presented by

Stephen A. Moses, President

Center for Long-Term Care Financing

for

Money Watch Live

March 10, 2001: New Orleans, LA

Good morning, ladies and gentlemen.

Congratulations for being here.

By your presence, you show that you intend to be part of the solution to our country's biggest social challenge, not part of the problem.

America and each of us Americans face a huge danger, a trap if you will, associated with population aging and the need for long-term care.

Why do I call the challenge of aging and long-term care a trap?

Because, with every benign intention, our government and thousands of private financial advisers have anesthetized Americans to the true risk and cost of long-term care.

My job today is to wake you up to the truth and show you how to protect yourselves and your families from the long-term care trap.

Now, let's start with a few facts.

People all over the globe are living longer, but dying slower often in need of high-cost medical and custodial care.

In 30 years, one in four people in the developed world will be 65 of age or older, up from one in seven today.

People over 85, known as the old-old, are growing in number the fastest.

They consume three to five times more health-care services per capita than younger people and their medical bills are usually picked up by the government.

In the United States, two-thirds of people over 85 in the future will be women, of whom over four-fifths will be single, divorced, or widowed, the groups most likely to need extensive government assistance.

These facts portend dangerous consequences for America's social safety net including Social Security, Medicare and Medicaid.

But perhaps the greatest danger for the future and certainly the first part of the safety net to fray badly is long-term care.

Long-term care is the help people need when they lose some or all of their ability to perform the normal activities of daily living, such as bathing, dressing, eating or going to the bathroom.

People may need long-term care at any age because they suffer from a chronic illness, or they may need assistance because of frailty or cognitive impairment associated with old age.

Long-term care ranges from skilled nursing care for serious medical conditions to low-skilled, custodial care such as help with routine daily hygiene.

The probability of needing long-term care is directly related to age. For example, the incidence of Alzheimer’s Disease and nursing home institutionalization tends to double approximately every five years after the age of 65.

47% of people over 85 have Alzheimer's disease and over 20% of them already live in nursing homes.

Given the rapidly increasing number and proportion of elderly Americans, the need for long-term care is likely to grow exponentially in the decades ahead.

The cost will be immense and the government will have to struggle mightily to pay even as much, if not more of it in the future.

But long-term care is not just a problem for the government.

Today, every American over age 65 faces a 43% chance of spending some time in a nursing home and a 9% probability of spending five years or more at an average cost of $55,000 per year.

This is a genuinely catastrophic risk.

Yet, most Americans are in denial about long-term care. Only 7% of seniors and virtually none of the baby boomers own private long-term care insurance to protect against this risk.

"Won't happen to me," they say. "Never go to one of those places." "Shoot myself first." What most people don't realize is that by the time you need to use it, you won't remember why you bought the gun!

Now, here's the puzzle: if long-term care is such a huge risk and enormous cost for our country and for ourselves, why are most Americans, including the politicians we elect to protect our interests, so unconcerned and unprepared?

The answer is really very simple.

For the past 35 years, Americans have been able to ignore the risk of long-term care, avoid the premiums for private insurance, and hope they never need expensive long-term care.

If they died of a heart attack or cancer, they were home free…sort of.

But if they came down with a chronic illness requiring costly long-term care, such as Alzheimer's, Parkinson's or stroke, they were able fairly easily to shift the cost of their care to the government and the nursing home industry.

How? Isn't it true that Medicare does not pay for long-term care and that Medicaid requires total impoverishment? Isn't that what we see in the media and hear from the insurance industry?

Yes, but if it were that simple, we'd all own private long-term care insurance and long-term care would not be the trap that it is. After all, haven't we protected ourselves against the other catastrophic risks in our lives with life insurance, fire insurance, automobile insurance and health insurance?

What is really going on? The truth is much more complicated. It's kind of a good news, bad news scenario.

The good news is that America does have a government-financed long-term care safety net that protects even upper-middle-class people from financial devastation caused by long-term care institutionalization.

The bad news is that if you do nothing to prepare financially to be able to pay privately for long-term care and you rely on that social safety net by default, you're likely to die in a nursing home on welfare in a long-term care system on the verge of collapse.

Here's how most people fall into the long-term care trap.

We blithely ignore the risk of long-term care until it's too late. People we know become old and feeble. They disappear after a time from our daily life.

But we rarely see Alzheimer's patients wandering unattended or hear of incapacitated seniors dying at home of starvation. Somebody must take care of them, we figure.

But who? Who knows? Medicaid, Medicare, Santa Claus? It does not matter to us … until long-term care touches our family personally.

Then, sooner or later, Dad has a stroke or Mom's forgetfulness turns to dementia. They can no longer take care of themselves and each other. Something has to be done.

But, by now, it's no longer Mom and Dad's problem. The adult children, mostly daughters and daughters-in-law, have to step in and find a solution. Do-it-yourself care is no longer an option for most families because both spouses work.

Once an insurable health care event occurs, it's too late for long-term care insurance to pay for professional care and assistance. You can't buy fire insurance either … after your house is in flames.

The options at this point are to pay for home care, assisted living, or nursing home care. Now most aging people would prefer to stay in their own homes, but getting quality professional nursing care or even low-skilled custodial care at home can be extremely expensive.

Assisted living is a wonderful new alternative--kind of like living in a hotel where you can call room service for help taking a bath or leave a call at the desk to be reminded to take your medications. But assisted living averages $25,000 per year, and can easily cost much more in many metropolitan areas.

The third choice, nursing home care, is the most expensive and the least desirable, but ironically, it is where most people go first when professional long-term care becomes necessary. Why?

When the crisis hits, the first place middle-aged people look for help with the cost of long-term care for their parents is Social Security. They quickly learn they'll get no help there.

Then they try Medicare, only to learn that it may pay for some home care and nursing home care, but only under very restricted circumstances and for a limited period of time. Medicare is not a long-term solution.

Finally, they end up considering Medicaid, a government program, which does pay for custodial nursing home care for as long as such care is needed.

Despite the conventional wisdom that people must spend down their assets into total impoverishment before they can become eligible for Medicaid nursing home benefits, the truth is that the average elderly person--in terms of income and assets--qualifies very easily for the program.

Virtually anyone else, regardless of how large their income and assets are, can qualify quickly for Medicaid by following the advice of professional financial advisers who practice the arcane art of "Medicaid estate planning."

For a fee of several thousand dollars, these Medicaid planners will artificially impoverish their clients to qualify them for government-financed nursing home benefits without having to spend down.

No doubt you've seen their ads in newspapers, magazines and on the internet, or heard their pitch on the radio. Maybe you've even bought one of the many books on the subject.

Here's one example (show Armond Budish's Avoiding the Medicaid Trap)

If you follow that advice, and millions of Americans have, you'll find out what the long-term care trap really is!

Medicaid is a means-tested public assistance program. It is welfare. It has a dismal reputation for problems associated with access, quality, low reimbursement, discrimination and institutional bias.

Nevertheless, because of its generous and elastic eligibility rules, Medicaid has become the primary third party payer for long-term care in the United States. It's the path of least resistance for people who did not save or insure for long-term care.

Although Medicaid pays less than half the cost of nursing home care in the U.S., it pays something toward 78 percent of all nursing home patient days. (Medicaid recipients pay the rest from their Social Security and other income.)

That's important because Medicaid pays on average only 80% of the private pay rate for nursing home care. This is often less than the cost of providing the care. How would you like to run a business where most of your customers pay less than your cost?

The consequences of providing free or subsidized nursing home care to millions of Americans through Medicaid and Medicare for 35 years have been devastating to our country's long-term care service delivery and financing system.

In the past two years, eight nursing home chains have declared bankruptcy and, today, 15% of all nursing home beds in the U.S. are in bankrupt homes.

This is largely due to excessive dependence on and inadequate reimbursement from Medicaid and Medicare.

Long-term care stock prices have collapsed. Capitalization to build and operate new long-term care facilities, whether by debt or equity, is stymied. The industry on which we depend to provide high-quality, loving care to our incapacitated elders is in very serious trouble.

People want to stay out of nursing homes, but our home and community-based services infrastructure remains under-developed and starved for financing. The public has little incentive to pay out-of-pocket for home care or assisted living, when the government will provide nursing home care for free.

Most Americans cannot afford expensive formal long-term care services; Medicaid and Medicare no longer pay enough to assure access to quality care; yet, few seniors and almost no baby boomers own long-term care insurance, because heretofore the safety net has always been there.

Here's the problem in a nutshell.

The government has provided long-term care for most Americans for 35 years.

Professional financial advisers have contributed to the public's excessive dependency on government-financed care through Medicaid estate planning.

The old system is collapsing today, but neither the public nor the financial advisers have yet awakened to the true risk.

In the meantime, the Age Wave is about to crest and will soon come crashing down on our heads as the baby-boom generation moves relentlessly toward our own old age and dependency.

We must act now if we are to avoid a crisis, and ultimately a disaster.

Your role is critical. Maybe you can't solve the long-term care public policy crisis single-handedly, but you can protect yourself and your family from the emotional and financial ravages of long-term care.

On the principle that the best way to help the poor is not to become one of them, I urge you to take the risk of long-term care seriously, start considering private long-term care insurance by age 40, and own it by age 50.

If its not too late already, get together with your siblings and find a way to help your parents afford long-term care insurance if the cost of premiums is a problem for them.

Take "The Long-Term Care Pledge for Baby Boomers," that I've provided to you as a handout, and follow its advice.

In a moment, I'll give you some tips on how to proceed, but first I want you to know you're not alone.

The Center for Long-Term Care Financing, the 501(c)(3) nonprofit charitable organization I head is promoting public policy to solve this problem.

We think scarce public resources should be targeted to the genuinely needy and that everyone who is able should be encouraged to plan early and save, invest or insure fully for the risk of long-term care.

When most people are able to pay privately for long-term care, the market will provide a full continuum of affordable care including home care, assisted living, and with nursing home care only as a last resort.

With fewer people dependent on Medicaid and Medicare for their long-term care, those programs will be better able than now to serve citizens genuinely in need who have nowhere else to turn.

You can visit our website at www.centerltc.org to read our many reports, articles and speeches on the long-term care problem and how to solve it.

I especially recommend "The Myth of Unaffordability: How Most Americans Should, Could and Would Buy Private Long-Term Care Insurance."

That report will give you much more advice on how to identify affordable, high-quality long-term care insurance than I can possibly offer today.

While you're on the website, sign up for our free online newsletter "LTC Bullets" to keep abreast of this issue.

Finally, if the spirit moves, there is even an online donation form if you wish to make a contribution to our efforts by check or credit card.

Now, let me fulfill my promise to give you …

First, long-term care insurance is not your only option. You could begin right now to save and invest in order to self-insure for long-term care in the future.

Of course, that would mean you'd be unprotected in the meantime. And besides, you could self-insure for the risk of your home burning down too, but who does that?

Long-term care insurance is complicated and, for better or worse, it is mostly unregulated by the government. The rule is caveat emptor. You need to do your homework before buying.

Get one or more of the consumer guides listed on the handout I've provided. Study it carefully. Learn enough to ask good questions and to recognize bad answers when you talk to a long-term care insurance agent.

Talk to at least three agents representing three different companies before you buy. You will learn a lot from them and gradually you'll home in on the best features and options for your family's unique situation.

Don't be intimidated by the cost. If every tenth house burned down, fire insurance wouldn't be cheap either. Think creatively about ways to cover your biggest risk (nursing home care) first, to minimize premiums, and to find money to pay the premiums.

The "Myth of Unaffordability" report on our website that I mentioned earlier will be a big help in this regard. But here are some examples:

To keep premium costs down, you might consider insuring only for facility care (not home care), or you might accept a higher deductible (the period you have to pay before the insurance benefits begin), or a shorter benefit period (the duration of benefits).

To find money for the premiums, consider asking your adult children to contribute. After all, it's their inheritance they'll be protecting. Or take a reverse annuity mortgage to squeeze some income out of that illiquid asset, your home. Or annuitize one of your CDs to get a higher return on the asset while protecting it with long-term care insurance.

On the other hand, as you struggle to find affordable long-term care insurance coverage, don't scrimp on inflation protection. Coverage of $150 per day may be enough today to cover the average cost of nursing home care. But what will the cost of care be when you finally file a claim at age 80, 85, or 90?

Don't buy long-term care insurance based solely on the cost of the premium. This product is age-rated, but level premium. That means the younger you buy, the lower the premium, and the premium should remain unchanged permanently.

But even though your coverage is "guaranteed renewable," there is no guarantee that the insurance company will not seek approval from the state insurance commissioner to increase premiums for the coverage if it under-priced the product and has to pay more claims than anticipated.

Rate stability is a real challenge for the long-term care insurance industry. Make sure your policy is properly priced and in keeping with rates charged by other reputable insurance carriers.

Are you worried about whether or not the insurance company will be there 20 or 30 years from now when you need your claims paid. You should be. Check out one of the rating services listed in the consumer guides I recommended to make sure you are dealing with a financially stable insurance carrier.

On the other hand, remember this: the only institution in American society that can promise you everything and deliver nothing, legally, is the government. At least when you have an insurance contract enforceable in a court of law, you have something of value. The real crap shoot is to "go bare" for long-term care and hope the government will provide.

Ignore rules of thumb about who should buy long-term care insurance. You'll find many books that say "don't buy unless you have more than $25,000 per year of income and $75,000 in assets, not counting your home and car."

This is terrible advice. It's based on the fact that you can qualify easily for Medicaid nursing home care if you have no more wealth than that. But, remember what I told you about Medicaid and Medicaid-financed nursing home care?

The main reason to buy long-term care insurance is not asset protection. The main reason is to avoid Medicaid dependency and assure that you will be able to pay privately for quality long-term care at the most appropriate level--home care, assisted living and the very best nursing home care, if necessary.

I could go on with advice like this indefinitely, but you can find the same information in our "Myth of Unaffordability" report, in the other consumer guides I've recommended, and from the thousands of long-term care insurance agents whose job it is to help you price and spread the risk of long-term care.

My mission today was to show you why so many Americans fall into the long-term care trap and to help you avoid that dangerous snare.

I'll stop now for questions, and I'll be available in the "answer room" if we run out of time here.

Feel free to call or email me anytime if something else comes up. My contact information is on your handout, but it is also always available on our website, which is, again, www.centerltc.org.

Thank you for attention.