 2005

 Comparative Risks

For every 1,000 people:

 5 will have a house fire (average loss, $3,428*)

 70 will have an auto accident (average loss $3,000*)
 600 will need long-term care…significant larger loss
and asset exposure

Sources: *Society of Actuaries, 1995, **HIAA, 2005

What Is At Risk?

 Home  Real Estate

 Savings  Stocks/Bonds
 CD’s  401(k)’s/IRA’s
 Money Market  Trust Assets*
Accounts

*Except Most Irrevocable Trusts

Risk Transfer Strategy

 When does it make sense to adopt a risk-

transfer strategy
 What are the tax incentives?
 What are the costs?
 Structuring the plan to fit budget, needs and
retirement plan
 Can transfer all of the risk; share the risk; or
transfer only “catastrophic” risk
Why Consider A Risk Transfer Strategy

 Not poor enough or rich enough

 Asset and lifestyle protection
 Catastrophic expense strategy
 Frees up retirement capital for other
needs…sunny day money waiting for rain
 Tax advantageous
 Future Government legislation may limit your
flexibility…after your health has changed!
 Tax Incentives For Risk Transfer

 Tax-free benefits up to $270/day or actual

charge, whichever is greater
 Portion of premium counts as a medical expense
 Premium tax deductible for employers, S-Corp,
C-Corp, Self-Employed
 Employers may “discriminate”
IRC Section 7702B(b), 213(a), 213(d)(10), 162(I)(2)(C), 104(a)(3), 105(b), 106(a), 162(a)
Tax Deductibility: A Closer Look

Itemizing Individuals / Self-Employed

 Individuals: deductible based on the IRS age based

limits and 7.5% AGI threshold; taken as a medical
expense on Schedule A

 Self-employed: follows the rules for deducting health

insurance and IRS age-based limits
Tax Deductibility: A Closer Look

2008 Age-Based Limits

Age 40 & Under $ 310

41-50 $ 580
51-60 $1,150
61-70 $3,080
71 & Older $3,850
Tax Deductibility: A Closer Look

C Corporations

 Premiums paid by company for employees, spouses and

dependents are 100% deductible as a business expense

 Deduction is NOT limited to the age-based deductions (see

IRC 162(a))

 Premiums paid by the company are NOT included in the

employee’s income even if the premium exceeds the eligible
premium amount [see IRC 106, 7702B and 0104(a)(3)]

 Do not need to follow non-discrimination tests or

guidelines…find / win / keep strategy for companies
Tax Deductibility: A Closer Look

Partnerships, LLCs, S Corps

 Partners, members, and shareholder members of S Corps

owning more than 2% are taxed as self-employed individuals
 If the entity pays the premium, the premium is picked up as
income
 Limited deductions are available under IRC 162(l)
 NOT necessary to meet a 7.5% threshold
 100% deduction for premiums paid for employees (spouses)
Tax Deductibility: A Closer Look

Even Larger Deductions May Be Available

 Pay for the policy on a 10-pay or single pay basis to lock-in

an even larger deduction*

 Protect against “use it or lose it” concern by adding a “refund

of premium” option; higher premium delivers higher tax
deduction

* Currently, no single pay plans are available in CA but are available in

some other states
 Designing A Plan

The Five Plan Components

 The 5 Plan Design Components

1. Daily / Monthly Benefit Amount

2. Home Health & Community Coverage
3. Waiting Period (elimination period)
4. Benefit Period
5. Inflation Protection
 Daily Benefit Amount

How Much Per

Day for Nursing
Home Care?
California is
$200 /day
 Benefit Period

At Least 3 Years
Preferably 6 Years
Ideal = Lifetime
 Home Health Care

Percentage of
Nursing Home
Benefit
 Assisted Living

Adult Day Care

Centers
Assisted Living
Facilities
 Comprehensive Coverage

Home Health Care

Adult Day Care
Assisted Living
Nursing Home
 Waiting Period

20 - 100 Days

(Once in a lifetime)
 Inflation Protection

5% Simple or
Compound
CPI Option
GPO – Buy Up
California Partnership Policies

 California is one of the few states with a

“partnership” program
 Designed to help residents buy insurance
and provide lifetime asset protection
 Partnership between the state and select
insurance companies for the benefit of
residents
California Partnership Policies

 Allows residents to choose coverage levels to match

the assets they wish to protect for life
 Eliminates the “spend down” rules under Medi-Cal
for the assets that are protected
 Can apply for Medi-Cal once policy benefits run
out…while keeping the protected assets for life…
 Income may need to be spent for long-term care
before Medi-Cal will pay, but protected assets are
safe
California Partnership Policies

 Partnership policies have to have specific minimum

benefits in order to qualify
 Automatic inflation protection
 A deductible that is met just once
 Waiver of premiums while care is provided in a
facility
 Care coordination
 Policies can be “facility only” or “comprehensive”
California Partnership Policies

 Only a handful of companies are approved

for partnership policies
 MetLife, John Hancock, Bankers Life,
Genworth, New York Life
 CalPERS (only for public employees, retirees
and their spouses, parents, in-laws and
siblings)
Design Strategies

 100% Risk Transfer

- Short waiting period
- High daily benefit amount
- Comprehensive coverage for life
- Maximum inflation benefit
- Complete financial peace of mind
- Highest annual premium
Design Strategies

 Co-Share Risk
- Middle of the road waiting period
- Smaller daily benefit amount (50% - 75% of
daily cost; $100 - $150 per day)
- Simple inflation protection
- Comprehensive coverage for 3-5 years
- Peace of mind for portion of risk
Design Strategies

 Catastrophic Risk Transfer

- Longest possible waiting period (self-insure
for awhile)
- Large daily benefit amount (25% - 50% of
daily cost; $100 - $150 per day)
- Compound or simple inflation protection
- Comprehensive coverage for 3-5 years
- Peace of mind for catastrophic risk
- Smaller annual premium
 The Qualification Process

 Answer questions on application

 Authorize release for medical records
 Possibly participate in a telephone
interview
 Possibly participate in a face-to-face
interview
Some conditions are uninsurable
 Triggers to Benefits

(w/ 90 day Certification)

Bathing Toileting
Dressing Transferring
Eating Continence
Or Cognitive Impairment
 Guaranteed Renewable

Policy Can’t Be Cancelled When

Premiums Are Paid
Company Strength
Funding A Policy

Current Income
Investment Returns
Estate Protection
Corporate Pay
Payroll Deduction
Questions & Answers

We will be taking questions for the next 10

minutes.
More Information

 More information on long-term care is

available at www.CounselAssure.com/LTC
 A copy of this presentation is available for
download at www.CounselAssure.com/CE
 Call CounselAssure at (866) 799-9795
 Thank you for taking the LACBA CE Course
on long-term care