Planning forLong Term Care: Protect & Enhance the

Quality of Lifefor You and those You

LoveCynthia Williamson, Insurance Broker, CPA

Providing Wealth Protection & Tax Planning StrategiesFinancially Focused, LLC

(877) 948-3746

About Financially Focused, LLC Boutique financial planning & services firm. We help clients

accumulate wealth and protect retirement accounts against loss. Dually licensed as tax advisors and a life & health insurance broker, uniquely positioned to align tax planning opportunities with financial products including Life Insurance, Long-Term Care & Fixed & Indexed Annuities.

Customized financial plans are comprehensive & tax efficient, saving clients both time and money.

Specialize in assisting clients to secure their financial future, aligning tax planning opportunities with wealth protection & investment objectives.

Licensed Life & Health Insurance Broker for Kansas & MO. Clients receive objective guidance free of the inherent conflict of interest that can exist without a broker status.

The Mission Statement of Financially Focused LLC is “Securing Your Financial Future”. One way this happens is through educational seminars on relevant financial issues.

Common Questions about LTC How do benefits become payable?

How long are benefits paid out?

What happens when LTC Insurance benefits are exhausted?

Expenses Covered by LTC Insurance.

Will Medicare pay for LTC?

What should I look for when selecting an insurance company?

Tax treatment of premiums / benefits.

Can my premiums be increased after I purchase a LTC policy?

Intro Health Reform is on the radar screen. However, LTC is the

gorilla in the room. Has capacity to inflict serious damage to a retirement plan where the risk is not mitigated. Mindset to not plan.

Pie chart shows where payments to skilled nursing facilities originated. Most rely on Medicaid to fund their long-term care costs. Except for Hospice, Medicare doesn’t pay for LTC costs.

Source: Centers for Medicare & Medical Services, National Health Accounts, 2005, www.cms.hhs.gov

History of LTC Insurance In the past, LTC Ins was known as nursing home insurance and

Medicaid was called the Middle Class’ long-term care insurance.

HIPAA, Federal Consumer Protection Reg took effect Jan 1, 1997

Changed standards on qualifying for benefits.

Did away with medical necessity of 3 night hospital stay followed by a check-in to a nursing home within 30 days

HIPAA set standards for Benefit triggers:

1 Physical impairment to the degree a person needs assistance with two or more Activities of Daily Living Defined ADLs: Bathing, dressing, eating, mobility, toileting & continence.

2 Cognitive Impairment – Memory Recall, short & long-term, Orientation as time & place, judgment & reasoning skills, awareness of safety issues. Cognitive impairments typically associated with Alzheimer’s, dementia & Parkinson’s.

Kinder & gentler approach as it is more proactive, not reacting to a traumatic event or accident such as a broken bone from a fall.

History of LTC Insurance Cont’d Forever changed the landscape of how care is delivered. Fits

the care to the condition. Persons diagnosed with a chronic condition no longer confined to a Nursing Home. Home health care can supplement support from family,

friends & community services. Assisted Living Facilities (ALFs) give persons 24 hour

access to staff and home health aides in close proximity. Restaurant style dining & housekeeping, social activities, exercise classes, entertainment, beauty salons, transportation.

Emphasis is on having persons function at optimal level, giving them greater dignity, privacy, autonomy & assistance to the degree needed.

Allows for a better quality of life & more choice than a nursing home with it’s lack of privacy & institutional feel.

Defining Long Term Care

Wide range of services for those with… A condition is chronic (long-term) when a

licensed health care practitioner (physician, RN, Licensed Social worker) diagnosis the need for assistance and

Condition is expected to continue for at least 90 days or isn’t expected to improve.

Chronic conditions are progressive meaning the condition tends to worsen over time, requiring increasing levels of care.

Cognitive or functional impairment

Medical Expenses Reimbursed by Long-Term Care

Typical Medical Charges Not Covered. Hospital charges – Medicare Part APhysician & Lab charges – Medicare Part B

LTC policies cannot duplicate coverage the insured has through Medicare or other insurance.

Many policies pay for prescription meds at an SNF

Medical “skilled” care – requires a doctor’s prescription:Therapeutic services such as occupational, physical,

respiratory or speech therapists. Treatment for falls, fractures, injuries & wounds. Pulmonary & Cardiovascular disorders. Medication management.

Non-Medical Expenses Reimbursed Custodial Care

Hands-on & Stand-by Assistance primarily for physical impairments. Assist with ADLs.

Supervisory Assistance mainly for persons with cognitive impairment to keep persons on task in their daily routine.

Ambulances Services

Emergency Response Systems

Personal Care Rehabilitative care such as speech or physical therapy for a

State Partnership Plans LTC Partnership programs are an alliance between State

Medicaid programs and private insurance companies to help Americans pay for future long term care expenses.

These programs are relatively new. Partnership plans signed into law July 1, 2009 in Kansas. Grandfathered to 2006.

A partnership policy protects person from Medicaid spend-down. Dollar for dollar protection up to the face value of LTC insurance should benefits be depleted.

Example 1: Mr. & Mrs. Jones have a combined $250,000 in their checking, savings, CDs, investments, 401K plans & IRAs, etc.

They obtain a three year LTC policy with a lifetime benefit of $300,000. Their retirement assets are protected up to $300,000 from Medicaid spend-down if their insurance benefits are exhausted.

State Partnership Plans Continued Protects assets, not income from Medicaid spend down.

Example 2: Alice owns a LTC policy with a lifetime benefit of $150,000. At the time she applies for Medicaid savings have grown to $200,000. She also has SSI of $1,000 per month. Alice must spend down $50,000 down to $150,000 before she qualifies for Medicaid. Once she is receiving care, Alice must assign $940 to the state of her SSI. The state cannot place a lien against her house after she passes away to recover the cost of care they paid on her behalf.

Effectively allows persons to obtain LTC insurance for less than lifetime coverage; 2-5 years. Then apply for Medicaid after benefits are depleted.

Extends protection to estate recovery.

State Partnership Plan Requirements

Participation in the program requires inflation protection rider based on age:

Less than 61: Compound (3-6%)61 – 75 Simple76 and older: None required

Reside in the state sponsoring the partnership program at the time of Medicaid application OR

Reside in a state with a reciprocal partnership agreement with the issuing state; and

Have resided in the state sponsoring the partnership program when the policy was issued.

Stats The probability of becoming disabled in at least 2 ADL’s or being cognitively impaired is 68% for people age 65 and older. www..longtermcare.gov

Probability of needing LTC at age 65:

Men - 58% Women 78%

74% of nursing home residents are women.

44% of people age 65 & older are expected to enter a nursing home at least once in their lifetime. (NAIC)

Average Stay: Men 2.2 yrs Women 3.7

yrs

Important Points to Know about Premiums Age of Insured, Insurance Age

Health of Insured: Preferred, Standard, Substandard.

Elimination Period: 30, 90, 180 days

Length of Policy: 2, 3, 5, 10 years or lifetime coverage.

States must approve rate increases: Insurers cannot increase prices without first obtaining approval from state

Rate Increases: Expectation that LTC premiums are to remain level and not increase. Not a guarantee. An insurer can raise rates for an entire class of persons, but not on an individual policy. In this regard LTC insurance differs from automobile or medical insurance policies where premiums are adjusted yearly.

Cost of Living Adjustments: (COLAs) Insurers offer an increasing benefit amount that is calculated at rates of 3% - 6% computed on a simple or a compound basis.

Cost of Care & Cost of Insurance Average Cost of Care in Kansas City area. Cost varies

based on how care is delivered1: Home Health: $36,000-72,000 per year (5-10 hours

care per day) Assisted Living Facility: $33,000 – 54,000 Skilled Nursing Facility: $56,000 ($155 per day) Memory Support: $73,000 ($200 per day)

Cost of Insurance2 – Quote based on age and preferred health rating. Annual cost of $36,000 coverage, 3 year benefit period, $108,000 of coverage. Age 55: $ 492 Age 65: $ 1,057 Age 60: $ 675 Age 70: $ 1,852 Age 75: $ 3,720 Age 80: $ 6,289*

1 - Genworth April 2009 Cost of Care Survey for KC area.2 - Coverage is Comprehensive, meaning it includes home health and skilled nursing facility care.3 – Some Insurers stop underwriting at age 79.

Age-Based Statistics 83% of persons purchased LTC Insurance prior to

age 65.2

Ages at which claims for LTC benefits are made.1 40% of claims are from persons in their 70’s50% of claims are from persons in their 80’s

Age range of persons who are declined coverage.3

50 – 59: 14%60 – 69: 23%70 – 79: 45%80 and over – 70%

1- Long-Term Care, How to Plan & Pay for It, 7th Ed., Pub Oct 2008, p 272.2- 2007 study of 400,000 policy applicants. American Assn for LTCI 2008 Sourcebook. 3- The New Savage Number, 2nd Ed, Pub Sept 2009, p 227.

2010 Tax Deductibility of Premiums

Deduction is limited to lesser of actual premium paid or age eligible IRS defined limits.

Deductibility (per person) increases with

age:

Age 40 and Under

$ 330

Age 40 to 50 $ 620

Age 51 to 60 $1,230

Age 61 to 70 $3,290

Age 71 or over $4,110

Benefit Payout & Tax Treatment Expense Reimbursement: Benefits are paid based

on actual qualifying expenses incurred up to daily benefit amount. Pools of benefits are often associated with this option.

Example: Mary Ellen has a 5 year LTC policy with a $200 daily benefit amount. She locates a facility that she likes and it costs $175 per day. The unused amount of $25. per day stays in her account balance and she can extend the length of her policy beyond the 5 years by keeping daily costs down.

Indemnity Rider: Benefits are paid on a daily basis at the rate of $200 per day. Receives an additional $25.00 per dat tax free. Excluded from income up to $290 for 2010, unless actual expenses are more.

Example: A LTC policy pays a per diem benefit of $300 in 2010. $290 is not taxable. The remaining $20 is taxable income unless it represents actual expenses incurred.

LTC Insurance is Flexible Not a one-size-fits-all financial product.

Persons whose primary objective is to keep premiums low would be interested in a 2 year benefit period and partnering with the state to cover remaining care needed while protecting their retirement savings from Medicaid spend down.

Persons who are unsure if they will need LTC Insurance can structure their policy using a return of premium rider. Funds can be passed on tax free to the surviving spouse and contingent beneficiaries.

Persons who use LTC to it’s full advantage as a life planning tool to finance their care in their later years, taking advantage of indemnity riders.

Not all Insurer’s offer an Indemnity Rider.

LTC Insurance Terms & Riders Cont’d

Return of Premium Rider – Premiums paid less any claim benefits received are paid to a beneficiary of your choice. Allows for recovery of premiums in the event benefits are not claimed. Estate Planning.

Waiver of Premium Rider – Waives premiums when the insured is receiving LTC benefits.

Paid Up Survivor Benefit Rider –If you have owned a policy for 10 years and either you or your spouse die, the policy is considered paid up and no further premium payments are due.

Restoration of Benefits – Benefit dollars spent from claims made can be restored after 180 days of not requiring and not collecting any benefits. Rider not necessary for persons who have obtained lifetime coverage.

Indemnity Benefit Rider – Rather than having benefits paid on a reimbursement basis, you can elect to receive the full daily benefit, regardless of expenses incurred. Allows for additional income.

Selecting an Insurance Company

Reputation & Financial Strength• Does insurer have a history of complaints logged

against the company? • What are the financial strength ratings issued by

major rating agencies?• Structure of company – Is it a mutual insurance

company or a publicly traded corporation?

Go Long & Strong

Do business with a company that you know is going to be around for the long haul.

Select a company that is strong financially and has a reputation for integrity and is well managed.

Life Expectancy

Longer life expectancies have increased the likelihood of needing long-term care.

By 2020, 1 in 6 people will be 65 years & older.

Life Expectancy

Men Women

1900s- at birth 50 51

1970- at birth 67 75

2008- at birth 75 81

2008- Age 65 81 84

Quote from World’s Oldest Man Quotes from a speech by the world’s oldest

man. Walter Breuning turned 113 on Sept 21, 2009.

Remember that life isn’t measured in days or years, but by what we have done therein.

There will always be in this life wrongs---no wrong is really successful.

There are great things within us if we will seek them and find them out.

Mary Josephine Ray, Age 114

Oldest person in US dies in NH at age 114 Day

WESTMORELAND, N.H. – Mary Josephine Ray, the New Hampshire woman who was certified as the oldest person living in the U.S. died at age 114 years, 294 days on 3/8/2010.

"She just enjoyed life.

Ray was the oldest person in the United States and the second-oldest in the world. She was also recorded as the oldest person ever to live in New Hampshire.

Wrap Up

Evaluation Form.

Schedule an appointment to explore pricing and obtain a quote.

Take advantage of Certificate for Personal Financial Planning Session.

Next Steps

Have a Long-Term Care Plan

Where will you live?

Who will care for you?

How will you pay for the care?

Planning forLong Term Care:

Protect the Quality of Life for You

and the People You Love

Medicare Medicare is the federal government’s health insurance

program. Implemented in 1965.

Provides health coverage for people 65 and older, blind, disabled or late-stage kidney disease & hospice.

Medicare is the nation’s largest health insurance program.

Poor financial conditionCurrently pays out more than it receives. For every

25 cents it takes in, Medicare pays out $1.00.Without any changes, insolvent by 2017.

When it comes to Long-term care, Medicare only pays when person’s condition is not chronic (long-term).

Medicare & LTC Medicare currently pays for Hospice, or end-of-life care.

Both healthcare bills, House & Senate include significant cuts for hospice. The extent of the cuts is in the billions of dollars. Medicare only pays for conditions that are improving,

not chronic or long-term.

Before payment, a medical necessity needs to have occurred traumatic enough to require: 3 night hospital stay. Within 30 days of the hospital stay check in to a Skilled

Nursing Facility (nursing home).

Medicare will pay the nursing home as long as a condition is improving. Once a patient’s condition is determined to be ‘chronic’ or ‘long-term’ Medicare will not pay.

Government Health Plan

Medicare is financed by payroll taxes: 1.45% of gross payroll is paid by employees and 1.45% is matched by employers.

Convergence of several factors makes have created Medicare MeltdownRecord number of people reaching

retirement age: 1 in 6 persons projected to be 65 years and older by the year 2020.

High unemployment makes situation worse.Longer life spans.

Why it’s important to discuss Long Term Care Planning Now

Cost of LTC is a significant exposure in a retirement plan.

Failing to mitigate this risk has the potential to wipe out a lifetime of earnings in a few short years.

Unrealistic to plan on not getting sick or needing assistance in our later years.

Coverage isn’t automatic, obtain while insurable. Pre-existing condition clause in Health Insurance reform

will most likely not apply to long-term care. That would be like purchasing home insurance after the house caught fire. Insurer’s couldn’t stay in business.

Medicaid is likely solution for those with pre-existing conditions.

Medicare – Reimbursement for Costs Incurred at a Skilled Nursing Facility

To qualify for Medicare to pay: Medical necessity. 3 day hospital stay.Patient admitted to a SNF within 30 days of

hospital stay.Care delivered at a Medicare-certified facility.

Once diagnosis is changed from ‘improving’ to ‘chronic’ Medicare will not pay.

Medicare pays: Days 1- 20 covered at 100%Days 21-100 co-pay of $133.50Day 101 Medicare pays nothing

* 3 day hospital stay may not be required for Medicare Managed Care Plan (Part C)

Medicaid & LTC Most people have developed a mindset to not provide for their

own LTC, preferring to rely on Medicaid. Unfortunately they may be unaware of the full extent of what it means to them financially. Relying on Medicaid to pay LTC isn’t a good financial

solution as it only pays after a person spends all their savings.

Medicaid takes monthly income also.

With Medicaid the end result is people are spending their own money. You do have a choice: pay a fraction of the cost through insurance premiums or spend all your savings later. It’s easier because it doesn’t require up front payments or

planning.

Some people have utilized estate planning strategies to qualify for Medicaid to their own detriment. They give away control of their financial resources to appear destitute and qualify for program designed for people who are indigent.

LTC insurance helps ensure you receive the type of care you want in the setting you choose; at home, an assisted living facility or a continuing care retirement community. It opens up a range of greater possibilities.

Medicaid Statistics

Medicaid was established in 1965 as a companion program to Medicare.

Designed for following persons who meet federal poverty levels; The elderly, dependent children and their mothers and persons with disabilities.

Each state develops and administers a State plan which must be approved by CMS.

Medicaid expenditures in 2006 accounted for 1/6th of the nation’s health care spending.

In 2006 Medicaid expenditures were $241 Billion. Half of this was spent on Long-term care.

Medicaid Spend-down of Savings

Medicaid is intended for people who meet federal poverty levels. The safety net that many have relied on to their own detriment. Stringent spend down requirements: KS = $2,000.00 MO = $ 999.00Limits monthly income of chronically ill

spouse to: KS = $ 60.00

MO = $ 30.00 Reimbursement limited primarily to nursing

home care. Does not pay for Home Health. Limited payments Assisted Living Facilities.

Care must be delivered at a Medicare-certified facility.

Medicaid Income Requirements Community (well) spouse is permitted to keep a

minimum monthly maintenance of at least $1,822 of income per month, but no more than $2,739.

For example, assume the following monthly income is received:

Well spouse social security income: $ 1,200 Chronically ill spouse pension: $ 622 Chronically ill spouse SSI: $ 2,000

Married spouse’s finances are divided in half. Excess above $219,120 must be spent on care.

Well spouse can keep up to $109,560. Chronically ill spouse must spend their $109,560 down to $2,000.

Financial Planning Tip: For persons unable to obtain long-term care insurance, an annuity can convert savings into income. This planning tool can be used even though it occurs within the 5 year look back period.

Common Chronic Conditions

Common chronic conditions:Alzheimer’s – age is greatest risk factor

- 5th leading cause of death for persons over 65

- Permanent & irreversible. Progresses from

mild to moderate to late stage.

- 50% of persons 85 & older have Alzheimer’s.

- Once diagnosed, duration is 4-6 years but can

live up to 20 yrs after diagnosis.Arthritis, Cancer, Diabetes, GlaucomaMultiple Sclerosis & Muscular DystrophyParkinson’s DiseaseStrokes

Long-Term Care Insurance as an Group Benefit

Employers are increasingly extending Long Term Care insurance benefits to either key employees or to an entire group of employees.

Insurance premiums paid on behalf of key employees are tax deductible by the employer. The employee is not taxed on the value of premium payments provided as an employee benefit.

Long-term care insurance is not subject to non-discriminatory rules so discretion can be used in deciding upon the amount of benefits available to various employee groups.

Long-term care insurance has tax advantages over other insurance benefits.

For example, with certain term insurance or split dollar arrangements, the employee must include the value of insurance received in their W-2, treating it as additional compensation subject to FICA and income taxation at the federal and state level.

Long-Term Care Benefits: Not taxed when received

The employee is not taxed on Long-Term Care Insurance benefits. When paid to the employee they are tax-free provided the benefits do not exceed very generous daily benefit limits.

In 2012, $310 of insurance benefits can be received each day without being subject to taxation. This applies even if the expenses are less than $310 per day.

An “Indemnity Rider” indemnifies a person up to the IRS approved limit or cost, whichever is greater.

Most insurers offer simplified underwriting and additional discounts when Long-term care insurance is extended to an employer group.

LTC Eligibility & Disqualifying Conditions

Answering YES to the following questions can result in an automatic rejection for LTC with some insurers:

Current diagnosis of Cancer, AIDS, Alzheimer’s, Cystic Fibrosis, Dementia, Memory Loss, Kidney Failure / Dialysis, Organ Transplant, Mental Retardation, Multiple Sclerosis, Muscular Dystrophy, Parkinson’s, Schizophrenia.

Diabetes and currently taking more than 50 units of insulin daily.

Use of wheelchair, walker, scooter, quad cane or oxygen.

Physical, occupational or speech therapy in past 6 months.

Stroke in the past ten years.

Mental / nervous disorder other than Alzheimer’s / Dementia.

LTCi Policy Options How long are benefits paid?

Very flexible. Lifetime coverage is the priciest option.

Benefit periods of 3 – 5- 10. Some insurers offer a 2 year benefit period.

Elimination periods 30, 60, 90 & 180 days.

Riders

Waiver of premium

Indemnity rider

Cost of Living Riders

Return of Premium