ON OUR OWN: Planning & Paying for Long-term Care in Minnesota

1. ON OUR OWN: Planning & Paying for Long-term Care in Minnesota • Tina Armstrong, Director of Health Policy • MN Department of Commerce • Kelli Jo Greiner, Team Lead • MN Board on Aging Consumer Choices Team Age and Disabilities Odyssey June 20, 2011 1:30-2:45 Mayo B

2. Plan Well to Age Well in Minnesota Kelli Jo Greiner MN Board on Aging

3. What is long-term care? • Mostly non-medical care • For persons of all ages with chronic illnesses or disabilities • Typically helps people with activities of daily living like dressing, bathing, and using the bathroom • Provided in home, nursing home, assisted living facility, etc.

4. Pressures on LTC system • Baby Boom + medical advances → Aging of population • Lower worker-to-retiree ratio → Lower tax collections, higher expenditures • Caregiver shortage → Higher cost of care • Families are smaller and spread out → Less informal care provided by children

5. Federal Business Drivers • Messages coming out of federal government • Reduce fiscal pressure on Medicaid and Medicare • Increasing need to explain and manage health insurance options • CMS is placing a bigger emphasis on diversion and community living • CMS is starting new efforts focused on improving care transitions between hospitals, NHs and community

6. Consumer Facts • Information for consumers is often not accessible and too high of a literacy level • People who need help, don’t self identify • There are many “sources” of information and assistance but not all are neutral • Generation Xr’s and Millenials have high demands for technology and we are not prepared as they move into the role of caregiver

7. Information About LTC • Media presents negative views • Other information sources • Information clutter is a problem • “Experience” is the best teacher

8. LTC Cost as an Issue • Growing awareness of LTC costs • People have more accurate sense of LTC costs • Many still think “It won’t happen to me” • People perceive LTC insurance as “too expensive” • Some feel “stuck” between high costs of care and high costs of “planning”

9. Elderly group will increase

10. The Motivators to Plan for LTC • Demographic changes • Pressures on LTC system • Increasing costs • Medicare does not pay • Medical Assistance is the safety net • Self-determination, self control, self directed

11. Why plan now? • Peace of mind--reduces fear and worry • More choices and options are likely • Increases likelihood your goals and wishes will be known and followed • Reduces burden for others who will need to carry-on • Reduces potential for misunderstandings and conflict

12. Who doesn’t pay for most LTC? • Medicare pays for VERY LITTLE of LTC services • Home Health Care • Must receive intermittent skilled care definition • Must be homebound • Does not cover 24 hour care • Must use Medicare certified provider • Physician must certify need • Coverage (if qualify) • $0 deductible • $0 coinsurance

13. Who doesn’t pay for most LTC? • Skilled Nursing Facility (SNF) • Must have 3 day hospital stay prior to admission (some Medicare Advantage plans do not require) • Must enter SNF within 30 days of hospital discharge • Must receive daily skilled services or rehab 5X or more per week • Physicianmust certify need for skilled placement • Coverage (if qualify) per benefit period • Days 1-20 (Medicare pays 100%) • 21-100 (Medicare beneficiary must pay coinsurance of $137.50 per day) NOTE: Less than 8% of all Minnesota SNF care is covered by Medicare

14. Who doesn’t pay for long-term care? • Private Health Insurance • Similar Requirements to Medicare • Cannot be Custodial Care • Benefit Limits

15. Who does pay for long term care? • Income and life savings of elders and family members • Sell home and use equity • Unpaid family caregivers provide majority of long term care (3/4ths) • Working caregivers spend an average of 22 hours a week providing elder care • Caregiving responsibilities can last 8-10 years • Working caregivers lose an average of $650,000 in lost wages, lost Social Security benefits, and lost pension contributions.

16. Who pays for long term care? • Medical Assistance is a critical safety net • A need-based state/federally funded program which does pay for home, community, and skilled nursing care • Critical to understand income and asset rules • “Healthy” spouses are protected from poverty

17. Who pays for LTC? Source: www.longtermcare.gov, 2010

18. Why plan for long-term care? • We are all at risk • Percent of persons 65+ who will need some LTC: 70% (www.longtermcare.gov) • Average length of care: 3 years (www.longtermcare.gov) • Average projected lifetime cost for a healthy 55 year old: $162,000 in current dollars (www.medicare.gov)

19. Understand Financing Alternatives and Consequences • There is no one financial answer or solution • Options and choices typically decrease with age and increased risk • What was may no longer be . . .change is a given. • Consider the consequences of “doing nothing”

20. Minnesota Average Annual Care Costs in 2011

21. Overview of Options to Pay for Long-term Care

22. Once you have read one long-term care policy, you’ve read one long-term care policy!

23. Option 1 and 2 Long Term Care Insurance and LTC Partnership Policies Tina Armstrong MN Dept of Commerce

24. Criteria for Benefits • Typically Pays Benefits when: • Unable to Perform 2 of 6 “Activities of Daily Living” Eating Bathing Toileting Dressing Transferring Continence OR • Severe cognitive impairment

25. Features and Benefits • Covered Services • Benefit amounts • Inflation protection • Nonforfeiture provisions • Elimination period • Optional Coverage Features

26. Covered Services • “Facility Care Only” or “Home Health Care Only” or “Comprehensive” policy • Comprehensive policy includes: Nursing home Assisted living Home care Adult day care Respite care Hospice care Supportive services

27. Daily Benefit • Choice of daily benefit amount for facility care • Consider Average costs in your area • Choose home care benefit amount • Can be specific dollar amount or a percentage of the facility care amount (e.g., 50%, 75% or 100%) • Consumer preference and affordability are important factors in choosing

28. Weekly or Monthly Benefit • Less Common for policies to have weekly or monthly maximums • More flexibility to cover high expenses on days when no family care is available

29. Example (continued) Policy A Daily Benefit • Policy A pays home care expenses up to $60/day • Policy A pays Leo $300 for the week of care ($60 x 5 days) • He has an additional $100 of expenses that the policy will not cover Policy B Weekly Benefit • Policy B pays home care expenses up to weekly maximum of $420 ($60/day x 7 days/week) • Policy B reimburses all of Leo’s costs of $400 because he has not reached his weekly maximum of $420

30. Lifetime Coverage Amounts • Buyer selects lifetime maximum they prefer • Most policies have a “pool of dollars” approach • Some older policies count “days of care” • Most policies have a single maximum for all covered services • Some older policies have separate maximums for facility care vs. home care • Some benefits may also have specific limits (e.g., home modification or caregiver training)

31. Pool of Dollars Maximum • You decide how to use your benefits when you need care • Can use all of it for home care or all for nursing home or any combination you prefer • Pool of dollars approach lets you stretch how long benefits last

32. Calculation of Lifetime Max • Most frequently calculated in terms of years • Nursing home daily benefit x 365 days per year x number of years selected • Examples: $100/day x 365 x 3 years = $109,500 $100/day x 365 x 5 years = $182,500

33. How Long Will Benefits Last? • Depends on type, amount and frequency of care you receive • Benefits last longer if you do not need care every day or if care costs less than the allowable benefit amount

34. Example • Policy pays: • $100 per day nursing home care • $100 per day assisted living facility • $50 per day home care • Lasts 3 years if you receive all your care in nursing home every day at $100/day • Lasts 3 years if you receive all your care in assisted living facility every day at $100/day • Lasts 6 years if you receive all your care at home every day at $50/day

35. Lifetime/Unlimited Coverage • Most companies offer an “unlimited” or lifetime coverage option • Benefits last as long as you need care • No overall dollar limit, but daily limits still apply • Many people like “lifetime coverage” since they cannot “run out” of benefits if they need care for a long time • Costs more

36. Benefit Payment Method • Reimbursement – Policy pays 100% of LTC expenses up to a pre-set amount you choose • Indemnity – Policy pays a pre-set amount each day you have LTC expenses even if your expenses are less than that • Disability – Some policies pay “cash” for each day you are disabled, even if you do not incur any LTC expenses • You decide how to spend that money

37. Example Payment each Method Marie is in nursing home that costs $120/day • Reimbursement policy pays her actual expenses up to $150/day • Policy pays $120 for Marie’s nursing home care • Indemnity policy pays $150/day • Policy pays fixed amount, so pays Marie $150/day • Disability policy pays Marie $150 per day • Marie decides to move out of the nursing home after 3 days and live with her daughter • Marie continues to receive $150 per day from her policy even though she is not incurring any LTC expenses and is receiving care from her family

38. Inflation Protection • Important for benefits to keep pace with rising costs • Nationally, LTC costs are rising at 4% per year • All LTC plans must offer 5% compound inflation protection • Applicant must sign a statement rejecting it if he/she does not want it

39. Inflation Protection Additional Choices • Compound vs. Simple • Fixed (3%, 5%) vs. Variable (CPI) • Automatic vs. Future Purchase Option • Other Schedules

40. Compound Inflation Protection • Costs the most initially, but provides best hedge against inflation • Can be more affordable in the long-run • Policies offer 5% annual coverage increase • Increases continue throughout the interval of coverage • All coverage amounts increase (daily amounts and lifetime amounts)

41. Example: Compound Inflation Year Daily Benefit Lifetime Maximum* 1 $130 $ 142,350 5 $158 $ 173,010 10 $202 $ 221,190 15 $258 $ 282,510 20 $329 $ 360,255 Rule of Thumb: benefits almost double every 15 years *Based on a 3-year policy, assuming no benefits have been paid out

42. Simple Inflation Protection • Similar to compound, except increase is the same each year – flat dollar amount • 5% simply means 5% of the original benefit amount • Benefits increase but premium does not change as a result

43. Simple Inflation Protection • Continues for life of the policy (even while receiving benefits) • Costs less than compound because benefits increase more slowly • In the long-run, does not keep pace with inflation as well as compound inflation protection

44. Example: Simple Inflation Year Daily Benefit Lifetime Maximum* 1 $130 $142,350 5 $156 $170,820 10 $188 $205,860 15 $221 $241,995 20 $253 $277,035 *Based on a 3-year policy, assuming no benefits have been paid out

45. Comparison – Daily Benefits Compound Inflation Year 1 = $130 Year 5 = $158 Year 10 = $202 Year 15 = $258 Year 20 = $329 Simple Inflation Year 1 = $130 Year 5 = $156 Year 10 = $188 Year 15 = $221 Year 20 = $253

46. How FPO Works • Able to buy additional coverage amounts every few years, without evidence of good health • Premium for the additional coverage is based on your age at the time you accept the added benefits • Additional amount may be based on consumer price index (CPI) or 5% annual increase from the last offer

47. How FPO Works (continued) • Offers may continue while you receive benefits, but usually they end once you go on claim • You can usually “skip” some of the offers and still take others • Offers may also end if you decline two of them

48. Automatic vs. Future Purchase

49. Inflation Protection Considerations • Do not just ignore the issue • Compare how the inflation choices work and what they cost • Younger people are more likely to want compound inflation protection • Older people may consider less expensive inflation approaches • Important to be aware of the “pros” and “cons” of each option

50. Nonforfeiture Option (NFO) • All insurers are required to offer NFO to: • the group policyholder (e.g., employer or association) • applicants of individual policies • Provides continuation of coverage, on limited basis, if you stop paying premiums and let coverage lapse • The benefit becomes effective no later than 3-years after the effective date of the rider • Most provide coverage equal to 30x the daily benefit amount or 100% of premiums paid (minus claims) at the time of lapse (whichever is greater)