Long term care is a costly proposition for which few people are prepared. Yearly costs for a nursing facility today average $40,000. Many people mistakenly believe that Medicare will cover the cost of long term care, but Medicare only pays for approximately nine percent of nursing facility costs. Rather, Medicaid--the health insurance program for the poor--picks up almost 52 percent of the tab. Long term care insurance accounts for a mere two percent of nursing facility payments.

As these figures show, long term care financing is a serious matter requiring serious planning. The following information is designed to give you a better sense of the programs and options available, as well as the benefits you can expect.

 

Medicare

Medicare is a federal health insurance program for people over 65 and certain disabled people under 65. It is not a long term care program. Rather, Medicare covers only those nursing facility services rendered to help a beneficiary recover from an acute illness or injury. Medicare is administered by the federal government's Health Care Financing Administration and is divided into two parts: Hospital Insurance (Part A) and Medical Insurance (Part B). Payments are made to providers through private insurance companies with which the government contracts or through HMOs who have risk contracts with Medicare. Eligibility--Nursing facility coverage falls under "Part A" of Medicare and is very limited. Medicare pays up to a total of 100 days of care in a skilled nursing facility (SNF). Medicare will cover 100 percent of the first 20 days in a SNF; for days 21-100, the individual must make a daily coinsurance payment.

Medicare pays for nursing facility care only under the following conditions:

 

1. The nursing facility is a skilled nursing facility (SNF). SNFs provide 24-hour nursing care to convalescent patients.

    

2. Continuous skilled nursing care or skilled rehabilitation services (as defined by the federal government) are required on a daily basis.

    

3. The patient has spent at least three consecutive days in a hospital and if the admission to the SNF occurs within 30 days after discharge from the hospital.

    

4. A physician certifies that SNF services are needed for the same or related illness for which the person was hospitalized.

Benefits--If all of the above conditions are met, Medicare pays for the cost of care during the first 20 days of care in a SNF. For the 21st through the 100th days, the patient must share the cost of care by paying a daily coinsurance rate, or a Medicare supplement can pay it. For 2001, the coinsurance amount is $128.00 (this changes annually).

Covered services under Medicare include:

• A semi-private room;
• Meals, including special diets;
• Regular nursing services;
• Rehabilitation services;
• Drugs furnished by the facility ;
• Medical supplies;

Medicare does not cover:

• Personal convenience items;
• Private duty nurses;
• Extra charges for a private room.

Medicare Part B may help pay for covered services you receive from your doctor in a SNF, if you choose to participate in the Part B medical insurance program. If you have used up your Part A coverage for a spell of illness, Part B also covers a portion of services received in a SNF, such as physical and occupational therapy. Under the Part B program, you must pay an annual premium and a deductible for all Part B services including physician services, after which Medicare pays 80 percent of the reasonable charges for covered services.

Some services that are not included under Part B are:

 

• Routine physical examinations and tests;
• Routine foot care;
• Eye or hearing exams for prescribing or fitting eyeglasses or hearing aids;
• Immunizations, except flu and pneumonia.

How to Apply for Medicare--Contact your nearest Social Security office to find out if you are automatically covered for Part A because of credits for number of quarters worked in your lifetime. Also, if you are interested in signing up for Medicare medical insurance (Part B), the Social Security office can assist you with that process as well. Keep in mind, though, that you can only sign up for the insurance in the first three months of the calendar year.

 

Medicaid

Medicaid is a cooperative federal-state program designed to provide assistance to low-income people. It has become the major funding source for long term care, covering nearly 60% percent of nursing facility bills. Medicaid is administered by the states under broad federal guidelines. Reimbursement rates per day of care are also set by the states. Eligibility--Medicaid will pay for nursing facility care to those who meet a state-determined poverty level, provided the nursing facility is "certified," meaning it meets a stringent set of government standards.

Benefits--Medicaid will pay for care in a nursing facility (NF). The amount paid is determined by each state and covers room, board, and nursing care.

How to Apply for Medicaid--Contact your local Department of Welfare or Department of Health for an application. Because Medicaid is based on financial need, you will be asked for information such as residence, family composition, income, real and personal property, and medical expenses. You will also need to be sure that the nursing facility which will be receiving payment is Medicaid "certified."

Risk of Impoverishment-- Spouses of nursing facility residents are protected from what is termed "spousal impoverishment." This refers to the required depletion of an "at-home" spouse's financial resources so that the spouse in a nursing home can qualify for Medicaid.

Beginning September 30, 1989, states were required to permit the at-home spouse to retain a "maintenance needs allowance" from the other spouse's income sufficient to bring the at-home spouse's income to 150 percent of the federal poverty level for a two-person household.

Private Insurance

Because many Americans fail to plan for their long term care needs, tens of thousands of Americans are impoverished each year by the costs of long term care. Recently enacted health insurance legislation has helped make private long term care insurance a more viable option to paying for long term care costs while preserving personal savings.

The recently enacted Health Insurance Reform Act includes consumer protections for purchasers of long term care insurance and tax clarifications for long term care insurance which make treatment of private long term care insurance identical to that of health insurance coverage. Starting January 1, 1997, individuals will be able to include out-of-pocket expenses for long term care and long term care insurance premiums with their other itemized medical expenses on their annual tax returns. Long term care and other medical expenses are deductible, provided that they exceed the federal government's 7.5 percent threshold of adjusted gross income. Also, the insurance benefits consumers receive, for the most part, will not be taxable as income.

Long term care insurance policy premiums are set based on several factors: age, health, length of deductible period, amount paid and duration of benefits. According to the Health Insurance Association of America, the annual premium for a low-option policy for a person at age 50 is about $400. At age 65, that same policy costs $1,100, and at age 79 or 80, about $4,300. If long term care is required at age 85 in each of these cases, the 50-year-old person would have paid a total of $14,175 for long term care insurance, compared to the 79-year-old person paying $26,232.

Private insurance policies are available from a variety of sources, including the American Association of Retired Persons, some employers and increasing numbers of insurance companies. More than 100 companies now offer long term care insurance products. Contact your state insurance commissioner's office for a list of companies authorized to sell long term care insurance in your state. As you review insurance policies, run down the following checklist to be sure the policy meets your needs:

1. How long is the deductible period? Some policies contain deductible or "elimination" periods which may bankrupt the policy holder before benefits kick in. Consumer advisors recommend a deductible period between 20 days and 100 days.

    

2. What pre-existing condition clauses does the policy contain? If you suffer from a particular ailment now, how long would you have to wait to receive coverage under the policy?

    

3. Does the policy cover mental health conditions? Alzheimer's disease is one of the major reasons for nursing facility admissions.

    

4. Is the policy renewable? Many policies are guaranteed renewable, others are conditionally renewable.

    

5. Are benefits periodically adjusted for inflation? Inflation adjustment riders are often an added expense.

    

6. Will premiums increase as the insured ages? If you can afford it, level premiums are preferable.

Veteran's Programs

The Department of Veteran's Affairs (VA) provides care in its own facilities to veterans in need of skilled and intermediate nursing care. The VA also provides both skilled and intermediate care to veterans through contracts with community nursing homes. Beds are available to all veterans on a space-available basis. Contact your local VA office for more information.