Note:  Throughout this text rather than use the clumsy gender designation as he/she, his/her, himself/her self, etc., the masculine gender is used for simplicity.  There is no intent to diminish the contributions to the insurance industry by either sex, or imply that either contributes less than the other.

CHAPTER ONE - WHO NEEDS LONG-TERM CARE
 INSURANCE?

 

HOW DOES ONE PLAN FOR THE POSSIBILITY OF A NURSING HOME?

      People are living longer – surprise, surprise.  This is the good news.  The bad news is that because people are living longer, there are more ill older-generation people than ever before.  Whereas people used to look forward to living long enough to retire at age 65, now they anticipate living for another 20-30 years.  Now, when people think about getting older, they worry about what they will do in their “golden years.”

      Each generation is a little wiser than the preceding generation, and even though many of their worries are the same, the later ones have the advantage of building upon the knowledge of the previous generations.  One thing that many - if not most - have learned is the need for planning.  Many have seen family and friends become disabled because of illnesses or accidents in their later years, and they are also aware that there will be care needed for the older folks as their health deteriorates. 

PLANNING, WHEN AND HOW?

Bill has just turned 65 and has retired.  His wife, Ann, is now 63, and they have three children, all married with children of their own.  Bill’s mother typically outlived her husband, Bill’s father, and has recently moved into an assisted living facility as she has difficulty in “getting around.”  One of their grandchildren is autistic and required a lot of attention from her parents – her mother had to give up working to take care of the child.  Their son is struggling financially as he has two children in college, one of which will go to law school if there is any way that he can afford to do so.  Their daughter has a happy family, with a good husband and three lovely children.  All-in-all, each of their children is totally wrapped-up with their own family matters and Bill or Ann would not want to disturb those situations under any circumstances.

Bill remembers visiting with his grandfather in an “old folks home” when he was small and his memory is that the place where his grandfather stayed smelled “funny” and was full of people who seemed to have no place to go or nothing to do, and every visit was depressing.  Bill decided that he never would go to a place like that to stay.

Ann’s parents have a “plan” for such contingencies; one that they feel would serve them quite nicely.  Her parents are in their early 70’s and are just now ‘starting to slow down.”  Her father has difficulties in walking any distances at all and her mother is terribly forgetful, so Ann must check on her parents very often.  Their plan, which they have just now started to fulfill, is to sell their house – it is way too large for them now anyway.  They want to be “independent” so they do not want to move to any kind of place that “does for them.”  They cannot stand the thought of not being independent.  Therefore, they are planning on buying a small house or condominium in an area where they can walk to the grocery store, Wal-Mart and Applebee’s.  They will use the money that they get from the sale of their house so that they will not have a mortgage, and whatever is left over will provide additional funds to supplement their Social Security and a small pension that her father has.  That, in a nutshell, is their plan.

For Bill and Ann, there must be additional planning because if either of them becomes incapacitated, they are going to have to take care of themselves, as they would never impose on their children to help, as they are all busy raising their own families.  If they have sufficient funds to make it worthwhile, they could use the services of an estate planner so that the surviving spouse will not be hit with a large tax burden.  Trusts could be established so that the funds will be used to the best advantage of each other and their children when they both pass on, or are not able to handle their own financial matters.  Perhaps they may want to use the services of a financial planner also, especially if their income is derived from various sources or they are invested in the stock market or similar investments.

      What does this have to do with Long-term Care Insurance (hereinafter referred to as “LTCI”)?  To jump ahead a little, in those situations where a financial planner or an estate planner becomes involved:

      Heirs who anticipate inheriting sizeable estates will be quite offended if they learn that the estate has been diminished by nursing home and/or other long-term care expenses, and that the “professional” who assisted in the estate or financial planning, did not make the estate owner aware of such a program. 

THE “SANDWICH GENERATION”

Actual situation with real people (true names not used):  Velma was a widow with a small pension and a small monthly stipend from a daughter (who had married into a wealthy family).  She had two sons still living when she retired, and a daughter.  One son had an excellent job and had several children, but his ability to contribute to his mother’s care was limited.  One of her sons, David, had been injured in an elevator accident when he was in his early 20’s, leaving him unable to perform hard work for any period of time – and he later was injured working at a service station, further damaging his legs.  Unfortunately, he had terrible lawyers so he did not receive any funds other than the medical care needed for each accident.  He had never married, and lived at home with his mother.

Upon her retirement, Velma and David moved to Florida and bought a house.  They later sold the house and moved into a condominium, as they did not want yard work and maintenance.  David was able to get low-paying jobs only, but between them, they had what they needed and enjoyed life.  Occasionally, the wealthy daughter would fly her mother to New York for a shopping trip for a few days, and she had a box at the baseball stadium where Velma used to live – Velma loved her Cardinals. 

Eventually, Velma suffered several small strokes, with the result that her health deteriorated rather rapidly.  David found that he could not work and simultaneously take care of his mother, so his brother (who lived 1500 miles away) would send them money when he could.  Eventually, David moved his bed into the same room as his mother (who had a hospital bed) and provided 24-hour, 7 days a week.  Medicare helped with some visitation by home health care nurses, but their care was limited, so except for the rare occasion when a cousin would drive 70 miles to help over a weekend, David was confined to the condominium.  His everyday duties were continual, everything from feeding his mother, bathing her, changing her clothes, cleaning the condo and doing the laundry (he had to get a washing machine hooked to the sink in the kitchen as he could not leave her long enough to go to the condo laundry room).  A couple of times a week, friends and neighbor would do his grocery shopping for him.  This continued for five years before she finally passed in her sleep.

      David is a member of the “Sandwich Generation”—or some call it the "Oreo Generation."  They are most often those who have married and/or had children while they were in their 30s—when their parents need care, they are also providing care for their own family and they are "caught in the middle."  In addition to their own needs, they are burdened with the responsibility of caring for their own parents.  Think of what would have happened had David been married and had children!  There just are not enough hours in a day to care for an invalid parent plus other family responsibilities.  At least David did not have to worry about a wife or children, although he may have eventually had his own family life if he had not had to take care of his mother so extensively for so long a period of time.

      Recent studies¹ show that seven million people in the United States work as unpaid caregivers and seventy-five percent of them are women (many of who are daughters-in-law) and 61% of all caregivers in the US are women.  In an April 2003 study more than 44 million Americans provide unpaid care to an adult.  About 83 percent of the caregivers (age 18 and older) are helping relatives who average age is 75.  One quarter of the care recipients suffer from Alzheimer’s disease, dementia or other similar condition.  The typical caregiver is a 46-year old woman with some college experience, who provides 20 hours of unpaid care per week to a widowed woman age 50 or older. 

The National Family Caregivers Association has conducted many studies and these studies show clearly that caregivers who are fulltime and performing the services  (such as David did for his mother) suffer from depression and a variety of physical ailments, notably back pain, besides all of the financial stress arising from these situations.

What Is Long-Term Care?

      “Long-term care” (LTC) may be defined as “day-to-day care that a patient receives in a nursing facility, in his own home, or some other facility following an illness or injury resulting in the patient being unable to perform (usually) at least two of the five basic activities of daily living: walking, eating, dressing, using the bathroom and mobility from one place to another.”² Activities of Daily Living (ADLs) will be discussed in more detail later and Long Term Care Insurance (LTCI) extends beyond this definition of ADLs, but is a good place to start.  It must be noted that long-term care goes beyond medical care and nursing care.  Assistance to the patient can be received in several settings.  Typically, individuals associate long-term care with nursing homes, and not surprising, the earliest “Long Term Care Insurance” policies were designed to cover those expenses.

      Also, it most often affects older people so they are the primary users, it should be noted that younger persons may suffer a debilitating illness or become involved in an accident, and they can also require long-term care. 

      Basically, LTC is usually the process of maintaining or improving the ability of elderly people with disabilities to function as independently as possible and for as long as possible.  However, LTC is not strictly a “medical” treatment as it also includes social and environmental needs on a much broader plane than purely medical needs.  Mental or Cognitive Impairment results in the need for supervision and monitoring.  The continuum of care may range from simple assistance with activities in a person’s own home, to specialized care to a residential care facility and ultimately to highly skilled care in a nursing home—from assistance to custodial care to intermediate care and to skilled care.

      Primarily long-term care services are not complex while in a nursing home in most cases, however when elderly persons with complex medical needs are discharged to, or remain in, traditional long-term care settings (including their own homes) then the care can become more detailed and precise.  Therefore, in the planning for long-term care, services that may be needed and the location of such services being provided, both must be carefully considered. 

      Most importantly, the case of long-term care can be quite expensive, even though it basically is personal care as described in the definition above, but such personal care can be extended over a substantial period of time.  A person with Alzheimer’s disease, for example, may live for 20 years or more in a nursing home even though they may be oblivious to their environment. 

      Long-term care does not in­clude hospital care, therefore Long Term Care Insurance benefits do not include hospital benefits—hospitalization insurance and/or Medicare usually cover such costs. 

      To illustrate the problems of those requiring long-term care, many of the activities that a healthy person takes for granted, such as grocery shopping, housecleaning and paying bills—and, importantly, taking medication— often present huge difficulties for the ill or disabled person.  The environment in which a disabled person lives can become formidable or even threatening.  Stairways, basements, doorsills and long hall­ways can become physical barriers.  The very simplest of household devices such as microwave ovens or remote controls may become confusing to operate.  Everyday chores for their very survival, may take hours to complete, such as preparing meals, doing laundry, keeping living quarters clean and sanitary, etc.

THE RISK OF NEEDING LONG-TERM CARE

What are the chances of needing long-term care?  This is a reasonable question when a person contemplates spending money for needs that may or may not every occur.  Since the introduction of Long Term Care Insurance, actuaries and other statisticians have been hard-at-work trying to answer this question.  Obviously, some people may never need long-term care.  On the other hand, statistics show that, this year (2005), about nine million men and women over the age of 65 (roughly nearly 3.6 %) will need long-term care.  By the year 2020, 12 million older Americans will need long-term care most of which will be cared for at home; family members and friends are the sole caregivers for 70 percent of elderly people. 

      The probably of entering a nursing home and staying for longer period of time, increase with age and recent statistics indicate that at any given point in time, about 22% of those age 85 or older, are in a nursing home.  No surprise, but women have a 50% greater chance of entering a nursing home than men (as they generally outlive men) after age 65.

      Statistics also indicate that of those citizens between ages 18 and 64, some 13 million people, 40% of them are receiving long-term care services.³

      It is interesting to note that the greatest majority of Californians are unfamiliar with the annual costs of long-term care.  As a matter-of-fact, 64% estimate the LTC cost at less than $50,000, 19% estimate that the cost would exceed $50,000 and 17% just did not know.⁴

      It is interesting to note that even though the average nursing home costs in California can greatly exceed $50,000 a year, only the 19% was aware of this. 

      Other results of the study showed that:

1. About 45% of those surveyed think that they have less than a 25 percent chance of being admitted into a nursing facility.  Note, however, Californians age 65-years or older face about a 50 percent chance of entering a nursing facility.
2. The study showed that Asians, African-Americans, and Latinos showed a markedly high level of denial of needing long-term care.  There can be several reasons for this, but one of the reasons is the family tradition of taking care of their own elderly.
3. And when asked how they will pay for long-term care if it is needed, a third of the respondents believe that their family assets and income will be enough to pay for long-term care should it be needed.
4. Pursuing the cost factor further, only one out of ten surveyed have invested in a program to cover the costs of this care.
5. Nearly one quarter of the respondents (24 percent) say their children or family would provide the care or help pay for it if it is needed.
6.       The majority of respondents (over 55 percent) with private health insurance either believe that their policies will cover long-term care or are uncertain.⁵

   Many Californians seem to feel that long-term care is someone else’s problem and to be truthful, they really do not want to even think about it.  No surprise there, as most people do not want to think about death or disability.  Realistically, people are living longer, ergo they are getting older⁴ and the likelihood that they will need some kind of long-term care assistance is not only possible, in some cases it is even probable.  Actually, all Californians are touched by long-term care problems as they are either currently needing care, caring for (or paying to have other care for) relatives, and taxpayers who ultimately pay the cost of care for those that cannot afford long-term care or have failed to plan for the future.

      LTC has become an important consideration for planning because people are living longer and the number of elderly is growing—there are 76 million “Baby-Boomers” (those born between 1946 and 1964) who have very recently retired or will be retiring within the next few years.  There are fewer available caregivers and healthcare costs are increasing at a rate of over 10% per year and prescription costs have increased about 15%.

      In addition, and perhaps most importantly for those who expect for the government to take care of them if they need long-term care, both Medicaid and Medicare are unprepared for the onslaught of senior citizens needing long-term care.  The future of both of these programs is being closely scrutinized so that they can meet the challenges of the future.

LTC INSURANCE INCLUDED IN FINANCIAL PLANNING

      In addition to the legal concern (voiced earlier) that arises when estate/financial planners do not make an effort to provide coverage for the risk of long-term care, Long Term Care Insurance must be considered as a financial planning tool as much as the other important tools, i.e., Wills, Trusts Guardianship of minor children, and Powers of Attorney.

      In respect to appointing a Power of Attorney, this is very important and one should understand that there are two types:

(1) Financial Durable Power of Attorney, which provides for financial control when an individual can no longer make these decisions, and

(2) Medical Durable Power of Attorney, which provides for appointing a health care surrogate to make medical decisions.  For reference, this is much stronger than a living will.

WHO NEEDS CARE AND WHY

      As indicated previously, seniors are the fastest growing segment of population and the heaviest users of long-term care and health care ser­vices and in California, the elderly population (age 65+) is expected to grow more than twice as fast as the total population.  The elderly age group will increase an average of 112% during the period 1990-2020.  Since women live longer than men, they are disproportionately affected by long-term care, as they are more likely to develop the functional ailments that require long-term care services.  Two-thirds of residents in long-term care facilities are women.

      In the past, families were much more concentrated in a geographic area and this was true all over the country—in New York City it was not unusual to find several generations growing up and living in the same tenement.  Much of America was rural and it was necessary for family members to work on the farm for the family’s livelihood.  During the Depression and WWII, many family members moved to other parts of the country where jobs were waiting, particularly in California.  Today, families are scattered and family members have their own responsibilities so that in many cases it is nearly impossible to provide for the care of ailing or elderly family members.  Another and more recent factor is that more women work outside of the home and traditionally, women were the caregivers for family members.

THE NEED FOR CARE

 

      Statistics indicate that more than 1.3 million elderly and non-elderly Californians already have debilitating functional limitation that require assistance in the activities of daily living, such as eating, bathing, dressing, getting in and out of bed, and going to the bathroom.  This segment of the population is expanding exponentially in numbers as the population is living longer.

NEED FOR CARE

      Measuring the extent of an individual’s functional impairment is essential to determine care needs as well as whether or not the insured has met the coverage triggers in LTCI policies.  Much research has gone into defining minimal components of independent functioning.  As the need for more long-term care grew, it soon became apparent that some measuring “sticks” must be applied so that meaningful legislation, both in state and federal laws, is developed so as to measure an individual’s ability to function inde­pendently in the community.

LONG TERM CARE INSURANCE BENEFIT “TRIGGERS”

      “Triggers” is the physical or mental condition of the insured that determines when benefits will be paid under a Long Term Care Insurance policy.  Although most LTCI policies require a physician’s certification that nursing care is required because of illness, injury or medical emergency, policies sold in California are not allowed to require prior hospitalization.²³⁶  There will be later discussion in respect to coverage Triggers as to how they differ between tax-qualified (TQ) and non-tax qualified (NTQ) policies.

ACTIVITIES OF DAILY LIVING (ADLs)

      A physical impairment research in a 1963 study by Stanley Katz introduced the measurement of physical functioning called Activities of Daily Living (ADLs).  ADLs are often used by health care experts to determine whether a person is capable of living independently and serve the purposes of measurements to assess a person’s need for nursing home, home health or other LTC services.

      The ADLs previously mentioned (walking, eating, dressing, using the bathroom and mobility from one place to another) are used in LTCI policies, but typically bathing and continence are added.  Some policies define each of the ADLs independently with slight variance between companies or policy forms. 

INSTRUMENTAL ACTIVITIES OF DAILY LIVING (IADLs)

      Obviously there are other functions that require assistance so that the individual can be independent and can continue to live outside of a nursing facility.  These are called Instrumental Activities of Daily Living (IADLs) and usually include cooking, cleaning, doing laundry, household mainte­nance, transporting themselves, reading, writing, managing money, using equipment such as the tele­phone, and comprehending and following instructions.

      In an area between ADLs and IADLs, is a very important function often overlooked—that of taking medication.  One might think that it doesn’t require assistance to lift a pill box and take a pill with a glass of water, BUT, there are often (too often) times when a person that can perform the ADLs “forgets” to take medication, “forgets” as to when they took it last, how much they are supposed to take and when.  Experienced Caregivers are very aware of these situations and immediately take steps to regulate and schedule medication for their patients.  Some LTCI policies consider this as an IADL.

      In addition to managing medications, IADLs include moving around outside of the residence and in particular, going to the “grocery store” and the doctor’s offices.  Generally, these patients are unable to drive so the Caregiver will either drive their own car or that of the patient’s.  Also, if the patient is ambulatory, and with the physician’s permission, many patients enjoy and derive considerable benefit from going on walks, regardless if they can move on their own, use canes or walkers, or even use a wheelchair.

      Preparing meals is another important IADL.  A totally mobile patient with mental or cognitive problems can be a danger to themselves and others—operating a stove (for instance).  Even operating a microwave can be a problem for some.

      The same applies for doing the laundry.  A drier can easily start a house fire if improperly operated, or a washing machine can overflow.  Even performing light housekeeping duties can be destructive, if not downright unsanitary, if the patient is unable to do what is needed.

COGNITIVE IMPAIRMENT

      Cognitive Impairment refers to confusion or disorientation resulting from a deterioration or loss of intellectual capacity that is not related to, or a result of, mental illness, but which can result from Alzheimer’s disease, senility or irreversible dementia.  Many seniors with mental impairments can perform all of the ADLs, but they need constant supervision to protect themselves and others while performing them.  The most feared cognitive impairment is Alzheimer’s disease, which has caused grief in families who watch their loved ones “disappear.”  In addition, those who have suffered strokes and other diseases and conditions that cause irreversible brain damage, face an uncertain and deteriorating future.

      Policies sold today must include coverage for long-term care required by people who are physically able to perform the tasks but forgot how or why to perform the tasks or can’t perform them safely on their own. Approximately one - third of all senile people can perform all ADLs, but they need constant supervision, prompting or instructing in order to complete them safely.

DETERMINING EXTENT OF COGNITIVE IMPAIRMENT

      Methods used to determine consist of one of two accepted standard tests that are recognized and accepted throughout the medical profession, the Folstein Mini-Mental State Exam or the Mental Status Questionnaire (MSQ), both or either may be used in the underwriting process.

CALIFORNIA’S ELDERLY

THE NEED FOR LONG-TERM CARE

      The US Census Bureau estimates that the mean average age of the US population has increased from a little over age 35 in 1990 to nearly age 37 in 2000.  In 1900 the average life expectancy in the US was between 40 and 50 years, but by 2000, this has doubled.  The average years of life remaining at representative ages are shown below⁶:

U.S. Senior Population Growth

      The US Census Bureau statistics indicate that the older population at age 65 will grow from 54% during the period of 2000 to 2020, compared to 136% from 2000 to 2020.  At age 85+, the growth rate for 2000 to 2020 will be 58%, compared to 351% for years 2000 to 2050.⁷

For whatever it’s worth, 2/3 of all of the people who ever lived to be age 65 are alive today.⁸

Facts about the Growth of California’s Elderly⁹

1. In California between 1950 and 1990, the elderly population (ages 60+) grew from 1.6 million to 4.2 million, an in­crease of 67 percent and is expected to reach 12.5 million by 2040, an increase of 232 percent from 1990.  The highest growth rates will occur in the next 30 years, largely due to the aging of the “Baby Boomers” The first wave of Baby Boomers will turn 60 during the period between 2000 and 2010, resulting in a 32 percent increase, and will increase another 38 percent by 2020.
2. With 3.3 million residents age 65 and over, California has the largest elderly population in the country. (Although California has 10% more seniors than the next highest state: Florida, Florida is still highest in percent of elderly to percent of total population of the state.)
3. The number of Californians age 60 and over is projected to grow 154 percent over the next 40 years.
4. By 2010, 1 in 5 Californians will be 60 years of age or older.
5. California’s older population is increasingly non-white.
6. Minorities who are older than 60 will increase by 350% between 2000 and 2040.
7. In 1990 the oldest old age group (age 85 years and over) comprised 7 percent of the elderly population, compared to only 2.6 percent in 1950 and increased to 9% by 2000. Between 2030 and 2040, when the first of the Baby Boom generation reaches age 85, the percent of elderly who are in the oldest age group will reach 14 percent.  While the total population will approximately double in size between 1990 and 2040, the oldest old will experience nearly a 6-fold increase, growing from just under 300,000 to over 1.7 million persons. As a result, whereas only 1 in 99 persons in 1990 were in the oldest old age group, 1 in 34 persons will be in this age group by 2040.
8. Because the oldest age bracket of the elderly often have severe chronic health problems which demand special attention, the rapid growth of this population group has many implications for individuals, families, and governments.
9. In 1990, California comprised 12 percent of the nation’s population and is expected to have 14 percent of the nation’s population by 2020 (an increase of 15.7 million people).
10. California has the fastest growing population in the country, and the fastest growing segment of California’s population is persons age 85 and over.
11. The number of people over 60 years of age will grow from 4.9 million in 2000 to 9.0 million by 2020.
12. In California, the elderly population is expected to grow more than twice as fast as the popu­lation as a whole and this growth will vary by region.

 

The following maps show the percentage increases for the elderly (age 60 and over) and the oldest old (age 85 and over) populations from 1990 to 2020 for all 58 counties in California.

      The numbers encircled refer to Planning and Service Areas.

     Within each PSA is an Area Agency on Aging responsible for planning and administering services for seniors (See Appendix).

California Population 60 & Up

The elderly age group will have an overall increase of 112 percent during the period from 1990 to 2020.

More than half the counties will have over a 100 percent increase in this age group.

Eleven of these counties in the Southern and Central part of the state will have growth rates of over 150 percent.

 

 

These counties are located throughout the central and southern areas of the State.

The political and financial influence of the 60 and over age group on California is expected to emerge most strongly years 2000 to 2020.

 

1. The fastest growing population group in California is age 85 and over.
2.      Today, 1 in 77 Californians are more than 85 years old; that number will grow to 1 in 62 in 2010 and 1 in 34 by 2040.
3. California’s older population is increasingly non-white. Minorities who are older than 60 will increase by 350 percent between 2000 and 2040.
4. There are currently about 100,000 individuals in long-term care facilities in California. Nearly two-thirds (over 65,000) are covered by Medi-Cal.
5. The oldest old age group will increase at even a faster rate than the elderly, with an overall increase of 143 percent during the period from 1990 to 2020. Of the State’s 58 counties, 38 will have increases of more than 150 percent, 26 will have increases of more than 200 percent, and 11 will have over a 300 percent increase in the number of persons aged 85 and older.
6. Of these 11 counties, all but one is located in the central and northern areas of the State. Counties can expect to experience even higher growth rates after 2020.
7.     The political and financial influence of the 85 and over age group on California will emerge most strongly during years 2030 to 2040 as the first of the baby boomers reach 85 years of age.

Area Agency on Aging

Nursing home residents are predominantly 85 or older.  Even though 22% of persons 85 or older reside in nursing homes they make up half of all persons in nursing homes and many more are receiving care in the home or community. “About 50 percent of all nursing home residents are 85 or older, thus the current nursing home popula­tion is more frail than ever before and requires more specialized care.”¹⁰

THE PROBLEMS OF TAX-SUPPORTED LONG-TERM CARE

Changing of Population Ages

As discussed in detail later, Medicaid (Medi-Cal in California) provides a large proportion of long-term care to those citizens who are disabled or have cognitive impairments and who cannot afford to pay for the necessary care.  A special problem exists for Medi-Cal (Medicaid) and Medicare—and the Social Security program—which are tax-supported programs.  The major problem can be simply stated: there now are fewer Caregivers and fewer taxpayers to pay for the services.  To put it in proper prospective, 92 per cent of all nursing home costs are paid by the individual patient or by Medicaid nationally, which is undoubtedly the largest unfunded liability in the U.S.  For contrast, Medicare only pays about 8% of the total costs of long-term care.¹¹ 

The parents of the Baby-Boomer generation produced 3.9 children per family, or nearly 2 children to pay taxes and provide care for each parent.  For a variety of reasons, the average number of children born to baby-boomer couples was only 1.1 or about ½ child for each parent.  Therefore, there are fewer taxpayers to pay for long-term care costs (and other tax-supported programs) and to provide the care necessary.  This means there will be fewer paying in and more taking out of the government pro­grams for seniors.

By 2050, the population aged 65 or older will outnumber children aged 0-14 for the first time in recorded history.  By the year 2050, there should be almost a million citizens over age 100!¹²

In California, from 1990 to 2000, the Baby Boomers were in their most economically productive years, and they represented 35% of the state’s population.  By the year 2010, the Baby Boomers will represent only 25% of the population of California, and by 2020 will be in pre- and early-retirement ages (45 to 64 years).  During the period of 2000 to 2010, an era of fluctuating births and improving survivorship, from 14% in 1990, the elderly population will grow to 22 % in 2030. 

This large elderly statistical group will strain services and programs required by an aging population. At the same time, the 0-19 age groups will decrease by 7 percent, and by 2030 there will be little distinction between any of the age groups.

For America’s 77 million Baby Boomers, paying future long-term care costs remains as their largest looming expense.  According to the Bureau of the Census, in 2020, one out of every six Americans will be age 65 or older - roughly 20 million more seniors than today. Furthermore, by 2020, the number of Americans 85 and older - the people most likely to use long-term care - will double to seven million, and double again to 14 million by 2040.¹³

The individual needing care or Medicaid pays for ninety two percent of all long-term nursing care costs.  This is the largest unfunded liability in the country.  In comparison, overall, Medicare pays eight percent of the total costs of long-term care.¹⁴

There will be a rapid growth in the number of persons age 60 and over as the Baby Boomers begin turning 60 in 2006. Although baby boomers have a very positive view of aging, there is an overwhelming level of denial regarding the likelihood of needing long-term care.¹⁵

GOVERNMENTAL FINANCING PROBLEMS

   Government estimates indicate there will be almost 70 million people over age 65 by 2030 and that nearly 8.5 million of those will be over 85.  Since that is far-and-away the greatest section of the population who use nursing homes, it is important to note that nursing home stays in California cost $50,000 - $60,000 a year and more in some areas.  There is every reason to believe that these costs will continue to rise as at this time, for example, about 1.5 million people live in nursing homes nationwide and the number could grow to 5 million by 2040.

Nursing homes are big business with 17,000 nursing homes and large corporations dominat­ing the industry and nursing home costs presently exceeds $85 billion.  The time is “a-coming” when governmental funding will be insufficient to pay LTC, and other health care costs (Medicare, Medicaid, etc.) of the Baby Boomers as they are aging rapidly.

Family Caregivers Face Challenges

      The majority of home care is provided by family members and/or close friends and usually, one person assumes the primary role because he or she is closest geographically, closer to the parent emotionally, or a take-charge type of person.  While the primary role is probably and usually the most time consuming and stressful, all those involved face similar difficult issues.  It can be difficult for adult children to find solutions and assistance that their parents will find acceptable.  Deciding on who will be involved may also be difficult and usually it boils down to immediate family and close friends.  Distant relatives, some friends, neighbors, and community organizations can usually provide limited support.  For the person needing care, they often hesitate to ask a child for help in the fear that their relationship can be harmed and the same can apply between siblings when one needs help from another in caring for a family member.

Taking care of a parent can affect all relationships.  People may be more involved with brothers and sisters or their spouse and children may feel neglected.  Any existing tension in their marriage is likely to increase. Colleagues at work may provide a diversion from caregiving. Even if they are sympathetic to added demands, they still expect people to get their work done on time. Walking tightropes like these can add to caregivers’ stress.

One study shows that the average caregiver now devotes 18 hours a week to helping elderly loved ones. To balance the demands of work and home, employees often miss business meetings, decline transfers or business trips, come to work late, reduce their hours or take unpaid leave.

US Senate testimony reveals that family members provide 80% of LTC in America. If these unpaid family members were replaced by paid home care providers, the estimated cost would be nearly $200 billion dollars annually.¹⁶

Nearly one-quarter of American households (22.4 million) are involved in caregiving to elderly relatives or friends.¹⁷ The majority of family caregivers—65 per cent— do not receive help from family or friends.  In interviewing caregivers, over 40% of family caregivers consider the loss of leisure time, feelings of isolation, and the change in family roles to be the most burdensome aspects of caregiving. Unfortunately Caregiving takes its toll as 49% of family caregivers have suffered from prolonged depression because of their care-giving expe­rience.¹⁸.

California Caregivers

One in every four households in California is involved in care giving (23 percent or 22.4 million), and California is not unique in this respect.  Who are these family members?  In California 29 percent is furnished by daughters, 23 percent by wives (not unexpected), 13 per cent by husbands, 9 per cent by sons, and the remainder by unrelated friends (good friends).  Interestingly, at one time, a national survey discovered that the predominant class of caregiver was daughters-in-law, which resulted in many parents taking another look at their children’s spouse…

      In California, between 20 to 40 percent of caregivers also have children under 18, and interesting statistic.  Someone came up with the statistic that the average woman spends 17 years caring for children and 18 years caring for an elderly relative.  Be that as it may, nearly 57 percent of caregivers are age 65 and over, while 40 percent are ages 18 to 64 and 3 percent are children under 18.

The Changing Role of The Family

Families provide the vast majority of long-term care in this country, and at the present time, only about one in five elderly persons who need special care reside in nursing homes.  Most people still feel strongly about giving care to family members when they need assistance, and they feel obligated to help preserve their pride and dignity when they can no longer take care of themselves.  Families today, however, have a more difficult time providing care.

Many times, it starts with a few visits a week, and with help of friends and neighbors and other family relatives, it can turn into a very demanding 24-hour a day job.

Over the past 30-40 years, the country has gone through vast social changes that have affected the traditional family structure which has a deleterious effect on the number of family members that are available to help care for elderly relatives.

Women in the Work Force

Historically, before WWII, women had little incentive or time to work outside of the home for wages, as they were the primary care providers for the family.  During WWII, almost 20 million women entered the workplace, and after the war many continued to work outside of the their homes.

Few households today can afford to live on one income and two-income families are the norm, which would leave no one at home to care for aging relatives.  Those few that do take care of relatives, do a juggling act between job, children, husband and relative care.  Adult day care centers have helped more than any other innovation in the eyes of many of those who must work and still take care of relatives.  But even those that are not working will find it very difficult to take of the demands of, for instance, a relative with a disabling illness or dementia.

Businesses also have a problem as many are seeing reduced production from workers that provide home health care.  Ten to fifteen percent of all workers struggle to balance work with the crushing burden of caring for an aging, ill relative.  55% of working caregivers report missing time from work, or say they worked less efficiently because of their caregiving responsibilities.¹⁹

A study by the Health Action Forum reported that 33% of employees missed work, 45% used vacation or sick days, and 33% came to work late or left early because of their long-term care responsibilities.²⁰

Delayed Motherhood

Women are having children much later in life than in the past, with the unexpected result that many women are busy raising their children at about the same time that their parents may need assistance (this is the “Sandwich Generation”) so many of them are juggling both responsibilities.  This makes it particularly difficult since the number of single-mother families is growing also.

Lower Birth Rates

In the past large families were necessary to operate farms and ranches and because of the lack of adequate medical care, many children died during childhood.  As the population shifted to urban centers, the importance of a large family lessened.  Today, with the mother working, it is much more difficult to have large families and still have both parents continue to work.  Smaller families, however, reduce the number of children available to share in caring for their aging parents as well as the number of taxpayers to support government funded LTC programs.

Divorce

The divorce rate has climbed rapidly so that divorce had gone from half of the marriages to two out of three marriages within the past decade, with the result that there are more single-parent families.  The most shocking statistic to many is that more than half of single-parent families live below the national poverty level.  Single parents just do not have the funds or the time to take on the added financial and emotional responsibilities of caring for an aging parent. While in recent years, daughters-in-law provided a large percentage of family caregivers; it is reasonable to expect that a spouse’s interest in caring for her (or his) in-laws decreases after a divorce.

Increased Mobility

This is a mobile society, with the result that families are more often than not located hundreds of miles apart, making it impossible for families to share in providing care for aging family members.  Families that live miles apart from other family members have a natural tendency to become more independent themselves, and it is very difficult for them to suddenly have to accept the care of an aged family member.

Increased Longevity

Reliable estimates show that the over age 65 population in this country will total 35 million persons by the year 2000, and will approach 70 million by the year 2030.  Life expectancy already exceeds 80-years of age, and it will grow to about 90-years of age by 2030.  More people living to older ages mean more admissions to nursing homes.  The Consumers Guide to Long-term Care insurance published by the California Department of Insurance reported that actual nursing home admissions have risen by 40% since 1983, and that the length of stay increases with a person’s age at the time of admission.  A 1991 study estimated that 43% of the people who reached age 65 in 1990 would require nursing home care at some point.²¹

Informal Care No Longer Readily Available For LTC

The natural verdict from all of the history and statistics is that it is highly unlikely that most of today’s older Californians with have family members as caregivers.  The only conclusion can be that help will have to come more from services provided by formal caregivers.

The Effect of Long-Term Care on Employers

   In California, 53 percent of caregivers under age 65 have dual responsibilities, work and caregiving. This is not unusual at all, as in this state one in four employees provide assistance to elderly relatives. By 2006 that figure is projected to be one in two.  An employee that provides caregiving services must be affected by attendance problems and continual concern about the well being of the person that they provide care for, with the result that there is inevitability a substantial loss in productivity. For the average company, the estimated cost associated with such caregiving is over $3,000 per employee annually.²²

THE REASON FOR LONG TERM CARE INSURANCE

THE EVOLUTION OF LONG TERM CARE INSURANCE

      Long-term Care Insurance (LTCI) is a relatively new Health Insurance product. Originally called “Nursing Home Insurance,” the policy has evolved over the past 20 years to include many other benefits, other than simply paying a daily amount while the insured is in a Nursing Home.

      Shortly after the Nursing Home Insurance policy was introduced, a need for a policy covering home health care was devised.  The original Home Health Care policy was simply a daily amount paid if the insured was unable to leave their home for health reasons, etc.  The daily amount needed for Home Health Care was less than that needed if the insured was in a Nursing Home, so the premiums were lower.  The lower cost, plus the desire of most senior citizens to stay at home if they became disabled, led to the popularity of the Home Health Care policy.

      Many companies in this field then integrated the Home Health Care benefits with Nursing Home benefits.  The amount payable for Home Health Care (HHC) was either a selected daily maximum, or a percentage of the Nursing Home daily benefit (80% or 50% were the most popular amounts).  These policies became known as “Long-Term Care” insurance (LTCI) policies.  Added benefits were created, such as Assisted Care Facility benefits, Adult Day care, Caregiver Training, Bed Reservations, etc., as described below.

Of recent invention was the calculation of Home Health Care or Nursing Home Care, or other benefits of the LTC Insurance policy, as a “Pool of Money,” “Pot of Money” or “Lifetime Payment Maximum” (usually referred to as “Pool of Money” in this text) or similar names, instead of a chosen daily benefit and length of time the benefits are to be paid.  One of the problems involved in LTCI policies that allowed a choice of the HHC benefit amount, or a HHC “stand – alone” policy, was that the applicant had to guess as to whether they could become ill and go directly into a Nursing Home; or whether they could become disabled and stay at home; or any combination thereof.  The recent development offered a fixed amount to be paid throughout the life of the policy (unless the applicant chose Lifetime Benefit Period, a rather expensive choice).  This amount is determined by multiplying the Benefit Period (stated in days) by the Maximum Daily Benefit Chosen.  This “pot/pool” could then be used for any of the LTC benefits, until the total amount of the “pot/pool” had been spent.  For example, a $100 Daily Benefit, 3 year Benefit Period (1095 days) would create a “pot/pool” of $109,500.  When this amount has been spent under any benefit or combination of benefits offered by the particular LTC Insurance policy, the policy is then terminated.

     LTC Insurance has become very competitive recently.  The National Association of Insurance Commissioners (NAIC) developed a standardized policy form that has been adopted by most, if not all, Insurance Departments.  The policy benefits discussed in this text are used in same or similar format and wording, but because there still is a lot of varying benefit forms in the market, plus the possibility of the existence of older type of policies that may need to be analyzed, some of the benefits may not be addressed.

     Fortunately the wording of LTCI policies is simplified as the Insurance Departments have insisted on this type of wording when dealing with the Senior citizens.

ANALYZING THE BUYERS OF LTCI

A study²³ identified the people who are actually buying LTCI policies by age group, with these results.

1. The average age of buyers is 69.
2. 32% of buyers are ages 65 to 69.
3. 23% of buyers are ages 70 to 74.
4. Buyers who are 75 and older buy 26% of LTCI policies.

 

These figures indicate that about 19% of buyers are younger than age 65.  One factor that has contributed to an increase in younger buyers is growth in the employer-sponsored LTCI.

REASONS FOR LONG-TERM CARE INSURANCE

          The reasons that Long Term Care insurance exists and continues to appeal to a substantial number of persons can be summed up as four basic reasons:

1. Risks and Costs are High
2. Reduction in Availability of Informal Caregivers
3. Gaps in other Long-Term Care Financing
4. Stricter Rules and Penalties for Transferring Assets

Breaking this down further, there are four reasons for purchasing LTCI:

1.  The insurance concept of reducing uncertainty is present by providing for peace of mind that the need for long-term care is adequately covered.  The consumer pays a relatively small amount—which they can afford and that falls within their budget—in exchange for a large uncertain expense that could be financially devastating in the future.
2. Policies provide for flexibility and freedom of choice in selecting a nursing home or other long-term care facility.  If the consumer must rely upon the Medi-Cal system for their funding of LTC expenses, the decision as to where they may remain for a long period of time is taken from them.    
3. Perhaps the most important factor, particularly in the eyes of Seniors, is that they are able to maintain their independence and do not have to rely upon family, friends or a government body to provide care if and when the need for such care arises.
4. Asset protection is of importance hand-in-hand with their desire for independence.  Many seniors have amassed considerable wealth in the form of cash, home equity, bonds, IRA’s, cash value in life insurance, etc.  They would much rather pass this along to their heirs than to see it all spent on LTC expenses, and then, once their assets were gone, to find themselves dependent on others or on the State.

With a policy the client and their family have many choices when the need for care arises.  Children can meet the needs of their parents and still retain control over their own lives.  Parents can retain their dignity and independence by not having to depend on the children, or the state, for their care.  This allows families to enjoy more quality time together without the physical, mental and financial strains that often accompany the process when there is no insurance coverage available.

USING LTCI BENEFITS

Recent studies indicate that policyholders who have used their benefits have only used 10% overall for Nursing Facilities while they have used approximately 25% of all benefits for Assisted Living and the remaining 65% for home and community based services. Note the following chart:²⁴

This is significant because it shows what anyone who has worked with seniors knows, that consumers who have an LTCI policy prefer overwhelmingly to receive care in a setting other than a nursing home.  Nursing homes bring back memories of many seniors of the “Old-Folk’s Home“ where they used to visit relatives and they have unpleasant memories of linoleum floors, poor caregiving, and the odors!  On the other hand, the person interested in LTCI might feel just the opposite and would prefer being in a place where professional care is available 24-7.  The LTCI can provide such choices and options.

HOW MUCH CAN IT COST?

There is little doubt that long-term care can be very expensive.  Putting aside for now the probabilities of a person entering a nursing home or other covered facility and remaining there for an indefinite period, it is necessary to look at the principal expense of LTCI policyholders in order to understand why it costs so much—or so little if compared to the possible overall costs.

The principal reason for the cost is the cost of nursing home care.  Generally, this is the most expensive cost for long-term care.  As a national average, a year in a nursing home is estimated to cost more than $50,000. In some regions, it can easily cost twice that amount.  Home health care is less expensive (usually) but it can also be expensive when, for instance, an aide coming to the home just three times a week (two to three hours per visit) to help with dressing, bathing, preparing meals, and similar household chores can easily cost $1,000 each month, or $12,000 a year. Add in the cost of skilled help, such as physical therapists, and these costs can be much greater.

A study of Assisted Living facilities released in 2001 indicated estimated that assisted living facilities charged an aver­age monthly fee of $1,873, including rent and most additional fees.  Some residents in the facility may pay significantly more if their care needs are higher.²⁵

In California, nursing home costs average were approximately $165 a day in 2004 with an average length of stay in a nursing home of 2 ½ years. 

MEDICATION EXPENSES vs. LTC EXPENSES

Recently there has been a lot of publicity regarding prescription drugs, particularly for the senior citizens.  Even with Medicare’s drug program, out-of-pocket spending by seniors for drugs is a small fraction of long-term care costs overall.  When added to the other LTC expenses, the combination of prescription drugs and long-term care can be financial disastrous to seniors.

MEDICAID “PLANNING”

Medicaid (Medi-Cal) is the principal payer for nursing home costs—2/3 of nursing home patients are Medicaid recipients and Medicaid pays 48% of nursing home costs.  This will be explored in more detail later in this text, but suffice it so say that because of Medicaid abuse Congress (and state legislatures also) have recently introduced legislation to criminalize asset transfers for the sole purpose of qualifying for Medicaid.  Governments have become concerned because, frankly, there just are not enough tax dollars available to pay for a national long-term care plan.  As it is, 43 percent of all tax income is used to pay for entitlements such as Social Security, Medicare and Medicaid.  California has been in the forefront in producing legislation so as to comply with federal programs, such as OBRA ’93.

     An interesting, but not unexpected result of attorneys, insurance agents and financial planners becoming involved in Medicaid planning, or even just in financial or estate planning, is the possibility of conflict of interest situations when representing heirs in protecting their inheritance instead of serving also the best interests of the elderly clients.  If these professionals conserve the estate for the children or grandchildren or intentionally impoverishing the nursing home patient (particularly if they are cognitively impaired, they may be guilty of “senior financial abuse” and they should, at least, also be aware of the sharp rise in errors and omissions lawsuits particularly for those involved in Medicaid planning.

CRISIS IN MEDICAL PRACTITIONERS

There has recently been considerable publicity regarding the lack of doctors who specialize in geriatrics because of the low rate of compensation compared to what they would receive in other specialties.  This is primarily due to the high level of dependence on Medicare and Medicaid by seniors and the low overall payment rates of these programs, including administrative and claims delays. Also, elderly patients require much more labor-intensive treatments than other types of patients.

Some interesting statistics to prove the point: 80% of all healthcare expenditures occur after age 50 and persons overage 65 in the US represent only 13 percent of the population and but account for more than 50 percent of physician visits each year.

Statistics²⁶ also show that in order to keep up with America’s aging population, the country will need 36,000 geriatricians by 2030 - currently there are less than 9,000.

1. Of the more than 650,000 physicians in the U.S., less than 2 percent are geriatricians.
2. Of the nearly 200,000 pharmacists in the United States, only 720 have geriatric certifications.
3. Of the 98,000 academic fellowships funded by Medicare, only 450 are in geriatrics.

Some medical institutions are providing special classes dealing with “senior sensitivity” to assist doc­tors in dealing with the special challenges and needs of the elderly population, which will represent a large part of their overall patient load in the near future.

“Longevity is increasing, the baby boom generation is nearing retirement age, and the portion of our population age 65+ is the fastest-growing segment of our society.  But while the number of older persons is expected to increase rapidly, demographic changes in families (more childless, one-child, and step-families) and increasing participation of women in the workforce suggest a likely decrease in provision of informal care for aging baby boomers.”²⁷

A national newspaper in 2001, addressing the need for long-term care and caregivers, stated  “Geographic changes are also expected to make it more difficult to obtain care from family members or other relatives.  In the past, family members lived close to each other and could rely upon each other for help.  But the extended family of yesteryear has all but vanished.  Families are increasingly spread apart, with mom and dad living in one part of the country while their children often reside thousands of miles away   Baby boomers and seniors alike would do well to provide for their own care, independent of relying on relatives, and a Long Term Care Insurance policy would help provide the funds to pay for the care you may need.”²⁸ 

CALIFORNIA’S NURSING HOME INDUSTRY

Latest statistics show that California’s nursing home industry includes 1,390 facilities and 132,962 beds, with an occupancy rate of roughly 82 percent, just below the national average of 83 percent. It is also reported that the system has become smaller in recent years with a 5.2 percent decrease in total beds between 1995-99.  Nursing homes have not had an easy road, though, even though it seems that they charge more than perhaps they “need.”  Actually, nursing homes are going bankrupt at an alarming level because (they claim) government pay­ment (Medicare & Medicaid) is not high enough to keep them in business.  The industry can provide compelling statistics to prove their case.

Nursing homes do not get enough money to enable them to employ an adequate number of caregivers, particularly well-qualified caregivers, principally because of the large number of people that rely upon Medicaid (Medi-Cal) to cover their costs.

Nursing homes have been undergoing public scrutiny in recent years, as the care is often substandard in many of them.  Something to think about, though, is the fact that the patients that get the best care in a nursing home are those who have the most visitors.

A Long-term Care policy can help to assure that the family member receives excellent care by giving them access to facilities close to family and friends so they can visit the individual frequently and make sure that their loved one is getting the care that they deserve.

Even in some of the best-run nursing homes, care is not always up to the level we would like. Care at home is preferable in most cases because of the one-on-one attention the patient receives.   However, respite care is important to give these family caregivers a break. A long-term care policy can provide access to home care and respite care, as well as care in a quality facility close to people who will visit them and look out for their welfare.

“Compassionate Strangers” provide the majority of long-term care, however they are not paid well for their (very) necessary and often difficult services.  Often those who work as caregivers or in nursing homes are paid minimum wage with no benefits.  Obviously, the nursing homes all suffer from not having enough trained workers or the quality of workers to perform the duties that are needed.  If more private money is available, such as with LTCI policies, they can provide better and more caring services.

Something to think about is that because of the lower birth-rate of the Baby Boomers, and their children are usually more highly-educated, plus the fact that they average having children 10 years later than their parents, there will be a time when there are a smaller number of workers in the future, and those are higher educated and better paid—so who will be the caregivers then?  Actually, many nursing homes and other similar types of businesses rely upon the lower-wage less-educated persons may look to recent immigrants for their employees.  This can create its own bag of troubles, particularly because of language and cultural differences between them and their patients.²⁹

STUDY QUESTIONS
1. More of the older generation of Americans are ill and require more long-term assistance be-cause
A. medical care is too expensive.
B. of the AIDS epidemic.
C. Doctors cannot keep up with medical technology.
D. People are living longer.

2. When an agent or financial planner does not make his client aware of the availability of Long Term Care Insurance,
A. that is the proper thing to do, as LTCI must be sold by specialists who sell it only.
B. by law, they must return and offer the plan to the client.
C. they could be liable for a lawsuit later.
D. his commission is cut proportionately to the amount of the lost sale.

3. The group of people who are burdened with the care of their ill parents, in addition to their own needs, are called
A. the Sandwich generation.
B. Baby-Boomers.
C. the destitute generation.
D. the Caring generation.

4. When people first think of long-term care, they usually think of
A. nursing homes.
B. accidents and lying in the hospital with multiple casts.
C. Long Term Care Insurance.
D. Medicare.

5. The most common definition of “long-term” in relation to long-term care is
A. 30 days.
B. one year.
C. six months.
D. 90 days or longer.

6. U.S. Dept. of Health & Human Services statistics show that those who are presently age 65
A. will never enter a nursing home.
B. face at least a 40% lifetime risk of entering a nursing home.
C. will always enter a nursing home if they live to age 75.
D. will enter a nursing home only if they are female and they are widowed.

7. When including LTCI (Long Term Care Insurance) in financial planning,
A. it is not necessary for the client to seek legal or accounting advice.
B. a CPA must be present, by law.
C. the agent will get a higher commission.
D. it is important to know that there are two types of Power of Attorney that can come into play.

8. The physical or mental condition of the insured that will determine when benefits will be paid under an LTCI policy, is called
A. a trigger.
B. a gate-keeper.
C. a Medical Determination.
D. claims criteria.

9. A person who is suffering from confusion or disorientation resulting from a deterioration or loss of intellectual capacity not related to a mental illness, is \
A. an Alzheimer’s disease.
B. suffering from a cognitive impairment.
C. suffering from a psychological impairment.
D. medically impaired.

10. When analyzing the purchasers of LTCI,
A. the average age of buyers is 55.
B. 92% of buyers are women.
C. the average age of buyers is 69.
D. 76% of the buyers are, coincidentally, age 76.

 

 

ANSWERS TO STUDY QUESTIONS

1D     2C     3A     4A     5D     6B     7D     8A     9B     10C