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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 OdysseyJune 20, 2011
1:30-2:45
Mayo B
Plan Well to Age Well in Minnesota
Kelli Jo Greiner
MN Board on Aging
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.
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
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
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
Information About LTC
• Media presents negative views• Other information sources• Information clutter is a
problem• “Experience” is the best
teacher
7
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”
8
Minnesota's Older Population by Age Group
65-74
75-84
85+
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
2000 2010 2020 2030 2040 2050
(Source: Minnesota State Demographer's Office, 1997)
Elderly group will increase
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
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
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
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
Physician must 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
Who doesn’t pay for long-term care?
Private Health Insurance Similar Requirements to Medicare
Cannot be Custodial Care Benefit Limits
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.
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
Who pays for LTC?
Source: www.longtermcare.gov, 2010
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)
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”
Minnesota Average Annual Care Costs in 2011
Source: 2011 Genworth Cost of Care LTC Survey Annual Monthly
Nursing Home Private Room $76,796 $6,400
Nursing Home Semi-Private Room $67,583 $5,632
Assisted Living Facility $37,200 $3,100
Adult Day Health Care Facility $17,050 $1,421
Home Health Aide (44 hours per week) $58,916 $4,910
Homemaker Services (8 hours a day, 5 days a week)
$50,336 $4,195
Overview of Options to Pay for Long-term Care
21
Home Equity
Life Insurance
LTC Annuities
Trusts
Assets/ Income
Other
Reverse Mortgage *†
Accelerated Death Benefits ‡
Deferred*† Medicaid Disability Trusts*‡
Self Pay*
CCRC†
Reverse Annuity Mortgage*†
Life Settlements †
Immediate *‡
Charitable Remainder Trusts*
Medicaid Estate Planning*
Sell Home* Viatical Settlements ‡
Special Purpose Loans*
Leaseback* Limited Pay/LTC Policies
* Does not require health screening † Appropriate for older adults ‡ Option for those in poor health
Once you have read one long-term care policy, you’ve read one long-term care policy!
22
Option 1 and 2
Long Term Care Insurance and LTC Partnership Policies
Tina Armstrong
MN Dept of Commerce
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
Features and Benefits• Covered Services• Benefit amounts• Inflation protection• Nonforfeiture provisions• Elimination period• Optional Coverage Features
25
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 careRespite care Hospice careSupportive services
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
27
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
28
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
29
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
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
36
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
37
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
Inflation Protection
Additional Choices
Compound vs. Simple
Fixed (3%, 5%) vs. Variable (CPI)
Automatic vs. Future Purchase Option
Other Schedules
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)
40
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
41
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
42
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
43
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
44
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
45
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
46
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
47
Automatic vs. Future PurchaseAutomatic Inflation Protection
Future Purchase Option
How much will coverage increase?
5% per year compounded
5% - 15% or an amount based on CPI
How often will coverage increase?
Yearly, automatic increases
Usually every 2 or 3 years
Do premiums increase as coverage increases?
Generally No Yes
When will coverage increases end?
Continues for the life of the coverage
When you start to receive benefits, or after declining two upgrade offers
48
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
49
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)
50
Contingent Nonforfeiture
• Included at no charge in newer policies• Provides coverage on limited basis if you drop
coverage due to a “substantial rate increase” you decide you cannot afford and/or lapse policy
• Policy defines “substantial increase” based on age • Provide coverage equal to 30x the daily benefit
amount or 100% of premiums paid (minus claims) at the time of lapse (whichever is greater)
51
Comparison
52
Nonforfeiture Contingent Nonforfeiture
Can be triggered by the policyholder anytime after 3 years
Can be triggered only if there is a substantial rate increase
Available at an additional cost
Built into the policy for no additional cost
Provides 30x the daily benefit or 100% of premiums
Same
There is no built in right to reduce benefits
Right to reduce benefits so that premium payments are not increased
Nonforfeiture Considerations
• How much does NFO add to premium?• Does policy have contingent nonforfeiture?• How much coverage do these provide?
– Coverage amounts are limited (about one month’s worth of care)
– May help with “transition care” but limited• Does policy have other protections like the right to
decrease coverage anytime?
53
Waiting/Elimination Period
# of Days paid by policyholder before benefits are paid under the Policy
Choices range from 0 to 365 days Like a deductible for other insurance but
satisfied in “days” not “dollars” like your auto deductible
54
Elimination Period (continued)
• Number of days before benefits begin• Usually days do not have to be consecutive• Deductible may be “once per lifetime” or “per
episode”• Most people choose 0 day, 60 day, or 90 day• Many policies do not apply the deductible period
to respite or hospice care
55
Service Day vs. Calendar Day
• Service Day – counts any day on which you receive a covered service
• Calendar Day – counts any day on which you are disabled (need help with ADLs or have cognitive loss) even if you do not receive any paid service or care
• May have little or no out-of-pocket expenses with “calendar day” approach
• Some out-of-pocket expenses with “service day” approach but amount hard to predict
56
Elimination Period Considerations
• Longer elimination period provides premium savings• How do you feel about paying some initial costs of
care on your own?• Does having a longer deductible allow you to afford
more coverage on some other important feature?• What amount of initial expense can you afford?• How “easy” is it to pay for care during the
elimination period?• What services do not require a elimination period to
be met?57
Other Optional Coverage Features
• Shared Care Benefit• Return of Premium
Benefit• Bed Reservation• Caregiver Training• Hospice Care• Respite Care
• Waiver of Premium• Restoration of
Benefits
58
59
Typical “Uninsurable Conditions”• Current or recent use of LTC services• Need help with ADLs• Height and weight outside acceptable ranges• Have any of the following conditions:
– Organic Brain Syndrome, Senility, Dementia, or Alzheimer’s– Metastatic cancer– Parkinson’s Disease, Muscular Dystrophy, Multiple Sclerosis,
Myasthenia Gravis, Amyotrophic Lateral Sclerosis, multiple strokes or Multiple Transcient Ischemic Attacks
– AIDS or AIDS-Related Complex (ARC)
Underwriting Tools
• Application• Medical Records or Attending Physician
Statement (APS)• Phone History Interview (PHI)• Face-to-Face Assessment (F2F)• No medical exam (unless you have no physician
visits within last 2 years)• No laboratory tests
60
Pre-Existing Condition Exclusion
• Often confused with “underwriting,” but not the same thing
• Pre-existing condition clause allows insurer to delay paying benefits if LTC need emerges in first 6 months of coverage and is related to a “pre-existing condition”
• “Pre-existing condition” is a condition for which medical advice was given or treatment was recommended by, or received from, a physician within 6 months before the effective date of coverage
61
LTC Cautions
• Is not for everyone– Can you afford the premiums today and in the
future?– Do you have assets you want to protect?
• No policy will protect against all costs• Policy costs increase with age• Too many wait until unaffordable or
uninsurable
How did Partnership develop?
1980s—Concept developed 1990s—Piloted in four states (CA, IN, NY, CT)
1992—Studied in Minnesota 1993—Prohibition placed Feb 2006—Prohibition lifted May 2006—Minn. law changed Aug 2006—Implementation began
Who’s Partnership for?
1.7 million Minnesota adults in households making median income or more
600K Minnesotaadults in households
making $100K or more
3.8 million Minnesota adults
Benefits of Partnership
• Protects more assets than conventional LTC insurance
• Provides for greater choice of where you receive care, such as in an Assisted Living Facility
Who’s in Partnership?
Partnership
Dept. of Human
Services
Senior LinkAge
Line
Consumers
Dept. of Commerce
Producers
Insurers
Counties
Criteria #1: Tax Qualified
1. Tax Qualified Policies that meet certain standards receive
favorable tax treatment Benefits under tax qualified plans are not
considered taxable Long term care insurance premiums deductible as
medical expenses if itemize deductions and total qualified medical expenses exceed 7.5% of annual adjusted gross income. The amount of the deduction is subject to
other IRS limits by age.
Criteria #1: Tax Qualified
1. Tax Qualified Rules set as part of Health
Insurance Portability and Accountability Act (1996)
Older policies grandfathered. Long term care policies issued before January 1,
1997 are automatically considered tax-qualified. Any policy issued or modified after January 1,
1997 must meet the federal requirements to be considered tax-qualified.
Criteria #1: Tax Qualified
1. Tax Qualified Federal Standards for Tax
Qualified Plans Examples
Chronically Ill. Severe Cognitive Impairment
Not Detailing others because all Federal Standards are included in 2000 NAIC Model
Should be labeled for the consumer
Criteria #2: 2000 NAIC Model
2. Meet 2000 NAIC LTC Model MN Adopted 2000 NAIC LTC Model
standards in 2002 Company has to Certify that the form is
consistent with the Model Contingent Benefits Upon Lapse Unintentional Lapse Prohibitions on Limitations & Exclusions Guaranteed Renewability (not mean premium
cannot increase) 24 Other Criteria outlined on certification
form (Dept of Commerce Bulletin 2007-5)
Criteria #3: Minnesota Residency
3. Minnesota Residency Residents of another state cannot purchase
a MINNESOTA Partnership policy. Does not mean that a person cannot
purchase a Partnership policy in their home state and get Partnership protection if they move to MN and get long term care here. (will discuss reciprocity later)
Criteria #4 – Inflation Protection
4. Inflation Protection Must Have appropriate inflation
protection based on their issue age:
<61: Compound annual inflation protection
61-75: Some level of inflation protection for the first five consecutive years following date of purchase, or until age 76, whichever comes first
76+: Inflation protection optional
Criteria #4 – Inflation Protection
4. Inflation Protection Percentage of Inflation
Protection: Minimum of 3% or CPI-U
Future Purchase Option: Must be annual Must elect offered increase Disclosures Required
Criteria #5: Action after 7/1/06
5. Action After 7/1/06 Policy must be issued or exchanged after
the effective date of the State Plan Amendment
Minnesota’s State Plan Amendment approved 7/1/06
Issue Date (self-explanatory) Exchange
Includes Addition of rider/endorsement after the effective date of the State Plan Amendment
Partnership Notice
Role of Participating Companies
Certify the policy form Identify persons with the policy form and
right inflation protection for person’s age Send rider/endorsement/etc to notify
policyholder of Partnership status Ongoing Federal Reporting Requirements
List of Companies
List of Companies who have Certified SOME Policy forms
www.minnesotahelp.info
Search “long term care partnership insurance companies”
What it Means to be on List
Fact that company is on the list does NOT mean all policies are Partnership Company may not certify all forms Two people with same base policy may not
both qualify for Partnership Still matters
What policy form the person has What inflation protection they pick How old when purchase policy
Old Policies
• Most policies issued pre-2000 (even before 2002 when MN enacted 2000 NAIC LTC Model) WILL NOT QUALIFY for the Partnership Partnership did not exist in 1999 Federal Government used 2000 NAIC Model as
Standard
Owners of Non-Partnership policies
Does not necessarily mean that the person should give up their Non-Partnership policy and purchase one that qualifies for the Partnership Nothing has changed about their coverage - Still provides the
coverage they wanted when they purchased it. Premium for new policy may be higher
Now person is older and premium most often based on issue age Health conditions may have changed NAIC Consumer Protections that are not in existing policy may have
a cost. May need to purchase more costly inflation protection
NOT our place to give advice
MN Cannot Grandfather Existing Policies
Reason Minnesota could not grandfather Existing Policies into Partnership Federal government set the minimum
requirements for Partnership in Deficit Reduction Act
Federal government uses 2000 NAIC LTC Model vs. grandfathering existing policies
MN Permits transition to Partnership
Allows use of riders/endorsements/etc. on existing policies Several other Partnership states only allow Partnership
on new policies Allows Future Purchase Option to qualify as
Inflation Protection as long as annual and policyholder continues to elect at required ages Most other states do not include Future Purchase
Option
REMEMBER: Depends on Company to Participate
What qualifies as “Partnership” Policy?
Coverage must:1. Be tax-qualified (1996)
2. Meet NAIC LTC model requirements (2000)• Company must certify the policy form
for Partnership
3. Have been purchased when the person was a resident of Minnesota
4. Meet Inflation Protection Requirements
5. Policy issue date, exchange date or rider, endorsement, etc. date after date of State Plan Amendment (7/1/06)
Reciprocity Map
No Partnership Program - Gray (AK, DE, HI, IL, LA, MA, MI, MS, NM, UT, VT, WA)Original Partnership State - No Reciprocity – Blue (CA, NY)Original Partnership State - With Reciprocity - Green (CT, IN)State Plan Amendment Submitted New Partnership State With Reciprocity – Yellow
Part II
Life Insurance, Trusts,
Annuities, and Continuing Care Retirement Homes
Term Insurance
• Coverage for a term of one or more years• Can renew most term policies for one or
more terms even if health changed, premiums may be higher.
• May lose right to renew at some age.• Generally does not build cash value
Cash Value Life Insurance• Higher premiums than for the same amount
of term insurance.• Part of the premium not used for the cost of
insurance is invested by the company and builds up cash value.
• Types of cash value life insurance:– Whole Life– Universal Life – Variable Life
Whole Life Insurance• Covers you for as long as you live if
premiums are paid.• Generally pay the same amount in
premiums for as long as you live.• Premiums higher than you would initially
pay for same amount of term insurance but smaller than you would eventually pay if you were to keep renewing a term policy into your later years.
Universal Life Insurance
• Flexible policy – Lets you vary your premium payments.– Can also adjust the face amount of coverage.
• Increases may require proof of insurability
• If premium payment plus interest is less than the charges, account value becomes lower until eventually coverage may end.
Variable Life Insurance• Death benefit and cash values depend on the
investment performance.• One or more separate accounts which may be
invested in mutual funds or other investments allowed under the policy.
• Be sure to get the prospectus from the company when buying this kind of policy & STUDY IT CAREFULLY.
• May have option to pay extra for guaranteed death benefit.
Cash Value
• Cash value of life insurance can be used to pay for long term care.
• Be aware, if premiums are not paid and if no cash value remains in policy to pay expenses, the life insurance policy can lapse/terminate & no life insurance benefits will be payable to beneficiary when the insured dies.
Policy Loan
• You can borrow against a policy’s cash value by taking a policy loan.
• If a person does not pay back policy loan and interest, the amount owed will be subtracted from the death benefit payable to the beneficiary.
Accelerated Death Benefit (ADB)• Offered in Some Life Insurance Policies
– May be built in or rider with additional charge.
• Allows insured to collect part of their death benefits before they die if become seriously ill:– Terminal Condition– Condition that requires extraordinary medical intervention
or the insured would have drastically limited life span(major organ transplant, continuous life support, ESRD, etc.)
– Continuous confinement for rest of life.
• Balance paid to the beneficiary upon death.
Considerations Before Taking ADB
• Balance Sufficient to cover Final Expenses?• Balance Sufficient for Beneficiary Needs?• Impact on Medicaid/Medical Assistance
Eligibility?• While generally excluded from income, there can
be Tax Implications in certain situations. Check with a tax professional.
94
Viatical Settlements• Life insurance policy sold to a third party for a
fraction (50% or more) of the death benefit (proceeds are tax-free)
• Must be terminally ill• Considerations:
– Available to someone who would not qualify for LTC insurance
– Settlement may be insufficient to cover LTC expenses
– Survivors would not receive any proceeds– >50% of applicants are declined
Viatical Settlements
• A viatical settlement occurs when a person with a terminal or a chronic illness sells his or her life insurance policy to a third party (a viatical & life settlement provider), for a cash payment that is less than the full amount of the death benefit.
• Time period to rescind viatical settlement – 30 days from date contract executed and 15 days from date proceeds paid.
Considerations – Viatical Settlements
• Have I checked whether my policy have Accelerated Death Benefit Option? Cash value?
• Is Viatical Settlement provider licensed?• Do I still need life insurance protection?• Is this an employer or other group policy? If so, do I need
their permission to sell it?• If I sell my policy, who will be the legal owner? Can the
policy be resold?• Are there any concerns that proceeds of viatical
settlements could be subject to claims of creditors?
97
Life Settlements
• Insurance policy is sold for present value– Females age 74+, males age 70+
• Use of the proceeds is unrestricted • Considerations
– Can fund LTC costs or insurance– May have nothing left for beneficiaries– Health not an issue– Tax liabilities
STOLI• Stranger Originated Life Insurance (STOLI)• Intended to evade state “Insurable Interest” laws• Unlike Viaticals where insured sells his or her
existing life policy, STOLI schemes induce people to buy new policies they otherwise would likely not buy or need.
• Investor “loans” the amount of the premiums for a certain period of time and then, at the end of this period, the insured transfers the policy to the investor in exchange for forgiveness of the loan or after default on the loan.
STOLI Dangers
• Adverse tax, credit, insurability or legal issues for consumer.– Tax Issues: Cash or loan forgiveness could be
taxable income.– Insurability Issues: May not be able to
purchase other life insurance because they are deemed “over-insured”
– Legal Issues: Consumer could be target of insurance company lawsuit.
Annuities
What is an Annuity? An annuity is a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid. Annuities are most often bought for future retirement income, and can pay an income that can be guaranteed to last as long as you live.
Kinds of Annuities
• Single Premium vs. Multiple Premium Annuity.
• Immediate Annuity vs. Deferred Annuity:– Immediate Annuity: Income payments begin no
later than one year after you pay the premium. – Deferred Annuity: An annuity in which you
begin to receive income payments many years later.
Kinds of Annuities
• Fixed Annuity: Money, less any applicable charges, earns interest at rates set by the insurance company or in a way specified in the annuity contract.
• Variable Annuity: Insurance company invests your money, less any applicable charges, into a separate account based upon the risk you want to take. The money can be invested in stocks, bonds or other investments. If the fund does not do well, you may lose some or all of your investment.
• Equity-Indexed Annuity: A variation of a fixed annuity in which the interest rate is based on an outside index, such as a stock market index. The annuity pays a base return, but it may be higher if the index increases.
Income Options• Life Income/Straight Life Option
– Continue to receive payments as long as you live even if payments exceed amount put into annuity.
• Joint & Survivor Life Income– Income as long as you or the joint annuitant live.
• Life Income with Refund– Receive income for life, and– If die before receiving the amount contributed, beneficiary
collects a portion you did not receive.
• Life Income with Period Certain– Receive income for specified period (usually 10 or 20 years).
If die, paid to beneficiary for the rest of that period.
104
Single Pay Life/LTC Policies
• Funded through lump sum payment• Pays for LTC expenses and has a death benefit • Considerations:
– Large lump sum needed for meaningful LTC benefit
– If care needed in early years, benefit may be insufficient
– Planning for inflation is difficult, requires additional payments
105
LTC Annuities – Deferred• Available to age 85, seven broad health questions
most can satisfy• Two funds: one for LTC expenses, the other is a
regular cash fund• Considerations:
– If LTC fund not used, can be passed to beneficiaries
– Need to plan for inflation– LTC costs may exceed benefit amount– Tax implications
106
LTC Annuities – Immediate
• Available to someone who is uninsurable or already receiving LTC
• Single premium payment converted into monthly income
• Pay-out schedule is based on age and gender• Considerations:
– Resources may be limited if inflation is not planned for
– Income stream may be insufficient– Tax implications
Medicaid Disability Trusts
• Exempt from rules regarding trusts and Medicaid eligibility
• Limited to individuals with disabilities– Trust for disabled person under age 65– Trust managed by non-profit association
• Considerations:– Does not shelter all money in trust– Discuss with legal and tax advisor
107
Charitable Remainder Trusts
• Assets gifted to public charity at fair market value
• Grantor receives payment from the trust and a tax deduction
• Considerations:– Limited to affluent people– Payment to grantor may be insufficient to cover
LTC– Assets transferred subject to 60-month look- back
period108
Continuing Care Retirement Community (CCRC)
• Full continuum of services• Provides housing, health care, and
social services• Entrance fee and monthly payments• Many types of CCRC contracts• Considerations:
– May provide little or no home care– Health screening– Unaffordable for many 109
Special Purpose Loans• Low interest loans • Provided by government agencies • Loan used for home modifications,
not LTC costs• May enable someone to remain at
home to receive care• Loan repaid when borrower no
longer lives in home 110
Special Purpose Loans (continued) • Considerations:
– Not available to everyone– Improvements specified– If move to nursing home, loan payment due
111
Part III
•Reverse Mortgages
Reverse Mortgage – What is it?• Loan against home that provides cash for
its value without selling it• Access to home equity for homeowner’s
age 62+• Unlike other loans, do not make monthly
repayments• Loan does not have to be repaid as long
as the borrower lives in the home
113
Reverse Mortgage (continued)• Loan is repaid when you
die, sell the house or permanently move out of it
• Borrower retains title and ownership
• Borrower responsible for taxes and repairs
114
Reverse Mortgage (continued)
• Three types of reverse mortgages:– FHA-insured– Lender-insured– Uninsured
• Maximum amounts one can borrow vary by type
• Larger lending limits with private lenders, but they may have higher finance costs
• Payments received are tax-free– Does not affect your Social Security
payments but may affect SSI eligibility– May affect eligibility for Medical Assistance
115
Qualifying for Reverse Mortgage• Homeowner must be 62 years or
older• Home must be your primary
residence (all types)• No income or credit history required• Must have little or no outstanding
loan balance on your current mortgage
116
Qualifying for Reverse Mortgage (continued)• You cannot incur any other
indebtedness on your home once you have the reverse mortgage
• Some lenders require a free individual counseling session with a reverse mortgage counselor to help you decide (all HECM)
117
Forward vs. Reverse Mortgage
Forward Mortgage
Reverse Mortgage
Loan Purpose Purchase home Get cash from equity
At Closing Owes a lot and has little equity
Owes very little and has lots of equity
During the Loan
Make monthly payments to lender
Loan balance declines
Equity grows
Receive payments from lender
Loan balance rises
Equity declines
118
Forward vs. Reverse Mortgage
Forward Mortgage
Reverse Mortgage
At the End of the Loan
Borrower owes nothing
Has substantial equity
Borrower owes substantial amountHas much less, little or no equity
At Closing Falling debtRising equity
Rising debtFalling equity
Closing Costs
Based on amount of loan
Can be financed as part of closing costs
Based on appraisal value of home, regardless of loan amountCan be financed as part of closing costs
119
HECM (Home Equity Conversion Mortgage) Reverse Mortgage
• Offered by Department of Housing and Urban Development (HUD)
• Federal Housing Authority (FHA) guaranteed loan
• Loan amount based on your age, value of home, equity in home, where you live, interest rate, and payout method you select
120
HECM Reverse Mortgage (continued)
• County limit on the maximum amount you can borrow
• Never have to repay an amount that exceeds the value of the home at the time the loan is repaid
• Counseling session required– Call Senior LinkAge Line® at 1-800-333-2433
or go to www.MinnesotaHelp.info®
121
HECM Reverse Mortgage – Loan Amounts
• Sample loan amounts available - $120,000 home value
Age Lump SumMonthly
62 $62,600 $350
67 $67,600 $400
72 $72,800 $450
122
HECM Reverse Mortgage – Loan Amounts (continued)
• Sample loan amounts available - $260,000 home value
Age Lump SumMonthly
62 $145,900 $819
67 $156,500 $918
72 $167,800 $1,047
123
HECM Reverse Mortgage – Closing Costs• Closing costs and interest can be
financed within the loan • Include mortgage insurance (2% of
home value), origination fee (2% of home value) and other closing costs (e.g., title search, appraisal, etc.)
• Costs vary, but in one example, for a $200,000 loan, costs range from $10,000 to $14,000
124
Using HECM Reverse Mortgage Program to Pay for LTC Insurance• In the future, upfront loan costs may be less if a
reverse mortgage is used to pay for LTC insurance
• HUD has the statutory authority to allow a waiver of the 2% mortgage insurance fee
• However, the regulation to implement this provision has not been promulgated
125
General Considerations in Using Any Reverse Mortgage Program• Funds can be used to purchase LTC
insurance or pay for care• Loans do not adjust for inflation• LTC costs may exceed the amount received
through the reverse mortgage• May be difficult for married couple to
support LTC insurance for both with amount available from reverse mortgage
General Considerations in Using Any Reverse Mortgage Program (cont.)• Homeowner will still require funds to pay for
taxes, repairs, and maintenance• Heirs can retain home by repaying reverse
mortgage• Heirs can “keep the difference” if the home’s
sale price exceeds the loan balance at the time the loan is repaid
127
Reverse Mortgage Annuity• An annuity is purchased with a portion of the loan amount• Annuity continues if borrower sells home or moves• Available on a limited basis• Considerations:
– Same as a reverse mortgage– May include additional charges– Tax implications
128
Sell Home• Home can be used to pay for
LTC by selling it• Option not for everyone• Considerations:
– Unable to pass home to heirs– Proceeds may be insufficient to cover
LTC expenses– Market conditions
129
Leaseback• Investor purchases home• Seller rents the home on a long-term lease• Investor possesses property once seller stops
living there• Considerations:
– Home may stay in family – Potential taxes on proceeds– May lose public assistance
130
Part IIIFuture Options• CLASS: Community Services and Supports Act • PACE: Program for All Inclusive Care for the Elderly
– To be implemented in MN 2012-2013
CLASS Program – Benefits
AMOUNT OF BENEFITS? • Will vary based on degree of disability or impairment.• Averaging no less than $50 per day• Cash benefit• Not subject to lifetime or aggregate limit.
CLASS Program - Premiums• Financed by premium contributions paid by
working adults.• Monthly premium amounts will be determined by
HHS Secretary with respect to maintaining 75 year program solvency.
• Based on Age: Younger participants will pay less than older participants
• Reduced premium for FT Students and those below FPL: Those with incomes below the federal poverty level and full-time students who are actively employed will pay nominal rates, starting at $5 per month.
CLASS Program – EnrollmentWHO CAN ENROLL IN CLASS? • Working adults • Adults working for participating employer
automatically enrolled unless they opt out.• Self employed and those who work for employers
that do not offer CLASS program will be able to join through an alternative enrollment mechanism.
CLASS Program – BenefitsWHO IS ELIGIBLE FOR BENEFITS? • Must have paid monthly premiums for at
least five years and have been employed during at least three of those five years.
• Benefits based on inability to perform two or more activities of daily living (eating, toileting, bathing, dressing, transferring) or based on cognitive disability that requires supervision or hands-on assistance to perform these activities.
Class Program - Timeline
• Planning by HHS has begun• CLASS benefit due to be defined by HHS:
October 2012 • Enrollment: Sometime soon after
CLASS Program - Premiums• Financed by premium contributions paid
by working adults.• Monthly premium amounts will be
determined by HHS Secretary with respect to maintaining 75 year program solvency.
• Based on Age: Younger participants will pay less than older participants
• Reduced premium for FT Students and those below FPL: Those with incomes below the federal poverty level and full-time students who are actively employed will pay nominal rates, starting at $5 per month.
PACE• Program of All-Inclusive Care for the Elderly
– Created by BBA of 1997– Capitated benefit to provide a comprehensive
service package and integrates Medicare and Medical Assistance financing
– Must be age 55 or older– Certified as needing SNF care– Live in the PACE service area– People with Medicare who do not qualify for
Medical Assistance can enroll in PACE but have to pay monthly premium equal to the Medicaid capitation amount
– PACE must include all Medicare and Medicaid covered services (including Part D)
– Will be available in MN
Objective, Comprehensive Statewide Help with understanding all LTC options
• Senior LinkAge Line®
Phone: 1-800-333-2433
Web: www.MinnesotaHelp.info
In person: available in all 87 counties
Print: Health Care ChoicesThe Senior LinkAge Line® does not sell, or endorse any specific product
There is no fee for assistance provided
ON OUR OWN: Planning &
Paying for Long-term Care in Minnesota
QUESTIONS?
THANK YOU!
Enjoy Age and Disabilities Odyssey 2011
Presenter’s Contact Info
Tina ArmstrongDirector of Health Policy
Minnesota Department of Commerce85 7th Place East, Suite 500
Saint Paul, MN 55101
Phone: 651-296-8305Email: [email protected]
Presenter’s Contact Information
• Kelli Jo Greiner, Team Lead
MN Board on Aging
MN Dept of Human Services
P.O. Box 64976
St. Paul, MN 55164-0976
651-431-2581
