[Note: This material was prepared by an Arizona law firm relying primarily on
Arizona law. While much of the material will also apply to other states' laws, you
should consult a lawyer in your locality for more specific information.]
Statisticians calculate that nearly half of all Americans who turn 65 in any given
year will eventually enter a nursing home. While a majority of those nursing
home admissions will be for a short term (less than a year), about a quarter will
stay at least one year.
Many elderly Americans who do not enter a nursing home will nonetheless
require long-term care. Some will be cared for in their own home with the help of
aides, and some will enter adult care homes, assisted living facilities or other settings less
expensive and less medically-oriented than nursing homes.
For all of these, cost is a major concern. Typically, nursing home costs in Tucson
begin at about $4,500 per month. Adult care homes are usually less expensive, with
a range from as low as $2,000 or $2,500 per month to more than some of the
less-expensive nursing homes.
1. Medicare and Medigap Policies
Although many Medicare recipients believe that most nursing costs will be
covered by Medicare (and any Supplemental coverage the Medicare recipient
may have purchased), the truth is that little relief can be expected from this
source. Medicare covers only a limited period of "skilled" nursing care (usually
for rehabilitative purposes, as when therapy is expected to restore substantial
physical function), and Medigap policies cover only the Medicare deductibles and
co-payments.
Nearly half of the total national cost of nursing home care is paid by the federal
Medicaid program. This compares to the small fraction (less than 5%) paid by
Medicare.
2. Medicaid
Arizona has its own Medicaid program, called the Arizona Health
Care Cost Containment System (AHCCCS).
The Arizona Long Term Care System (ALTCS), AHCCCS' long-term care component, has rules
very much like Medicaid long-term care programs in other states, and is subject to the same federal
guidelines and restrictions.
ALTCS is not an insurance program, and therefore is not based on contributions by participants. This program is subsidized
by federal general tax dollars, and is intended to provide medical care to the poor
and medically needy. Consequently, the eligibility requirements for ALTCS are
both stringent and complex. After establishing citizenship and residency, the
ALTCS applicant must meet eligibility standards in each of three additional
areas:
A. Medical eligibility
The applicant must be determined (by ALTCS staff and rules) to actually require
institutional care. This is in addition to any determination by the applicant's attending physician, though the ALTCS staff will usually look to the same
information relied upon by the patient's physician.
B. Asset eligibility
A single applicant may not have more than $2,000 in "available" resources.
Excluded from this calculation are the residence of the applicant (provided that
the residence is valued under $500,000 and the applicant intends to return home
at some future date), the applicant's vehicle
(if it is used to get to and from medical appointments), household furnishings,
personal belongings, and an irrevocable prepaid burial plan or a small amount
which may be set aside in a separate account to provide funeral and burial
expenses. The rules for a married couple are much more complex, with a special
calculation used to determine how much in assets they are allowed to keep.
This calculation depends on a number of factors, including the setting in which
each spouse resides. In general, if the applicant's spouse is not residing
in a skilled nursing facility, the couple may have between about $20,000 and
$99,000 in "available" resources and still qualify for the
program. In addition, a couple is permitted to have the excluded assets
listed above.
It is
important to understand that assets which have been given away (or sold
for less than fair market value) can cause a penalty and a subsequent
delay in eligibility for the program. At the time of application,
the applicant must disclose all such transfers within the last five
years. In other words, the worst possible course of action is the
one most commonly undertaken - transfer of the applicant's assets to
immediate family members at the first prospect of nursing home
admission.
Because the rules are different (and much more lenient) for married couples,
many of the planning opportunities are only available to such couples. Both
married and single applicants, however, may benefit from transferring available
assets (such as bank accounts and other liquid holdings) into exempt assets
(primarily home and automobile). This may be accomplished by, for instance, paying off an existing home mortgage, though
other issues should be taken into consideration prior to the use of this
planning method.
C. Income eligibility
A single applicant may not have total monthly
income (including all sources of income) in excess of $1,809 (2006
figure), which number changes annually with the cost of living.
Married couples are permitted to have double that ($3618) per month,
although special rules exist when only one spouse is applying. If
an applicant is found to be over the income limit a special trust,
called a Miller Trust, or an Income Cap Trust, can be prepared in order
to allow for income eligibility.
Because of the restrictive ALTCS eligibility rules, the frequent concern about
quality of care and the fear of financial catastrophe, many of our clients seek to
make arrangements to provide for potential long-term care needs. Short of
accumulating substantial personal wealth, the most common approach is to
consider long term care insurance.
3. Long Term Care Insurance
Most long term care policies pay a fixed benefit for each day spent in the nursing
home. Some policies also cover nursing care provided in the home; few cover any
portion of adult care home or other alternative living arrangements. Like other
insurance, long term care policies usually include a deductible or elimination
period (the first 30, 60 or 90 days during which there is no coverage) and a
pre-existing condition exclusion.
A short (and far from exhaustive) list of the most common concerns about
individual long term care policies includes:
A. Level of care
The policy should cover skilled, intermediate and custodial care. Home care is
usually considered an important coverage, but may dramatically affect the price
of a given policy. Avoid policies which are restricted to payment for
Medicare-approved facilities.
B. Conditions
In addition to careful review of the pre-existing conditions language, pay particular attention to the description of conditions covered by the policy.
Any policy which excludes Alzheimer's Disease, senility, organic brain
syndromes or other conditions described with similar language will have very limited usefulness.
C. Benefit rate and inflation
protection
Benefit rates are usually expressed in increments of $10 per day of coverage.
Present nursing home rates in Tucson are approximately $100 per day or more;
inadequate coverage may be worse than no coverage at all. For the past few
years, nursing home rates have increased faster than the general cost of living (or
inflation) rates, so inflation protection is an important consideration.
D. Maximum benefit
Many policies have a maximum benefit, expressed in terms of either total dollars
or length of time. Such a policy may still make good sense, especially if coupled
with a plan to divest the patient of assets at the beginning of the coverage period
(providing coverage for the five-year disqualification period for ALTCS
described above).
E. Level premium
A premium which increases automatically over time may be attractive in the first
years of the policy, but may make the coverage unaffordable precisely when it is
most needed.
F. "Activities of daily
living"
Most policies begin to provide coverage when the policyholder is unable to
perform a certain number of "activities of daily living" (usually two or three of
five). A policy including more possible activities of daily living (especially
bathing, which experts say is typically the first ability to be lost) is preferable to a
more restrictive policy.
G. Life Insurance
Many policies now include an element of life insurance. Sometimes, for example,
any unused portion of the long term care policy will be used to provide a life
insurance benefit of up to the amount of long term care coverage. While life
insurance may be an appropriate purchase, such policies will require the
applicant to pass a physical examination. The addition of life insurance benefits
will also increase the premium cost for such a policy.
F. Summary
The long term care insurance industry is relatively young, and the policies
presently being offered are mostly new products. Consequently, the marketplace
is rapidly changing and unsettled. The best recourse for the concerned buyer is to
read extensively, comparison shop and review actual policies and promotional
literature.
This page last updated 9/18/2006
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