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Long-Term Care Information

[Please note that the following is intended only to provide general background information about long-term care options.  While the information is believed to be reasonably accurate, you are cautioned and encouraged to discuss the purchase of any long-term care insurance policy or other type of long-term care program with a qualified, licensed financial advisor who is aware of your individual situation.  CSU-ERFA is not responsible for the content of linked web pages, and cannot guarantee the accuracy of those pages.]

Introduction:

Decisions regarding the purchase of long-term care insurance can be difficult owing both to the high cost and to the complicated nature of many long-term care policies.  In addition, a recent New York Times article [1] has documented the difficulties that some holders of long-term care policies have had obtaining benefits from their insurers.

The need for long-term care insurance depends greatly on individual circumstances.  For that reason, CSU-ERFA can't make specific individual recommendations regarding LTC insurance, but we can provide some general information.

There are several risk factors that need to be taken into account when considering the purchase of LTC insurance.  Life expectancy is a major consideration.  The longer that you live, the greater the likelihood that you will need long-term care.  Unfortunately, the premiums for LTC insurance also depend on your age when you purchase the insurance.  Gender is a major factor in the need for long-term care.  Women, in general, live longer than men and thus are more likely to need long-term care.  Marital status also is an important factor.  A married person with adult children is less likely to need formal long-term care than a single person.

A 1991 article in the New England Journal of Medicine by P. Kemper and C. Murtaugh [2] determined the lifetime chance that a person who currently is 65 years old would need nursing home care:
 

Total Length of Stay

Men

Women

None

67%

48%

Less than 12 months

19% 21%

1 to 5 years

10% 18%

More than 5 years

4% 13%

More recent actuarial experience suggests that there is about a 50% chance that a person who is 65 years old will need nursing home care at some time during the remainder of his or her life.  What has remained fairly steady is the percentage of people needing long-term care for more than five years.  Less than about 10% of those who received benefits from the CalPERS long-term care program needed long-term care for more than five years, and only about 3% need long-term care for more than 10 years.

The costs of long-term care are high.  Currently (2013), nursing home care in California averages about $330 per day, but varies widely in different parts of the state.  Some people would prefer to remain in their own residence rather than to move into a nursing home.  The CalPERS long-term care program and some private LTC insurance policies provide options for in-home care as well as nursing home care.  However, the benefits offered for in-home care may differ from those offered for care in a licensed facility.  You should read and understand fully the provisions of any LTC policy that you are considering.  In particular, most LTC policies have a "deductible period" during which you must cover the expenses of long-term care from your own resources.  The most common deductable period is 90 days.  The reason for this is that about 30% of patients who enter a nursing home will either recover sufficiently within 90 days to no longer need LTC, or will die within the 90 day period.

The CalPERS Long-Term Care Program:

CSU-ERFA was instrumental in working with the Public Employees Retirement System (CalPERS) to establish the CalPERS Long-Term Care Insurance Program.  Several features of the program including its flexibility, consumer protection standards, and the California Partnership option were influenced by our work.  The Association actively advocates reforms to improve the program, and we provide individual assistance to CSU-ERFA members who encounter problems with the program.  (Note, however, that CSU-ERFA does not formally recommend any LTC program or policy.  LTC insurance is one of several options that an individual should consider depending on his or her situation.)  Currently, the CalPERS LTC program is closed to new members; however, it is scheduled to begin issuing policies again in December of 2013. (Update: The CalPERS LTC program was reopened to new members on Dec. 24, 2013.)  Costs for long-term care services have been rising rapidly, and the CalPERS LTC has had to raise rates for current policy holders a number of times.  Modest rate increases are scheduled for 2013 and 2014, and a major rate increase will affect certain policies in 2015.  However, policy holders affected by the rate increases will be given the option of converting their policies to ones with more limited benefits to avoid the increase.

All California public employees and annuitants, their spouses, their parents and parents-in-law, and siblings over the age of 18 are eligible to apply for LTC coverage from the CalPERS Long-Term Care Program.  Enrollment in the program is subject to underwriting standards and is not guaranteed.  The applicant's medical history may affect acceptance.  In contrast to private LTC insurance, the CalPERS program is a not-for-profit operation.  Except for administrative costs, all the money collected from premiums is placed in a fund that is used to underwrite benefits.  It should be noted that this is a separate fund from the CalPERS pension fund.  Premiums may be raised from time-to-time in order to keep the LTC fund solvent.

The CalPERS LTC Program offers a wide variety of coverage choices both in regard to type of coverage and magnitude of daily and total benefits including an option for unlimited duration coverage.  The three types of coverage offered in the CalPERS LTC Program include a facilities only plan, a comprehensive plan, and a "partnership" plan.  The "partnership" plan coordinates CalPERS LTC benefits with Medi-Cal long-term care benefits while providing a level of asset protection that is considerably greater than normally available when one applies for LTC benefits from Medi-Cal.

The "facilities plan" provides benefits only in nursing homes, assisted living facilities, and residential care facilities.  The "comprehensive" and "partnership" plans also provide benefits in home and community care settings.  To be eligible for benefits under the CalPERS LTC Program an individual must need assistance with two "activities of daily living" or must have a severe cognitive impairment.  The "activities of daily living" are related to bathing, dressing, eating, transferring, toileting, and continence.  Note that private LTC policies may have different eligibility requirements for benefits.

Satisfaction surveys conducted by CalPERS of LTC Program claimants generally have elicited favorable responses.  The following information was provided by a CalPERS LTC Program administrator [3] based on surveys taken since the inception of the program.

  • 94% of claimants were satisfied or very satisfied with the claims department.

  • 95% reported that the claims department responded promptly or very promptly to their initial call.

  • 92% felt that they were informed or well informed about the claims process.

  • 93% stated that their requests for benefits were evaluated promptly.

  • 95% stated that CalPERS Care Advisory Services met their needs by helping them arrange for care.

  • 88% noted that they received clear communication regarding the status of their deductible (many claimants fail to recall that their policy has a deductible period).

  • 90% said that their benefits had been paid promptly.

  • 97% said that their benefits had been paid accurately.

  • 99% said they received clear written communication about the status of their claim.

Claims Experience for CalPERS LTC Program and Private LTC Insurers:

Because a person must meet specific criteria to be eligible for benefits under a LTC policy, denial of benefits is relatively common in the LTC insurance industry.  In California approximately 25% of claims for LTC benefits are denied according to data collected by the Department of Insurance.  The CalPERS LTC Program denial of benefits rate is significantly lower [3].  From the inception of the CalPERS LTC Program through December 31, 2006 a total of 13,016 requests for benefits were received by the program.  Of these, 1,165 (8.9%)were denied on the basis that eligibility requirements were not met at the time of the claim.  Another 1,880 claims (14.4%) were closed before a claim decision was made.  These claims were closed for one of three reasons; recovery of function, death of the claimant, or a decision by the claimant to close the claim.  Individuals whose claims are initially turned down by the CalPERS LTC Program are advised not to hesitate to request benefits at a later date if their medical, functional, or cognitive status declines further.  Of the 1,165 claimants who were turned down initially, 526 were granted benefits at a later date.

While the data for private LTC insurers is sketchy, the New York Times article cited in the introduction [1] compared the rate of formal complaints filed with state insurance commissioners by the major companies writing LTC insurance.  Of these three companies stood out as having significantly higher than average numbers of complaints relative to the number of policies in force.  Conseco Senior Health and its wholly-owned subsidiary Bankers Life and Casualty along with Penn Treaty American all had complaint rates significantly above the average.

Alternative and Supplemental Options for LTC:

Self-Insurance:  Those with substantial financial resources may choose to simply set aside sufficient assets to cover the potential costs of LTC, realizing that the majority of those who purchase LTC policies never use them.

Private LTC Insurance:  In addition to the CalPERS LTC program, there are numerous companies that underwrite long-term care of one type or another.  In recent years these companies have begun to offer products that combine life insurance or annuities with long-term care coverage.  For example, some companies offer life-insurance policies with a long-term care rider that permits the policy holder to draw against the death benefit to cover the costs of long-term care.  This, of course, reduces the value of the death benefit, but has the advantage that if long-term care is not needed the person's beneficiaries receive the face value of the policy.  Another type of asset-based long-term care product allows an individual to make a single up-front payment to cover long-term care.  As an example a person might make a single payment of $100,000 to purchase $300,000 of LTC coverage with the option of cancelling the policy at any time before drawing benefits for a full refund without interest.  Or, if the person keeps the policy in force but dies before using benefits his or her heirs receive a life insurance payout equal to the purchase price plus interest.

Reverse Mortgages:  Those who have substantial equity and who want to remain in their home might consider using a reverse mortgage to provide extra cash to pay for in-home care.  While this choice will reduce the equity in the home, it will help to protect other assets.  A reverse mortgage can be used in combination with some LTC insurance coverage to provide a higher level of in-home care, or to allow a spouse to remain in the home following the death of the covered individual.

Continuing Care Retirement Communities:  As generally defined by the State of California, a CCRC is an age restricted residential community, usually requiring an entrance fee, plus monthly maintenance fees, in exchange for a living unit, meals, and health care coverage, including assisted living and skilled nursing.  Certain other services and amenities, like regular housekeeping, scheduled transportation, swimming and exercise facilities, and 24 hour security are often included. This 'continuum of care', consisting of independent living, assisted living, and skilled nursing, essentially allows residents to age in place with security and peace of mind in knowing they have planned for their future.

Some CCRC's offer Life Care Contracts.  In California a Life Care Contract includes the following promises: (1) To provide all levels of care, including acute care and physicians' and surgeons' services; (2) To provide that care for the resident's life; (3) To provide a comprehensive continuum of care, including skilled nursing, under the ownership and supervision of the provider on, or adjacent to, the premises; (4) That no change will be made in the monthly fee based on level of care or service; and, (5) To subsidize residents who become financially unable to pay their monthly care fees.  Those CCRC's that are not Life Care Communities may offer some, but not all of these promises in their contracts.  If you are considering a CCRC that is not a Life Care facility, be sure to read and understand the contract you are offered.  The choice of a CCRC may be attractive to those who have a comfortable level of secure income to pay the monthly maintenance fee and a source of funds to pay the entrance fee.

Viatical and Senior Settlements: People who own life insurance policies may have the option to sell them to raise cash to pay for medical expenses and LTC expenses.  Viatical settlements are available to those who are terminally ill and have a life expectancy of less than five years.  Senior settlements are available to those over 65 who have a reduced life expectancy, but who are not terminally ill.  Regulations vary from state to state, so you should consult your financial advisor about this option.

Medi-Cal:  While Medicare provides only very limited nursing home benefits [4], Medi-Cal provides LTC benefits indefinitely for California residents.  However, Medi-Cal eligibility is restricted to those who are essentially indigent.  This means that one's assets will have to be spent down first to qualify for Medi-Cal (there are certain exemptions that apply to spousal assets.)  A greater level of asset protection can be obtained by purchasing a "Partnership" policy from the CalPERS LTC Program or a private insurer.  Under the "Partnership Program" LTC costs first are covered by the insurer up to the limit of the policy, then Medi-Cal takes over.  The insured receives a dollar of Medi-Cal asset protection (in addition to the spousal exemption) for each dollar of benefits paid by the insurer.  Partnership policies are particularly attractive for those who have or will have limited retirement income.  (Note that generally one is not permitted to transfer assets to others to qualify for Medi-Cal long-term care benefits.)

Some Tips for Those Considering the Purchase of LTC Insurance:

Discuss LTC with your family members and financial advisor.  Make sure that your family understands your wishes regarding long-term care and how you intend to finance it if it becomes necessary.  An independent financial advisor can help you determine how much LTC insurance you will need, and can help you evaluate various LTC options for suitability to your individual situation.

Buy at an early age.  There are two reasons to purchase LTC insurance well before you think you will need it.  First, you are much less likely to be turned down for coverage on account of preexisting conditions.  Second, your premiums will be much lower.

Include inflation protection.  The cost of LTC rises at about 5% per year.  Thus, you should give strong consideration to policies that include inflation protection.  These policies provide increased benefits over time with no increase in premium for the increased benefit (except for general premium increases needed to maintain solvency).

Carefully consider the level of protection that you need.  Many LTC plans allow the purchaser to choose the level of daily benefit that will be paid.  Currently (2013) daily costs for nursing home care in California average approximately $330.  However if you have a secure source of retirement income, you may opt to purchase insurance that provides a lower daily benefit and to cover the remaining cost from your income.  If your income is low, it may be advantageous to consider a "Partnership" plan that combines long-term care insurance with Medi-Cal long-term care benefits.

Be aware that premiums can increase over time.  Insurers are allowed to increase premiums in order to maintain the solvency of their LTC programs though this usually requires approval from state regulators.

Be aware that LTC polices have a deductible period.  Deductible periods for private LTC policies range from 20 days to 120 days.  The deductible period for the CalPERS LTC Comprehensive Plan and the CalPERS LTC Facilities Only Plan is 90 days, while the deductible period for the CalPERS LTC Partnership Plan is 30 days.  Maintain sufficient financial reserves to cover care during the deductible period.

Consider carefully benefit duration.  Relatively few people use LTC for more than six years; however, the premiums for unlimited duration benefits typically are about 25% higher than for a policy that provides six years of benefits.

Have an advocate who can work on your behalf.  At the time you need LTC benefits you may not be in a position to deal with the complexities of the claims procedure.  It's very helpful to have a family member or other advocate who can assist you both to obtain benefits and to help ensure that the long-term care you receive meets your wishes.

Other Resources:

The CalPERS Long-Term Care Program.
California Department of Health Services Information about Long-Term Care.
California Department of Health Services Information about the California Partnership for Long-Term Care.
Understanding Medi-Cal: Long-Term Care.
California Continuing Care Retirement Communities.
Federal Trade Commission information about reverse mortgages.
Long-Term Care Resources & Information (Note: This is a commercial site that has links to many government sites as well as some commercial sites.)


References:

[1] Charles Duhigg, "Aged, Frail, and Denied Care by Their Insurers", New York Times, March 26, 2007.
[2] P. Kemper and C.M. Murtaugh, "Lifetime Use of Nursing Home Care", New England Journal of Medicine, Vol. 324 No. 9, pp. 595-600, February 28, 1991.
[3] Email from Stephen K. Holland, MD, Senior Vice President and Medical Director, Long Term Care Group, Inc. to David Humphers, CSU-ERFA Health Care Committee Member dated April 12, 2007.
[4] Medicare covers skilled nursing facility care only after a three-day inpatient hospital stay for a related illness or injury and only for a maximum of 100 days, when the patient is expected to recover fully.

 

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