Posts Tagged ‘long-term care costs’

Have You Considered Buying Long-Term Care Insurance?

JUNE 6, 2016 VOLUME 23 NUMBER 21
Spoiler alert: the cost of long-term care can be really high. One of the leading national insurance companies (Genworth USA) conducts an annual survey of the actual costs, breaking them down by state and even by major cities within each state. Genworth’s estimate of the cost of a semi-private nursing home bed in Tucson in 2016: $83,045 per year. (You can look up your own community’s figures on the Genworth website.)

That means a nursing home resident can expect to pay a little more than $225 for each day spent in the nursing home. Would it be much cheaper in an assisted living facility? Yes — about $39,900 per year, or almost $110 per day. That’s still a lot of money, and beyond most families’ ability to pay out of pocket, at least for any extended stay.

Maybe you’re thinking you can save some money by staying at home. Unfortunately, the costs of in-home care are somewhere between those two figures — and that doesn’t cover the costs of home maintenance, utilities, food and other costs incurred when you stay at home. The clear message: if you or someone you love requires long-term care, in Tucson or anywhere else in the United States, the costs will probably be high.

How likely is it that you will spend some time in a long-term care facility? According to the best estimates out there, people turning 50 this year have about a 50% chance of spending some time in long-term care. Actually, women have a significantly higher risk, at about 65%.

At least nursing home stays are usually short. The average length of a nursing home stay (nationwide) is about four months for men, and about seven months for women. That masks the reality, though, that about half of nursing home residents stay more than three years.

Many of our clients are adamant: “I’m not going to a nursing home,” some say. They insist that family will take care of them, or hint darkly that they have other plans in mind. Caring for a family member at home, though, is hard work — and may not be good for the failing family member, whose health care needs may be significant. We often remind family members that they do no favors by caring for a family member while destroying their own health or financial status.

One choice you might consider is long-term care insurance. While sales of such insurance have dropped sharply in recent years, there are about seven million Americans with policies designed to cover the costs of their long-term care. Is such a policy right for you?

You might want to talk with your insurance agent about LTCI (the nearly-ubiquitous name for long-term care insurance). You owe it to yourself to at least look into a policy, and figure out whether you can afford it — and whether you would benefit from having such coverage.

Many of the clients we talk with think they are too young to worry about LTCI. According to the industry, though, the ideal new policy purchaser is in his or her mid-50s. The cost of coverage for a healthy 55-year-old is so much lower that the total cost of insurance will be less when the purchase is made early. For a long time, the average age of new policy purchasers was about 70 — but it has more recently dropped to about 60, as consumers figure out they should be looking at the policies at younger ages.

How much will an LTCI policy cost you? The figures vary widely, based on your age at the time of purchase, where you live, how much of a benefit you purchase, and which company you sign up with. But the American Association for Long-Term Care Insurance (an industry trade group) estimates that the average cost of a new policy for a 55-year-old will be about $2,000/year. That premium figure will buy you about $150/day coverage with a 3% annual automatic inflation adjustment and three years’ worth of coverage. Note that the $150/day benefit will only cover about 2/3 of the total nursing home cost in the Tucson area; that’s not necessarily a bad thing, since you’ll probably have some other income available if you do need to be placed in long-term care.

One piece of good news: there are only a relative handful of companies offering LTCI, so you won’t have to talk with (or research) that many. In fact, there are fewer than one dozen companies writing traditional LTCI policies at a frequency that shows a serious commitment to the product.

You need to remember that, once you buy a policy, premium costs can (and do) go up. Those premium increases, though, are keyed to the entire base of participants — and not to your own health changes, or local cost movement. That has been one of the things that scares consumers off from purchasing LTCI, however.

You might ask your insurance agent about hybrid LTCI/Life Insurance policies. They usually require much bigger premiums but for a short period of time (they might, for instance, require $10,000 payments for each of five or ten years). Once the investment is made, though, you have an LTCI benefit and a life insurance policy, so that your estate will get back your investment (and a small return) even if you do not require long-term care.

The bottom line: don’t just ignore this problem. Look into what you need to do to protect against the high cost of long-term care.

“Filial Support” Laws and Nursing Home Collections

We read an interesting article today, posted on the Elder Law Prof Blog. It includes an interview with the child of a nursing home resident — the child (not the resident) was successfully sued for a portion of her mother’s nursing home bill. We thought it would be of interest to our readers, as well.

This is a topic we have discussed here (with the able help of Prof. Katherine Pearson, one of the Elder Law Professors in charge of the blog linked above). It is a worrisome issue, though we have not seen the tactic employed in Arizona.

Long-Term Care Insurance: A 2013 Update

MARCH 16, 2013 VOLUME 20 NUMBER 11
A colleague recently asked if we knew why long-term care insurance premiums might be climbing significantly in the next month or so. We didn’t, but it got us thinking about how the industry has changed over the past few years. Is it still a good idea to purchase insurance to cover possible costs of institutional or home care in the future? If so, who should be considering such policies, and what should they expect to pay?

First, the cost figures. The American Association for Long-Term Care Insurance, an industry trade group, conducts a survey of prices every year. The AALTCI’s 2013 figures were released, as it happens, this month. The short version: long-term care insurance costs have risen significantly in the past year. They calculate, for instance, that a 55-year old buying a typical policy might expect to pay $2,065 per year in premiums; the same policy last year would have cost $1,720. That’s about a 20% increase in cost, during a year where the general cost of living increased at something more like 2%.

Of course, your mileage may vary. If you are older or younger, married rather than single, or purchase a “richer” policy or one with less coverage, you might see a greater or lesser increase. But there’s no doubt that the cost of long-term care insurance has increased in the past year, continuing a trend of the past several years. Jane Bryant Quinn, a leading columnist for AARP Magazine, last year reported that premiums were up as much as 50% over the preceding five-year period.

More significant, perhaps, is the problem of a contracting market. Both buyers and insurance companies are leaving the long-term care insurance marketplace (though the number of new policies has rebounded somewhat since the economic downturn of five years ago).

So what’s happening to the marketplace? Historically low interest rates have the perverse effect of increasing insurance costs (since insurance companies are investing your premium dollars in order to generate income to pay future claims, costs of administration and profits). Life expectancies continue to increase, and uncertainty about the length of a policy-holder’s life makes actuaries a little twitchy — and conservative. Medical advances introduce the possibility of cures for some of the diseases that cut life expectancies short — and create the paradoxical possibility of extended nursing home stays. And, surprisingly, existing policyholders are not dropping their policies at the rate predicted years ago — meaning that more claims are being made on older policies than insurance companies anticipated. While most insurance products experience a “lapse” rate of about 5%, the figure for long-term care insurance is more like 1%. In short, the long-term care insurance industry is in trouble.

That might mean that long-term care insurance is more expensive, or harder to locate, but it doesn’t necessarily mean that consumers should avoid the product. The cost of long-term care can easily exceed $100,000 per year in a nursing home or in home care (in fact, home care is often more expensive than institutional placement).

It is, of course, impossible to predict which potential buyers will need long-term care insurance. But there are some generalizations about the purchasers of LTCI policies that might give some guidance — if only on the theory that the marketplace is wiser than individual buyers. Here are some observations about typical buyers and policies, drawn from the American Association for Long-Term Care Insurance reports and financial writers over the past few years:

  • The average age of new LTCI policy purchasers is dropping. Twenty years ago it was almost 70. Today it is below 60 (it was 59 in 2010-2011, according to America’s Health Insurance Plans, an insurance industry trade group).
  • Not too surprisingly, wealthier people buy more policies. The AHIP study reports that more than half of policies are purchased by people with incomes over $75,000 per year; more than three-quarters of all policies are owned by people with liquid assets of more than $100,000.
  • There is a correlation between education levels and policy purchases. Nearly three-quarters of long-term care insurance buyers are college-educated. For comparison purposes: about a quarter of all those over age 50 have college degrees.
  • Women and men buy long-term care insurance policies at rates almost exactly equal to their respective shares of the over-50 population. Married people buy policies at a slightly higher rate than their representation in the age group, and divorced, separated and widowed seniors are much less likely to purchase policies.
  • One of the significant drivers of cost of a particular LTCI policy: inflation protection. About three-quarters of policies sold in  recent years include a provision for automatic increases in coverage — most of those provide for about a 3%/year increase, down from the 5%/year that was more common twenty years ago.
  • In 1990 nearly two-thirds of LTCI policies covered nursing home or institutional care only. Today almost all policies (95%) cover both nursing home and home care. But more than half of the more modern policies will still be exhausted if the buyer spends four years in a nursing home.

Does all this mean that you don’t have to worry about long-term care costs unless you are age 59, college-educated and earning an income of $75,000 or more? Of course not. In fact, it may be more important that you shop for insurance if you are younger and more solidly middle-class (as judged by your income and assets). You might have more to lose, and a harder time paying for nursing care you might end up needing. We urge you to talk with an insurance salesperson about long-term care coverage.

“Filial Support” Laws: Making Children Pay for Their Parents’ Nursing Home

JULY 30, 2012 VOLUME 19 NUMBER 29
When your parents go to the nursing home, could you be liable for their bills? That may seem unlikely, but as the country’s leading authority on the subject (Prof. Katherine Pearson from the Dickinson School of Law at Pennsylvania State University) notes, there are laws on the books in many states which could make children pay for their indigent parents’ care. Prof. Pearson guest-authored this week’s Elder Law Issues, and she explains the problem and trends:

The latest controversial effort to reduce public costs for long term care may come not from the budget cutters at state and federal offices for Medicare or Medicaid, but from nursing homes, assisted living facilities or personal care homes. Pennsylvania is the proving ground for the test – and other states are watching.

Over the course of several years, nursing homes have increasingly turned to Pennsylvania’s filial support law as a tool to compel children to either help a parent qualify for Medicaid — or be at risk of paying for the parent’s bills out of their own pockets. Pennsylvania’s provision dates to colonial times, but a 2005 transfer from the welfare laws to the domestic relations code increased its visibility. The law provides that a child has the “responsibility to care for and maintain or financially assist” a parent, if the parent is deemed “indigent.” The statute does not define the term, but case law has given it a practical meaning by holding a parent is indigent if he or she does not have sufficient means to pay for care.

Occasionally a suit is brought by a needy parent against a child. In 1994, in the case of Savoy v. Savoy, an uninsured mother who had $10,000 in unpaid medical expenses sued her son. The result: a modest award of $125 per month, perhaps more significant for its symbolic value than for the economic effect in the case itself.

Since then, a series of cases and decisions has expanded the importance of the law in Pennsylvania. The latest case was decided by an intermediate appellate court in May, 2012. In Health Care & Retirement Corporation of America vs. Pittas, the Pennsylvania Superior Court affirmed a trial court award of more than $92,000 against the son of a woman who had received six months of care at a facility. The son raised several challenges to the trial court ruling, including the argument his mother could not be deemed “indigent” because she had modest monthly income of $1100. The son argued this income, plus her husband’s retirement income, was enough for the couple if they had not had the auto accident that led to hospitalization and extraordinary costs for her subsequent care in a nursing home. The court rejected the argument and repeatedly cited the “plain language” of the statute as the reason for the harsh result.

The son also argued unsuccessfully that he could not be held solely liable because other family members had not been sued. While the court said it was “sympathetic with the [son’s] obligation to support his mother without the assistance of his mother’s husband or her other children,” it was up to the son to join those individuals in the case if he wanted proportionate relief. The court also rejected the son’s argument that the suit should be stayed or set aside because of a pending Medicaid application, noting that any successful award could reduce his liability. In fact, although not acknowledged in the opinion, the Medicaid application had been denied, apparently because of questions raised during the application process, and the time for appeal had lapsed.

The Pittas opinion is significant because, unlike prior court rulings such as the 2005 ruling in Presbyterian Medical Center v. Budd, the court made no findings that the family had engaged in transfers or other unsuccessful efforts to avoid Medicaid eligibility rules. The court found the son’s claim of “inability” to pay for his mother’s care to be lacking in credibility, noting he had at least $85,000 in net annual income. But the court did not suggest the son was at “fault” for his mother’s indigent status. This was not a case where liability was tied to a family member’s efforts to divert assets.

Could a Pittas-style filial support ruling be coming soon to a state court near you? The answer is already “yes” in South Dakota. In 1994 and again in 1998, South Dakota appellate courts used South Dakota’s filial support law to enforce liability against adult children for health care or long-term care expenses of a parent. However, in those cases, it appears the rulings were tied to attempts to divert or hide the parent’s assets. According to news reports, some states, such as North Dakota, have already expressed interest in the Pittas ruling. Another state, Idaho, went the opposite direction in 2011 by repealing its filial support law entirely, citing the potential for confusion for families with nursing home costs.

Approximately 28 states have some type of civil or criminal filial support law on their books, although the enforceability of many of the state laws have been blocked or limited because of state rules on Medicaid. In most states filial support laws have been largely ignored in recent years. Pennsylvania is one of the few states that expressly provides for suits by care facilities or similar third-parties. The Pennsylvania statute permits a petition to be filed by the indigent person “or any other person . . . having any interest in the care, maintenance or assistance of such indigent person.”

Filial support laws carry various labels, with modern terms tending to suggest moral overtones that emphasize a family’s obligation to share “responsibility” for care. States seeking to provide nursing homes with collection tools that reduce the need for Medicaid may seek to follow the Pennsylvania route to a new frontier. The 2005 transfer of the filial support statute to the domestic relations code was rushed through the Pennsylvania legislature quickly and packaged with a cost-savings statute that tightened the state’s rules for Medicaid eligibility. Interested persons in other states will want to keep their eyes open.

Interested in the area, or wondering what your state’s laws might be with regard to filial support? For a more expansive discussion of such laws, including the roles they play in other countries, see Prof. Pearson’s recent article: “Filial Support Laws in the Modern Era.” As Prof. Pearson notes, these laws are sometimes described in terms of filial “responsibility” — as long ago as 1995 we wrote about an attempt to extend “family responsibility” laws by federal action (it came to nothing, as it turned out), and we have described individual cases attempting to impose filial support concepts before. The trend Prof. Pearson describes, however, could go well beyond previous attempts to hold children liable for their parents’ long-term care costs.

Helping Care for Your Relative Provides Income Tax Benefits

APRIL 9, 2012 VOLUME 19 NUMBER 14
Federal and Arizona state income tax returns are due next week. It’s a good time to review tax deductions for one of the common situations we deal with: in-home (or, for that matter, institutional) caregiving for an infirm family member.

We wrote about an individual case involving long-term care deductions last fall. In that case no returns had been filed, so the taxpayer was playing catch-up — but the U.S. Tax Court agreed that she could deduct the expenses of in-home caregivers. The Court articulated a three-item test to determine whether the taxpayer was a “chronically ill” individual; once she had met any one test, the taxpayer could deduct her medical expenses, including the caregivers.

But what if the caretaking expenses had been paid by someone other than the taxpayer herself? If, for example, she had lived with her adult daughter and the daughter had paid for caretakers to come to the home?

In such a case the daughter should be able to deduct the expenses of care — provided that the patient is a “dependent.” That requires the taxpayer using the deduction to have provided more than half of the patient’s support, and is only available if the patient is a relative OR lived with the taxpayer.

The details about deducting medical expenses for a relative or someone who lives with you are spelled out in IRS Publication 502. Don’t fret about the official-sounding title — it’s actually straightforward and understandable. It also explains exactly what the IRS is looking for when you deduct your own OR a dependent’s medical expenses, and what documentation you will need to provide (or maintain in case you are challenged).

Of course the medical deductions only affect your federal income tax to the extent that they total more than 7.5% of your Adjusted Gross Income (AGI). For many people that limitation is hard to meet. Anyone paying for in-home caregivers, though, is likely to have gotten near to or exceeded the 7.5% threshold.

What about listing a relative (other than your minor children) as a dependent on your own tax returns? Is it possible that the daughter in our earlier scenario might be able to list her mother as a depedent if the mother lives in her home? For that matter, can she list her mother as a dependent if she lives in a nursing home or assisted living facility, but the daughter pays the bill?

The short answer in both cases is “yes.” A parent can be a dependent. That can mean, as described above, that their medical expenses may be listed as deductions on your return — but it also leads to a more direct benefit. If you can list your parent (or another relative) as a dependent, you can get an additional exemption — which reduces your taxable income even before looking for eligible deductions like medical expenses.

Can your parent be your dependent? Yes, but the requirements can be a little complicated. First, they must EITHER be a “qualifying relative” (pretty much any kind of relative you can name, including stepchildren and foster children) OR live with you. In addition, they may not have more than $3,700 (in 2011) of their own income. You must also provide at least half of their support. There are limited exceptions to some of those rules, but that’s the basic test for determining whether you can claim a parent or another person as a dependent. NOTE: these rules are not the same as the ones determining whether you can claim your minor children as dependents — THOSE rules can be much more detailed and complicated.

How can you figure out if you meet all the tests (and their exceptions)? You may not be surprised to learn that the IRS has a Publication to explain that. It is IRS Publication 501, and (just like the earlier Publication we mentioned) it is actually helpful and understandable information.

Can you get a direct credit for the caretaking services you provided for your mother yourself last year? Generally, no — and if you think about it that shouldn’t be too surprising. If you could deduct the value of those services, you would need to claim a similar amount as “income.” But that doesn’t mean that there is no tax benefit to having provided those services. First, they will help you establish that you have provided more than half the support necessary for your parent or family member. Second, you might be eligible to deduct expenses (but not the value of your caregiving) for a dependent. Look at IRS Form 2441 for Child and Dependent Care Expenses; the separate instructions for Form 2441 are (wait for it) straightforward and understandable.

Summing up: taking care of a relative (or someone who lives with you, even if they are not a relative) may be personally and emotionally rewarding. It will not usually be profitable. At least, though, there are some slight tax benefits for those who undertake what is usually a labor of love. Make sure you claim deductions and exemptions you are entitled to by virtue of your caregiving services.

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