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Notes from Wendy A. Craig, P.A.

June 2006


Upcoming speaking engagements:

  • Elder Care in North Carolina: Resolving Legal and Financial Issues, June 22, 2006, continuing legal education presented in Asheville, NC.
  • “The Lateston Legal Issues for the Elderly” at the Ninth Annual Alzheimer’s Conference, “creating a Family Quilt: A Cross-Cultural Approach to Alzheimer’s Disease,” sponsored by the Black Mountain Center Foundation at Blue Ridge Assembly in Black Mountain on August 11, 2006.
  • The North Carolina Bar Association’s seminar “Basics of Elder Law” for attorneys on the topics of Medicare, Veterans Benefits and Long-Term Care Insurance as sources of payment for long-term care on October 12, 2006.



QUESTION & ANSWER CORNER

My husband and I are considering purchasing long-term care insurance. Is this necessary? Can you help us understand the policies?

Long-term care insurance is a baffling topic for many. Without knowing your particular circumstances, I can’t advise you on which products may be most advantageous. But, I can offer you some general information.

What is it? Long-term care insurance is an insurance policy that will pay benefits to the insured upon the occurrence of certain “triggering events.” Usually, benefits under the policy are triggered when (i) the insured begins receiving home care or care in a skilled nursing or assisted living facility and (ii) such care is required due to insured’s need for assistance with at least two activities of daily living or due to cognitive impairment. Activities of daily living are dressing, feeding, toileting, transferring, bathing and continence.

Who needs it? The simple answer is that most of the members of our community age 50 or above should at least consider purchasing long-term care insurance. A semi-private room in a skilled nursing facility in our community may easily cost as much as $5,000 - $6,000 per month, or up to $72,000 in a year. And that amount only pays for room and board. This significant expense quickly depletes most estates.

For the larger estate, long-term care insurance can be the “mote around the castle” that protects all of the careful financial and estate planning that’s been accomplished by insuring that assets will not be depleted on long-term care. For the smaller estate, long-term care insurance can be the difference between the “privilege” of Medicaid eligibility for long-term care and saving the family home. However, long-term care insurance for such estates may not be appropriate unless the premiums can be paid out of disposable income without changing lifestyle. Because long-term care insurance can be cost-prohibitive for the smaller estate, particularly for retirees on a fixed income, adult children frequently pay the premiums for such policies for their parents in order to protect the family assets, particularly if highly appreciated real property is involved.

Is this a good policy? You should consider the following factors when evaluating a long-term care policy:

  • Company – ALWAYS check the credit rating of the company offering the policy. Regardless of the “bells and whistles” the policy may offer, the policy is only as good as the company’s ability to pay any potential claims. You can check the credit rating of insurance companies on the web at www.standardandpoors.com.
  • Coverage – We see lots of policies that cover only care in a skilled nursing or assisted living facility. Most people prefer to receive care in their homes. Since none of us has a crystal ball, we recommend that clients purchase a comprehensive policy that covers home care, adult day care, assisted living and skilled nursing care.
  • Daily Benefit – Your “daily benefit” is that amount that your policy will pay to you for home care, adult day care, assisted living or nursing home care. You should base your daily benefit amount on the most expensive of these options – nursing home care (although home care may be more expensive, most people do not receive 24-hour home care). If we assume that the daily rate for a semiprivate room in skilled care is $165/day,then your daily benefit amount should be $165 less that amount that you can pay from your income for your care without impacting your lifestyle or that of your spouse.
  • Benefit Period – The “benefit period” defines how long your policy will pay benefits. Often, this is expressed in terms of a maximum dollar amount that the policy will pay. So, a policy with a daily benefit of $150 and a lifetime maximum of $164,250 would provide three years of nursing home coverage at that level. Because nursing homes care for the frailest and sickest of our seniors, the typical nursing home stay is less than two years. However, for the dementia patients, long-term care may extend for years. We have typically recommended policies with a three year benefit period because the Medicaid “lookback” period has been 36 months. The Deficit Reduction Act of 2005 extended this lookback period to 60 months, which may mean that we will begin to see longer benefit periods for long-term care policies. Lifetime benefit periods are more expensive and are generally not necessary other than as a peace of mind measure.
  • Elimination Period – The “elimination period” is the number of days that you must receive care that would otherwise be covered under your policy before your policy begins to pay benefits. We typically see a 90-day elimination period for nursing facility benefits because this period of care may be covered by a Medicare supplement policy. Please note that adult day care and assisted living care will not be eligible for coverage under a Medicare supplement policy and that there is very limited coverage under Medicare for home care. Therefore, depending on your circumstances, a zero elimination period may be appropriate for home care, while a 90 elimination period may be sufficient for skilled nursing care.
  • Inflation Protection – We know that the expense for medical care is growing at a rate that exceeds the general inflation rate. Therefore, purchasing a policy that fixes the daily benefit amount leaves your estate vulnerable to the increasing costs of nursing care. Particularly for those purchasers in their sixties, we advise a compound inflation rider that increases the daily benefit amount annually. Depending on the circumstances, the older purchaser may include a simple inflation rider or may purchase a higher daily benefit with no inflation rider.

Even with the outline above, long-term care insurance is a difficult topic. Too often, long-term care insurance is evaluated as an investment product and found lacking by financial planners. Measured against other investment products, long-term care insurance may not provide the estate with a return that competes with life insurance or market investments. But for the surviving spouse with a significant estate, long-term care insurance may provide the peace of mind of knowing that her care will not financially, physically or emotionally burden her children, that her care will not “un-do” her husband’s careful financial planning or eliminate opportunities for her children or grandchildren, that she can exert some control today over things that may happen tomorrow. For the later second marriage, long-term care insurance may maintain the separation of the assets of each spouse. For the more modest estate, long-term care insurance may eliminate the painful task of taking apart mom and dad’s estate in order to fund dad’s care in the nursing home. In each of these circumstances, long-term care insurance defies mathematics to quantify the value provided.

The above discussion is provided as general information only and does not constitute legal or investment advice. Please consult your attorney or financial advisor to evaluate any long-term care insurance product you are considering.




ANNOUNCEMENTS

  • Wendy has been appointed as Chair of the Elder Law Section of the North Carolina Bar Association for the 2006-2007 year. She has served as Vice Chair of the Sections since late last year.
  • Wendy has been writing a monthly article for the Black Mountain News since March of this year. These articles focus on issues of particular importance to seniors. Upcoming articles will focus on the use of revocable living trusts and charitable giving techniques.
  • SUMMER OFFICE HOURS:

For the summer months, our office will be closed on Fridays. We expect to resume our usual 9 am – noon schedule for Fridays when Buncombe County schools resume for the fall.

  • Please note that our FAX NUMBER changed when we moved into our new office last July. Our new fax number is 669-0055. We are still receiving a number of faxes at our old number. For your privacy and for a quicker response from our office, please send correspondence to the new fax number!



LEGISLATIVE UPDATE

In our December newsletter, we alerted our readers to the Medicaid changes contemplated by the Deficit Reduction Act of 2005 (“DRA”). Unfortunately, regardless of the opposition of the Democratic party, AARP and NAELA, President Bush signed DRA into law on February 8, 2006.

DRA made significant changes to the Medicaid program for nursing home care. Most significantly, DRA does the following:

  • Increases the “lookback”period from 36 months to 60 months for all applications;
  • Requires residents in continuing care retirement communities to use all assets declared on their entrance application to pay for their care prior to applying for Medicaid benefits;
  • “Stays” any penalty periods created by transfers of assets (including church pledges, birthday gifts, tuition payments, etc.) so that such penalties do not begin to run until the Medicaid applicant otherwise eligible for Medicaid (e.g., Grandmother pays college tuition of $20,000 for grandson and then 4 years later has a stroke and requires nursing home care. The 4 month period of ineligibility for Medicaid benefits created by the $20,000 transfer will not begin until Grandmother has less than $2,000 in assets and is in the nursing home. Grandmother would have no assets to pay for her care and would be ineligible for Medicaid benefits.)

To date, DRA has NOT been implemented in North Carolina. The Elder Law Section of the North Carolina Bar Association is carefully watching and critiquing the legislation currently being considered by our General Assembly that would make DRA effective in our state. At this point, it looks as if DRA will be effective in North Carolina later this fall. It is unclear if DRA will impact any transfers made before such date.

We also previously alerted our readers to the estate recovery legislation passed by our General Assembly last summer. The North Carolina General Assembly adopted legislation last summer that would permit the state to impose pre-death Medicaid liens against the real property of recipients of Medicaid for long-term care. Largely through the efforts of our North Carolina Chapter of NAELA (National Academy of Elder Law Attorneys), we expect this legislation to be repealed during the current session of the General Assembly! Our office was very active in this effort!

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Wendy A. Craig

Wendy A. Craig, P.A.
Concentrating in Elder Law for Western North Carolina

207 East State Street, Black Mountain, NC 28711
828-669-0799 (Voice) • 828-669-0055 (Fax)

E-Mail Address: Email Me


© 2006 - Wendy A. Craig, P.A.
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