Long term CARE. InDUstrY trends AND SOLUTIONS

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1 Long term Care november 2011 Long term CARE InDUstrY trends AND SOLUTIONS Long term care is a necessary part of retirement planning, but it can be a diffi cult landscape to navigate. Costs of nursing homes and assisted living facilities are on the rise. Unfortunately, coverage provided by government programs such as Medicare and Medicaid is extremely limited. As a result, seniors and their families are forced to pay for long term care services out-of-pocket. But there are many ways to cover these expenses, and an experienced fi nancial professional can help families build a long term care plan according to their needs. read Inside Learn how much you may pay for the average nursing home or assisted living facility Determine your eligibility and coverage for Medicare, Private Medigap Insurance, and Medicaid Discover ways to help you fi nance your long term care needs Variable annuities issued by Transamerica Life Insurance Company in Cedar Rapids, Iowa and Transamerica Financial Life Insurance Company in Harrison, New York (Transamerica). Annuities are underwritten and distributed by Transamerica Capital, Inc. Transamerica Financial Life Insurance Company is licensed in New York. Annuities may lose value and are not insured by the fdic or any federal government agency. they are not a deposit of or guaranteed by any bank, bank affi liate, or credit union. AWPLTCI0911

2 Long Term Care: Industry Trends and Solutions Retirement is generally seen as a positive part of life, when days are spent visiting family, traveling, starting a new career or hobby, or just enjoying hard-earned free time. For those who have prepared themselves well for this next step, retirement has the potential to offer some of the best years of a person s life. But if that person hasn t effectively readied themselves for the possibility of needing long term care services, home health care and nursing home costs can become an increasingly heavy burden on his or her budget. These financial challenges can be avoided, or at least reduced, by proactively discussing concerns and potential solutions with a financial professional. The need to prepare for long term care is well known. In fact, ²/ ³ of baby boomers say they understand the need to plan for long term care, but only 44% have a strategy in place. 1 The reasons for this reality are widespread, but the key factors include lack of knowledge when it comes to overall costs, offerings of government-sponsored programs, and various insurance options. Many financial professionals have a thorough understanding of the costs associated with long term care, and can assist their clients in long term care planning. How Much Does Long Term Care Cost? There are different kinds of long term care. The most common are nursing homes, assisted living facilities, home health care and homemaker services, and adult day care centers. The degree of care is based on need and what the patient can afford. Costs vary widely according to service and location. The acceptance of government aid, such as Medicare and Medicaid, also varies on a per-facility or per-service basis. Average Costs of Long Term Care: $198/day $219/day $3,131/mo for a semi-private room in a nursing home for a private room in a nursing home for care in an assisted living facility (one-bedroom unit) $21/hr $19/hr $67/day for a home health aide for homemaker services for care in an adult day health care center Source: U.S. Department of Health and Human Services. National Clearinghouse for Long Term Care Information. What Does Long Term Care Cost? Nursing Homes Nursing homes provide services such as nursing care, 24-hour supervision, rehabilitation services, and assistance with day-to-day activities. While some people will only stay in a nursing home temporarily, after a serious illness or operation, others, such as those who suffer from Alzheimer s disease or dementia, may spend the rest of their lives in a nursing home. In fact, the average length of time from an Alzheimer s diagnosis to death is about 8 to 10 years, and some patients may be affected for as long as 25 years. 2 For those with Alzheimer s whose families are not equipped to care for them at home, this may mean a nursing home stay lasting up to 25 years. These nursing facilities are highly regulated, and must be licensed by state governments. The average cost for a semi-private room in a nursing home is about $198 per day, or $72,270 annually. A private room costs $219 per day, or about $79,935 per year. 3 Consider that the majority of people who stay in a nursing home remain there for at least one year and often five years or longer 4, putting the total cost anywhere between $72,270 and $361,350 for a semi-private room, and from $79,935 to $399,675 for a private room. Keep in mind that those totals are for just one person. A five year stay for a couple could cost up to nearly $800, LONG TERM CARE

3 Medicare only pays for nursing home care under certain circumstances. If a person is placed in a nursing facility after a recent hospital stay, and that facility is Medicare-certifi ed, Medicare will pay for the fi rst 20 days. If the need for nursing home care continues after day 20, Medicare may pay for the difference between the total of the daily cost and the patient s co-payment until a total of 100 days have passed. After 100 days in a nursing home facility, Medicare will no longer pay for service. Private Medigap insurance may cover the patient s co-payment if the circumstances meet all other Medicare requirements, and Medicaid may pay for care in a Medicaid-certifi ed nursing home if the patient meets functional and fi nancial eligibility requirements. 3 AverAge nursing Home Costs $399,675 $799,350 $639,480 $1.9 Mil Assisted Living facilities one person to stay in a nursing home for 5 years, with a private room a couple to stay in a nursing home for 5 years, each with a private room a person with Alzheimer s to stay in a nursing home, with a private room for 8 years a person with Alzheimer s to stay in a nursing home, with a private room for 25 years source: Department of Health and Human services. national Clearinghouse for Long term Care Information. What is Long term Care Insurance? Assisted living facilities are designed for people who don t need the level of care they would receive in a nursing home, but need help functioning. Residents usually live in their own apartments or rooms, but can enjoy a community setting that tends to include meals, assistance with personal care, medications, housekeeping, laundry, social programs, and on-site security and emergency staff. These kinds of facilities are also government-regulated. 4 A one-bedroom unit in an assisted living facility costs about $3,131 per month, or $37,572 annually. 3 Medicare does not pay for assisted living facilities, and neither does private Medigap insurance. Medicaid may pay for care-related costs in some states, but it won t pay for room and board. Home Health Care and Homemaker services Home health care may be provided by a skilled professional for nursing, physical, or other therapies necessary for a specifi c medical condition. Homemaker services, on the other hand, are typically limited to personal care services, meal preparation, and household chores. Home health aides cost an average of $21 per hour, while professional homemaker services average $19 per hour. 3 Medicare coverage of home health care is limited to essential part-time skilled nursing and home health aide services. Some physician-ordered therapies provided by a Medicare-certifi ed home health agency are also covered by Medicare. But Medicare will not pay for ongoing personal care or for assistance with day-to-day activities. Private Medigap insurance does not pay for in-home health care or for any homemaker services whatsoever. Medicaid does pay for in-home health care, but individual states have the option to limit the services covered. 3 Adult Day Care Adult day care programs are designed primarily to assist adults with cognitive or functional impairments, and for those who need a place to go when their family caregivers are at work. Adult day care offers health, social, and support services, typically during normal business hours Monday through Friday. Some are open evenings and/or weekends, but do not offer 24-hour care. 4 Adult day care centers cost an average of $67 per day, and are not covered by Medicare or private Medigap insurance. Medicaid coverage varies by state, and is conditional upon fi nancial and functional eligibility. 3 The degree of care is based on need and what the patient can afford. LONG TERM CARE 2

4 methods for Addressing Long term Care Costs government Programs medicare and medicaid Medicare is health insurance available to people ages 65 and older, to people under age 65 with certain disabilities, and to people of all ages with End-Stage Renal disease. Medicare Part A covers inpatient care in hospitals, and helps cover the costs for a skilled nursing facility, hospice, and home health care. Medicare Part B helps to cover doctor services, hospital outpatient care and home health care. Some preventative services are covered under Part B. Most people don t have to pay for Medicare Part A, while most people pay for Medicare Part B.. Medicare Advantage Plans, also known as Medicare Part C, are offered by private companies, such as an HMO or PPO, approved by Medicare. Members of these plans have both Part A and Part B coverage. Additional coverage for vision and dental may also be offered, and most Advantage Plans include Medicare Prescription Drug Coverage, or Medicare Part D, which helps cover the cost of prescription drugs. Medicare pays a fi xed amount each month to Medicare Advantage providers, but individuals may be responsible for out-of-pocket costs. 6 Medigap, or Medicare Supplement Insurance, is private health insurance designed to help cover the costs not covered by Medicare, such as co-payments, coinsurance, and deductibles. An individual must have Medicare Parts A and B in order to buy a Medigap policy. Generally, a Medigap policy alone will not cover long term care, vision or dental care, or private nursing. 7 Medicaid is a health insurance program provided by the government that is solely for individuals and families with limited income. Income, age, and disability guidelines for Medicaid eligibility tend to vary by state. People who have Medicaid may qualify for nursing home care coverage, though a copayment may be required, depending on where an individual lives. 8 Long term Care Insurance Long term care insurance is designed to cover the costs of largely custodial services required due to an individual s inability to perform activities of daily living. 9 When selecting a long term care insurance policy, a person usually has many benefi t options, meant to suit specifi c needs. These policies have a benefi t period or a lifetime benefi t maximum. Benefi t periods for this kind of insurance policy are two, three, four, and fi ve years, and lifetime or unlimited coverage. A lifetime benefi t maximum is the total amount of time (or total amount of money) up to which benefi ts will be paid. Premiums are usually determined in advance and are typically waived when benefi ts are being paid out. 10 Most benefi ts cover a number of settings, including assisted living communities or in-home care. Of course, coverage and exclusions vary per policy, so it s important that options are considered very carefully in order to determine the best fi t. typical ComPreHensIve Long term CAre InsUrAnCe BenefIt Home Care (this includes nursing care, personal care, physical and rehabilitation therapy, and some homemaker services such as meal preparation) Adult Day Care Centers Hospice Care and Respite Care Assisted Living Facilities Special Care Facilities for Alzheimer s Nursing Homes source: Department of Health and Human services. national Clearinghouse for Long term Care Information. What is Long term Care Insurance? Most people don t have to pay for Medicare Part A, while most people pay for Medicare Part B. 3 LONG TERM CARE

5 Combination Life Insurance Some insurance providers offer hybrid products that combine life insurance with long term care benefi ts. The policyholder has the option to use their death benefi t to pay for qualifying long term care costs. If they never need to use this resource for long term care expenses, the policyholder s death benefi t goes to their benefi ciaries when they die. These policies tend to require recurring premium payments for middle-aged consumers, and single-premium payments for older consumers. 11 According to LIMRA, the average recurring premium for an individual life combination policy is $6,000, while the average single premium is $72,000. These kinds of products are becoming increasingly popular, particularly among those ages Health savings Accounts A health savings account (HSA) is a tax-exempt trust or custodial account that can be set up with a qualifi ed HSA trustee, such as a bank or an insurance company. The money from this account can only be used to pay or reimburse certain medical expenses. Interest and other earnings on the assets in the account are tax free. There is a limit to how much a person can contribute to an HSA on an annual basis, but the contribution limit is higher for individuals who meet certain requirements and are age 55 or older. According to the Internal Revenue Service, Medicare and other health coverage premiums for those 65 and older are considered to be HSA-qualifi ed medical expenses. 13 This coverage does not include premiums for Medicare supplemental policies, such as Medigap. There is a limit to how much a person can contribute to an HSA on an annual basis, but the contribution limit is higher for individuals who meet certain requirements and are age 55 and older. variable Annuities Variable annuities are long-term fi nancial products that can be used in retirement planning. Variable annuities offer the benefi cial tax-deferred treatment of earnings, meaning that no taxes are paid on the income and investment gains from an annuity until money is withdrawn. Variable annuities offer guaranteed lifetime payout options, giving a person protection against the possibility that they will outlive their assets in retirement. Some policyholders who are taking income from a variable annuity with an optional living benefi t rider may decide to use this income to help pay for long term care. Variable annuities are subject to investment risk, including possible loss of principal, and all guarantees are backed by the claims-paying ability of the issuing insurance company. Charitable remainder trusts Charitable Remainder Annuity Trusts allow a donor to provide a deferred gift of the remaining trust assets to a charitable organization at a future date. A donor can contribute a gift in the form of cash, liquid assets, appreciated stocks, bonds, or even property, to the charitable remainder trust, and obtain a current charitable deduction for the value of the remainder interest. The trust is not taxed when it sells appreciated assets or on its income, and transactions are managed by a trustee. The trust will distribute payments to the donors on an annual basis for a maximum of 20 years, or for the life of the donor. These payouts may be taxable, but can be used to pay for long term care. 12 Home equity and reverse mortgages Individuals who decide to downsize to a smaller home in retirement may want to save some of the equity from the sale to help them pay for long term care. Those who choose to stay in their homes may want to consider a loan, such as a conventional home equity loan or a reverse mortgage. A reverse mortgage is a type of home equity loan that allows the homeowner, age 62 and older, to borrow against the value of their home while still occupying the property. Tax-free cash from a reverse mortgage may be taken as a lump-sum payment, a monthly payment, or a line of credit. Money from a reverse mortgage may be used to help pay for home health aide serves or adult day care programs. The loan must be repaid when the homeowner dies or sells the home. 15 LONG TERM CARE 4

6 Summary The rising cost of long term care services can create an extreme financial burden for those who do not know how to plan accordingly for these inevitable expenses. It is beneficial for pre-retirees and retirees alike to work closely with a financial professional who has thorough knowledge of the current state of long term care costs and the resources that can be used to pay for these expenses. Financial professionals can work with their clients to determine the very best strategy for their personally unique needs, helping them to avoid the risk of outliving their retirement assets while paying for long term care. Works Cited 1. Morrisey, Janet. Preparing for Long Term Care: Any Good Options? TIME.com. [Online] February 8, article/0,8599, ,00.html. 2. GuideToLongTermCare.com. How Much Does Long Term Care Cost? [Online] U.S. Department of Health and Human Services. National Clearinghouse for Long-Term Care Information. LongTermCare.gov. [Online] LTC/Costs_Of_Care/Costs_Of_Care.aspx. 4. LongTermCare.gov. Different Kinds of Long Term Care. LongTermCare.gov. [Online] Term_Care/Services/Services.aspx. 6. Medicare.gov. Medicare Advantage (Part C). [Online] medicare-basics/medicare-benefits/part-c.aspx. 7. Centers for Medicare and Medicaid Services. Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare. [Online] Publications/Pubs/pdf/02110.pdf. 8. Medicare.gov. What is Medicaid?. [Online] April TaxAlmanac. Internal Revenue Code Sec. 7702B. Treatment of Qualified Long Term Care Insurance. [Online] April php/internal_revenue_code:sec._7702b._treatment_ of_qualified_long-term_care_insurance.pdf. 5. Medicare.gov. Medicare General Enrollment and ligibility. [Online] MedicareEligibility/Home.asp?dest=NAV Home GeneralEnrollment#TabTop. 5 LONG TERM CARE

7 10. U.S. Department of Health and Human Services. What is Long Term Care Insurance? National Clearinghouse for Long-Term Care Information. [Online] February Private_Programs/LTC_Insurance/index.aspx#WLTCI. 11. AALTCI.org. Long Term Care Protection Using Life Insurance or Annuities. American Association for Long Term Care Insurance. [Online] long-term-care-insurance/learning-center/ asset-based-ltcplanning.php. 12. LIMRA. Individual Life Combination Products Annual Review. [Online] abstracts/other/10833s.pdf. 13. U.S. Department of Revenue. IRS Publication IRS.gov. [Online] p969.pdf. 14. LawFirms.com. Charitable Remainder Annuity Trusts. [Online] U.S. Department of Health and Human Services. National Clearinghouse for Long Term Care Information. Reverse Mortgages. [Online] Reserve_Mortgages/index.aspx#hecm. LONG TERM CARE 6

8 Before investing, consider a variable annuity s investment objectives, risks, charges, and expenses. Call for a contract and fund prospectus containing this and other information. Please read it carefully. Withdrawals of taxable amounts are subject to ordinary income tax and, if taken prior to age 59½, a 10% federal tax penalty may apply. Variable annuities are subject to investment risk, including possible loss of principal. Variable annuity fees and charges include Mortality and Expense Risk fee and Administrative charge, surrender charges, annual fee, and investment option management fees. Additional fees may apply to optional benefits selected. Variable annuities are long-term tax deferred vehicles designed for retirement purposes. They offer three main benefits: tax-deferred treatment of earnings, guaranteed death benefit options, and guaranteed lifetime payout options.