By Miller, Marc H.
The CPA Journal , Vol. 70, No. 4
A Whole Lot of Planning to Do
The aging of the baby boom generation and their parents is making it urgent to find affordable elder care options. Longterm care insurance is one effictive planning tool to avoid having personal and family resources depleted by the rising costs of at-home care nursing home care and other expenses, which can easily amount to thousands of dollars each month. Medicare and Medicaid are often insufficient or have poverty-level eligibility requirements.
Gifting or spending down of assets is an effective way to lay the ground for eventual eligibility for Medicaid and other government-funded support, but insurance remains a valuable planning tool. The rules for eligibility, and the schedules and levels for payments, however, are constantly changing. To keep pace the insurance options that can provide taxpayers with comfortable, secure golden years are also changing.
As Americans age, more middle-class families need to plan for long-term care in order to protect their assets from the catastrophic expense of nursing home care. With the modern reality that family generations live states apart, medical advances prolong life, and little political desire exists in Washington to fund long-term nursing care, mature Americans are realizing that they will have to take care of themselves in their golden years. One option for them is the purchase of long-term care (LTC) insurance.
Harsh Economic Reality
The economic reality is overwhelming. In 1997, 34 million Americans were over 65 years old. The fastest growing segments of the population are also the oldest: Actuaries project that by 2010, one-third of Americans will be senior
citizens. More than 40% of those 65 year olds will ultimately need long-term care. Without proper financial planning, illness will derail the economic futures of many families.
Long-term care (LTC) describes custodial care-day-in, day-out assistance with the activities of life during a serious illness or when disability overwhelms the body. The care can be acute-physical therapy or help with administering medication--or purely custodial but extended-help with meals, bathing, or dressing.
Custodial care describes a continuum of programs ranging from community-based services (senior day care or Alzheimer's day care) to home services (companion care, home-care aides, or therapy visits) to assisted-living homes or life-care communities and finally, nursing homes.
Nursing care costs are steep. Nationally, nursing home costs averaged $110 per day in 1997. The average cost of nursing home care in the largest U.S. cities exceeds $5.000 monthly, and in the New York City metropolitan area, better nursing homes exceed $8,000 per month. Home health care aides in New York City cost $8-15 per hour.
The average nursing home stay is 2.5 years. Even in comfortable middle-class families, one spouse's nursing home expense can impoverish the healthy spouse. The economic and emotional costs of two institutionalized parents are too painful for families not to consider.
Middle-class families can expect little assistance with the medical bills. Medicare and health insurance policies pay for less than 18% of all LTC costs. Medicare covers acute, shortterm care, but only immediately after a hospital stay. The first 20 days are covered in full, and the next 80 days are covered with a $95 daily copayment. Medicare covers certain skilled care provided at home, but Medicare and Medigap policies specifically exclude long-term custodial care.
Medicaid and charity cover another 44% of the nation's custodial care bills, but families must be destitute before becoming eligible for Medicaid. Most bills for middle-class families are paid out of pocket or by LTC insurance-fully 38% of all national custodial costs. For most families, LTC insurance or impoverishment planning is the only alternative to hedge against the catastrophic expense of home care or nursing care. …