A recent article by Christine Vestal, ACA Spurs State Shift in Long Term Care, caught my attention and confirmed something that I have observed many times over the past few years that ACA is a program larger than Social Security and Medicare combined. Christine writes:
“In New Hampshire, Medicaid pays for in-home care for nearly all of its developmentally disabled residents. For frail elders, the opposite is true. Most wind up in nursing homes.
“To remedy this imbalance, New Hampshire is taking advantage of Affordable Care Act funding for a program aimed at removing existing barriers to providing long-term care in people’s homes and communities.
“Known as the Balancing Incentive Payment Program, it is one of several ACA provisions designed to keep as many people as possible out of costly institutions.” (http://www.pewstates.org/projects/stateline/headlines/aca-spurs-state-shift-in-long-term-care-85899534029)
The first Baby Boomers are approaching age 70. As with many other issues, this is beginning to bring issues into focus related to long term care in America. Long term care (LTC) is generally defined as a person who needs assistance that a normal healthy person does not. It can be a vague concept.
Most insurance policies that provide coverage for long term care use the definitions based on activities of daily living (ADL) that a person is having difficulty with one or more of the following: bathing or showering, using the restroom, eating, getting in or out of bed or a chair, dressing, or moving across the room to sit in a chair. Other functions that may be considered could be light housework, preparing meals, going shopping for groceries, managing medications and paying bills.
As you may notice, the definition of who is in need of long-term care is focused on a person having difficulty performing tasks vs. identifying a symptom like a pain in the chest. The secondary definition that is frequently used is that the difficulty performing the tasks is long term in nature and not something that may be resolved with rehabilitative care such as physical therapy.
It is estimated that nearly ten million Americans are in need of some level of long-term care. Although the majority of these people are over 65, not all are. Some are in need of this care in their home, while others are better served in a nursing home. It is estimated that 80% or more of those in need of long-term care are not in a nursing home. Sometimes that distinction is based on whether they live alone or if the other person or persons in the home are capable of providing the care. The issue, in part, is a question of independence. Can the person live independently or conversely, how much assistance do they need?
As you might note, this is not care that will normally be paid by health insurance and is not covered by Medicare. In fact the health care system is not designed to provide these basic needs. Most of the health coverage available is designed to address and pay for acute care, the detection and treatment of an injury or illness that is more of a short-term problem.
A study by Genworth Financial, Inc. and National Eldercare Referral Systems, LLC in 2013 found the median cost of a private room in a nursing home is $83,950. The study also concluded that a home health aide would cost an average of $19 per hour. The study also identified the median cost of an assisted living facility would be $41,400. An assisted living facility would provide personal care and assistance with medical care for those who are not able to live alone but do not require constant care normally required by nursing home residents.
However the study found the median cost varies significantly in the different 437 regions of the country. For example, the median cost of a private room in a nursing home for the following states was:
Texas $61,230
Kansas $62,780
Georgia $67,525
Florida $91,250
California $97,820
New York $125,732
Current estimates suggest that the demand for long-term care among the elderly will more than double in the next thirty years. Alongside policy toward Social Security and Medicare, policy toward long-term care will increasingly shape quality of life for aging Americans. (Congressional Budget Office,"Projections of Expenditures for Long-Term Care Services for the Elderly " Washington: CBO, March 1999.)
A very large majority of the population who need long-term care are on Medicare, although as indicated Medicare does not pay for long-term care. Medicare finances long-term care only tangentially through its limited skilled nursing facility (SNF) and home health benefits. Despite recent growth in spending on these benefits, much of the SNF and home care paid for by Medicare remains short-term rehabilitative care, often related to a hospital stay or outpatient procedure. Medicare covers SNF care for up to 100 days following a hospital stay of at least three days. For homebound persons needing part-time skilled nursing care or physical or other therapy services, Medicare pays for home health care, including personal care services provided by home health aides. (http://www.medscape.com)
According to a poll commissioned by the National Academy of Social Insurance’s (NASI) Study Panel on Long-Term Care, nearly three quarters of baby boomers and seniors are concerned either a great deal or a fair amount about paying for long-term care. According to The Economic Status of the Elderly (NASI Medicare Brief No. 4), “More baby boomers are likely to be living alone in old age compared to their parents, for three reasons. First, more of the baby boomers have never married. Nearly 10% of the youngest baby boomers (born between 1956 and 1964) are forecast never to have married by ages 55 to 64, which is twice the rate of their parents. Second, more of those who did marry will become divorced or widowed by the time they reach ages 55 to 64—25% to 30% of them compared to 15% to 20% of prior cohorts. Finally, childlessness is on the rise. In 1989, 26% of couples aged 25 to 34 had no children, compared to only 12% of such couples in 1959. These trends will result in increase in the percent of older Americans living alone, from 21% of those age 63 to 72 today, to 24% of those 10 years younger, to 37% of the early baby boomers.” (http://www.nasi.org/book/export/html/169)
Although LTC is financed through a combination of public and private resources, the largest public source is the Medicaid program. Medicaid is the largest single payer of LTC services. Medicaid-eligible people who use long-term care services are among the most disabled and chronically ill of the total Medicaid population. Although they accounted for only 7% of the Medicaid population, these long-term care users consumed more than half (52%) of total Medicaid spending. Moreover, the number of people who need LTC services is expected to increase rapidly during the next several decades. People age 85 and older constitute the fastest growing population in the United States; their numbers are expected to increase from about 4 million in 2005 to almost 21 million by 2050, foreshadowing an ever-expanding need for LTC services. (http://www.ncsl.org/research/health/long-term-care-faq.aspx)
Another facet of the need for long term-care is the growing number of people who are diagnosed with dementia. Dementia is a general term for a decline in mental ability severe enough to interfere with daily life. Memory loss is an example, however Alzheimer's is the most common form of dementia. Dementia is not a specific disease. It's an overall term that describes a wide range of symptoms associated with a decline in memory or other thinking skills severe enough to reduce a person's ability to perform everyday activities. Alzheimer’s disease accounts for 60 to 80% of cases.
According to the Alzheimer’s Association, “Alzheimer’s disease is the sixth leading cause of death in the US. More specifically, one in three seniors dies with Alzheimer’s or another form of dementia. It is the only cause of death among the top 10 in America without a way to prevent it, cure it or even slow its progression. More than 5 million Americans are living with the disease. By 2025, the number of people age 65 and older with Alzheimer's disease is estimated to reach 7.1 million—a 40% increase from the 5 million age 65 and older currently affected. In 2013, Alzheimer’s will cost the nation $203 billion and this amount is expected to rise to $1.2 trillion by 2050.”
The duration and level of LTC will vary by person and often change over time. Here are some statistics: 1) someone turning 65 today has almost a 70% chance of needing some type of LTC services, 2) women will need care longer (3.7 years) than men (2.2 years), and 3) one-third of today’s 65 year olds may never need any LTC support but 20% will need it for longer than five years. (http://longtermcare.gov/the-basics/how-much-care-will-you-need/)
So the big question is how do you pay for the LTC? Basically, there are three ways you pay all the costs (private pay), you buy LTC insurance that may pay for some or all of it, or qualify for Medicaid.
Option 1: Private Pay: As discussed above, it can be very expensive and may extend for several years. Suffice it to say, that the cost of LTC can consume a significant amount of the lifetime savings a person has accumulated for retirement. Fidelity Benefits Consulting, which has been tracking retiree health care costs for more than a decade, estimates that a 65-year-old couple retiring this year will need $220,000 to cover future medical costs (deductibles and copayments, premiums for optional coverage for doctor visits and prescription drugs, out-of-pocket expenses for prescription drugs, and other expenses that Medicare doesn't cover, such as hearing aids and eyeglasses). That doesn't include the high cost of long-term care. (http://www.aarp.org/health/medicare-insurance/info-12-2012/health-care-costs.html)
In an article published by MoneyWatch, by Steve Vernon, July 19, 2010, Long-Term Care: What Are the Real Risks? (http://www.cbsnews.com/news/long-term-care-what-are-the-real-risks/), two-thirds of people age 65 and over will need long-term care in their lifetime. The article quotes a comprehensive paper written by researchers and academics entitled Long-Term Care Over an Uncertain Future: What Can Current Retirees Expect? (http://www.allhealth.org/briefingmaterials/Long-TermCareOveranUncertainFuture-WhatCanCurrentRetireesExpect-461.pdf) This report, released in 2005, estimates the full range of out-of-pocket expenditures that people might expect to spend over their lifetime. For instance, according to this study:
- 42% of people turning age 65 will have no private out-of-pocket costs for long-term care over their lifetime.
- 19% of those turning 65 will have out-of-pocket costs under $10,000 over their lifetime.
- 8% will have costs between $10,000 and $25,000.
- 14% will have costs from $25,000 to $100,000.
- 11%will have costs over their lifetime from $100,000 to $250,000.
- 5% will have costs of $250,000 or more.
The report cited above estimates that for people turning age 65 in 2005, 69% of this group will need some form of long-term care over their lifetime, for three years on average. Of this period, 1.9 years will be provided at home, with 1.1 years provided at any type of formal facility.
Option 2: Buy Long-Term Care Insurance: According to the American Association of Long-Term Care Insurance, (http://www.aaltci.org/long-term-care-insurance/learning-center/best-age-to-buy-long-term-care-insurance.php/) “for most people, the best age to apply for LTC insurance is in your mid-50s. You can lock in your good health; and today there are policies that allow you to buy some coverage now and add to it in future years. As we age, our health changes. And once you reach your 50s it almost never gets better (even if you diet and exercise). If you are 50, chances are that you leave your doctor's office with some new prescription in hand. That drug may help you live a long life. But it's those changes in our health that can make it harder or even impossible for you to qualify for long-term care insurance.”
Premiums for long-term care insurance are based on your age when you apply and your existing health condition. If you wait until you are older or already have a diagnosis that would indicate you are more-likely-than not going to need extended LTC, then your premium is going to be very high, if you can get a policy at all.
It would be impossible for me to estimate what a premium would be, but American Association of Long-Term Care Insurance has indicated the following on the above referenced web page: “Here is a real example. The following scenarios use real rates (2010). You are age 55. You want what we term a "standard" plan of coverage. That equals $172,600 in current benefits (based on a $150 daily benefit for a 3-year plan). Your cost is $1,084 per year because you qualify for the preferred health discount (spousal discount too). Long-term care insurance protection should grow to keep pace with rising costs. The one we are illustrating does. So, by age 65, the $172,600 benefit you bought at age 55 -- will have grown in benefit value to $276,000. Someone age 65 (today) would pay $3,275 for $276,000 in coverage because it's very unlikely they will still qualify for that good health discount. And that reflects today's rates. Chances are rates will rise. So, the 55 year old who waits for 10 years will pay even more.”
Option 3: Qualify for Medicaid: It is necessary to understand the general distinction between Medicare and Medicaid. Medicare is a federal benefit that an individual receives once you turn age of 65 years. Medicare generally pays for your doctor bills and health care costs. Medicaid is also a governmental benefit. The first type of Medicaid, known as Community Medicaid, has strict income and asset requirements and pays for health care needs. The second type of Medicaid, pays for nursing home costs once the requirements for Medicaid are met.
From: http://www.familiesusa.org/issues/medicaid/about-medicaid.html
Since 1965, Medicaid has been the backbone of this country's health care safety net. Jointly funded by the states and the federal government, Medicaid covers more than 58 million low-income Americans, including families, people with disabilities, and the elderly. Today, Medicaid provides coverage for almost 29 million children and pays for approximately half of all long-term care costs. The Affordable Care Act gives states the opportunity to expand their Medicaid programs to cover all individuals with incomes at or below 138% of poverty, an income of about $31,809 for a family of four in 2012. That will extend coverage to many low-income adults currently left out of the program and simplify eligibility determinations across the program.
Federal law requires states to cover certain categories of people in Medicaid. In general, there are six categories of so-called “mandatory” individuals: 1) children, 2) pregnant women, 3) very low-income parents, 4) the elderly, and individuals who are 5) blind or 6) disabled.
Eligibility levels for these groups of people varies by income:
- Children under age six with family incomes up to 133% of the federal poverty level ($25,390 for a family of three in 2012).
- Children ages 6-19 with family incomes up to 100% of poverty ($19.090 for a family of three in 2012).
- Pregnant women with family incomes up to 133% of poverty.
- Parents whose income meets the state’s AFDC (Aid to Families with Dependent Children - former welfare program) criteria in place as of July 1996.
- People who are elderly, blind, or who have disabilities and who receive Supplemental Security Income (SSI) may have incomes up to 74% of poverty ($8,266 for an individual in 2012).
- Certain people with severe disabilities who would qualify for SSI if they did not work.
Elderly individuals and people with disabilities whose Medicare premiums are paid by Medicaid through the “QMB,” ”SLMB,” and “QI” programs—generally speaking, these are individuals who have incomes below 150% of poverty.
The Affordable Care Act requires states to maintain the Medicaid eligibility levels, policies, and procedures that were in place in March 2010 (the date the Affordable Care Act was enacted) until the state has an operational exchange.
The Affordable Care Act of 2010, signed by President Obama on March 23, 2010, creates a national Medicaid minimum eligibility level of 133% of the federal poverty level ($29,700 for a family of four in 2011) for nearly all Americans under age 65. This Medicaid eligibility expansion goes into effect on January 1, 2014 but states can choose to expand coverage with Federal support any time before this date. See related Federal Policy Guidance at http://www.medicaid.gov/Federal-Policy-Guidance/Federal-Policy-Guidance.html and states that have expanded Medicaid prior to 2014.
The Affordable Care Act (ACA) goes a long way toward simplifying Medicaid eligibility. Medicaid is a means-tested insurance program designed to help cover the expenses of people living with low incomes or lacking a certain level of resources. Poverty alone, however, will not necessarily allow you to qualify for Medicaid. In order to qualify for Medicaid, though, you will first of all need documentation of U.S. citizenship, and some way of satisfying certain residency and immigration requirements.
Joy Johnson Wilson, Health Policy Director for the National Conference of State Legislatures, summarizes Medicaid and CHIP provisions in the new law and compares them to current law. In particular, on page 8 Wilson notes that the ACA “[r]equires states to use a net income standard (no asset or resource test, no income disregards) to determine [Medicaid] eligibility.” The new federal income eligibility threshold is 133% of the federal poverty level (effective 1/1/14).
Essentially, the Medicaid expansion under the ACA will broaden Medicaid eligibility for low-income, non-elderly adults without regard to assets. A major exception for that age group is those with incomes above the threshold but with high out-of-pocket medical costs. Such individuals will be required to spend their assets down to the existing asset limit, which varies by state and is typically a few thousand dollars. Existing rules, including the asset tests, will continue to apply for individuals obtaining Medicaid eligibility through another program (e.g. foster care children, or SSI/SSDI recipients) and the elderly.
The Affordable Care Act called for a federal minimum income standard of up to 133% of the federal poverty line for all states. This expansion of Medicaid would establish this minimum in all states for them to participate in the federal Medicaid program and qualify for federal matching funds and took effect on January 1, 2014.
So all states now have the same income threshold? No. The United States Supreme Court in its ruling in June, 2012 on the Affordable Care Act stated that the federal government could not mandate or require this expansion of Medicaid as a condition of participating in the program, but rather participation in the expansion had to be voluntary.
Did all states agree to the expansion? No. Twenty-five states and the District of Columbia have agreed to participate in the expansion. 14 states have declined to participate in the expansion. Eleven other states have not officially stated if they will participate in the expansion.
The 25 states (along with the District of Columbia) that are participating in the expansion are: Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Hampshire, New Mexico, North Dakota, Ohio, Oregon, Rhode Island, Vermont and Washington.
The 14 states that are not participating in the expansion are: Alabama, Georgia, Idaho, Iowa, Louisiana, Maine, Mississippi, North Carolina, Oklahoma, Pennsylvania, South Carolina, South Dakota, Texas and Wisconsin.
The 11 states that have not officially declared their intentions are: Alaska, Indiana, Kansas, Kentucky, Nebraska, New York, Tennessee, Utah, Virginia, West Virginia and Wyoming.
Conclusion: As with many aspects of financial planning, there is not a “one size fits all” answer. Furthermore, the Affordable Care Act has added some new twists to an already complicated issue that is of great concern to our clients and most of us.
Jerry Love, CPA, is the sole owner of Jerry Love CPA, LLC in Abilene, TX. Contact him at
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