Understanding Long-Term Care Planning: Why You Need a Long-Term Care Plan in North Carolina

The longtermcare.gov website defines long-term care as “a range of services and supports you may need to meet your personal care needs. Most long-term care is not medical care but rather assistance with basic personal tasks of everyday life, sometimes called Activities of Daily Living (ADLs)…Other common long-term care services and supports are assistance with everyday tasks, sometimes called Instrumental Activities of Daily Living (IADLs).”

Activities of Daily Living

Activities of Daily Living (ADLs) generally include:

• Walking and ambulating (getting around the house)
• Transferring (getting in and out of bed or a chair)
• Toileting
• Bathing
• Dressing
• Feeding
• Continence

The number of Activities of Daily Living that one needs assistance with is often a guide for the level of caregiving that may be needed. In addition, the coverage under most long-term care policies is triggered when a policy owner needs assistance with at least two Activities of Daily Living. Some policies may not include walking/ambulating as an Activity of Daily Living.

Instrumental Activities of Daily Living

Instrumental Activities of Daily Living generally include:

• Cleaning and home maintenance
• Bill paying and managing finances
• Meal preparation
• Shopping for groceries and other necessities
• Managing and taking medication
• Managing transportation, either by driving or arranging for transportation
• Managing communications such as mail and telephone

Instrumental Activities of Daily Living are often used when assessing appropriate living environment and caregiving needs for an individual and developing a care plan.

Levels of Long-Term Care

From a medical and service perspective, long-term care generally falls into three levels of care:

Skilled Care

Skilled care is generally used to refer to “around-the-clock” care to treat a medical condition. Skilled care is ordered by a doctor and is performed by medical personnel such as registered nurses or professional therapists.

Intermediate Care

Intermediate Care is for those that may need intermittent nursing and rehabilitative care supervised by a doctor and performed by medical personnel such as registered nurses, licensed practical nurses, and nurse aides.

Custodial Care

Custodial Care is for assistance with Activities of Daily Living and Instrumental Activities of Daily Living or supervision needed due to cognitive impairment. Generally, Custodial Care can be provided by someone who does not have professional medical skills, though they may be supervised by a doctor. Most of what we think of as “long-term care” is custodial care.

Long-Term Care Environments

Many equate the term “long-term care” with nursing home care, but long-term care is a general term that is used to address a whole spectrum of potential care options and care environments.

Home Care

Home care refers to long-term care services delivered in the home. There is a broad range of home care services available to assist with activities of daily living, instrumental activities of daily living, and limited skilled care.

Adult Day Care Centers

Adult daycare is non-skilled care provided in a community setting. It is usually for those who have light to moderate cognitive impairment and may need supervision. Patients attending Adult Day Care usually can walk but may need assistance with other Activities of Daily Living.

Independent Living with Home Care

As the name implies, an Independent Living Community is for those who can live independently but may want access to the amenities that an Independent Living Community provides, such as laundry services, maintenance and utilities, transportation, meals, and activities. Often the living units are similar to an apartment, though some communities also have single-family homes.

In an effort to help residents age in place, most Independent Living Communities partner with Home Care providers to arrange for residents to receive home care services within their apartment at the Independent Living Community.

Assisting Living

Assisted Living Communities are equipped to assist with Activities of Daily Living and some Instrumental Activities of Daily Living, generally while attempting to maintain as much independence as possible for residents.  

Memory Care

Memory Care is designed for patients with Alzheimer’s, dementia, and other forms of memory problems. It is also sometimes referred to as a “Special Care Unit” (SCU). Memory Care usually includes 24-hour supervised care. Often, the wing or building is locked to protect residents who may be prone to wandering.

Skilled Nursing Facility (a.k.a. Nursing Home)

A Skilled Nursing Facility or Nursing Home is for residents needing skilled medical care. Skilled nursing facilities have 24-hour nursing care supervised by a physician.

Continuing Care Retirement Community (CCRC)

Continuing Care Retirement Communities (CCRCs) are designed to help patients “age in place”. Generally, a Continuing Care Retirement Community will have independent living, assisted living, and skilled nursing care available within the same community. As a patient’s care needs progress, the patient will be moved to the appropriate section of the community.

Hospital Care

Hospitals provide medical care—not custodial care. Often, a hospital may serve as the “gateway” to other long-term care settings. The most common example is a hospital stay due to a broken hip, followed by rehabilitation in a Skilled Nursing Facility.

What is Long-Term Care Insurance, and How Does it Help With Long-Term Care Planning?

Perhaps you or a loved one has recently recognized the need for long-term care insurance. This type of insurance is not just “nursing home” coverage but is insurance that helps assure you of continued independence and protects your personal assets. Long-term care insurance helps to pay for care for an extended period of time, whether that be in a nursing facility, rehabilitation facility, or providing in-home assistance to those who need help with Activities of Daily Living (ADLs).

To ensure any policy is effective, it is made up of guidelines to benefit the policyholder, including:

• Insures against future long-term care expenses;
• Requires an annual premium; 
• Does not have any cash value or death benefit; and
• Has premiums that can increase in the future.

A long-term care insurance policy functions a lot like a homeowner’s policy. You pay your premiums each year, and if you have a claim, you file the claim. But if you never have a claim, you never collect any benefits from the policy.

Policy Structure

Typically, a long-term care insurance policy begins with a strict health underwriting process. In order to qualify for coverage, you need to be in reasonably good health for the company to offer you a policy. For example, if you have received a diagnosis of Dementia or Alzheimer’s, many companies will not offer you a policy.

The policy coverage is usually quoted as a daily benefit for a specified number of years, for example, $150/day for up to 3 years. Then this benefit is then translated into a total pool of funds equaling $165,000. 

An annual premium must be paid to renew coverage each year. The insurance company may also give you the option to pay the premium semi-annually, quarterly, or monthly. If you do not pay the premium, the policy will lapse and be canceled by the insurance company (although many modern policies allow for a 6-month grace period for an unintentional lapse if due to cognitive or physical impairment).

It’s also critical to understand that long-term care insurance is a lot like health insurance in that the annual premiums can increase in the future. If the premium increases, the insurance company will generally offer you the option to pay the increased premium to keep the existing coverage or continue paying the same premium you were accustomed to paying, but your benefits under the policy will be reduced.

When Can I Use My Benefits?

Long-term care benefits are triggered under the policy once you meet the policy criteria. Older policies were strict “nursing home” only policies, but most modern policies cover in-home care, assisted living care, skilled nursing facilities, or long-term care facilities. Some policies may reduce the daily benefit of in-home care or assisted living care vs. long-term care facilities. 

For most policies, the first step to triggering coverage is a physician’s assessment that shows the following:

• You need assistance with two or more Activities of Daily Living; or
• You have severe cognitive impairment.

Similar to a health insurance deductible, most policies have an applicable “elimination period” during which you must pay for any care out of pocket before the policy will start paying for your care. Generally, the elimination period is either 30, 60, or 90 days, but you, as the policyholder, can usually choose your elimination period when you establish your policy. Some policies will waive the elimination period for in-home care.

Can I Customize My Policy?

Many long-term care insurance providers allow you to tailor your policy with additional benefits or policy riders if there are certain things you want to be covered. A few examples include:

• Bed Reservation Coverage: Many nursing homes have waiting lists for beds. If you are in a nursing home and then must be hospitalized, a long-term care insurance policy that has “bed reservation” coverage will continue to pay for your nursing home bed for up to a specified number of days so that your nursing home bed is not given away to a new resident while you are in the hospital.
• Home Modification Coverage: Some policies will provide coverage for home modifications, like a ramp if you are still residing in your home. 
• Respite Care Coverage: Some policies will cover a specified number of days of respite care—temporary care in an assisted living facility or nursing home to give your in-home caregivers a break or allow them to take a vacation.
• Return of Premium Rider: This type of policy rider provides that upon your death, the premiums that you paid for the policy (usually reduced by any benefits paid under the policy) will be refunded to your estate or to a named beneficiary.
• Inflation Rider: This type of policy rider increases the benefit amount annually in an effort to keep up with the rising costs of care. Some inflation riders are based on simple interest, while others are based on compound interest. The method of calculation can make a dramatic difference to your benefits in the long run.

So Why Do I Need a Long-Term Care Plan?

The two most common reasons why people create a long-term care plan are:

• To preserve as much independence and dignity during later years of life
• To protect loved ones from the physical, emotional, and financial toll that long-term care can wreck on the family.

A well-designed long-term care plan can allow you to receive the majority of your care in your desired care environment—which, for most, is in the comfort of your own home—while minimizing the impact on your spouse, children, or other family members. A long-term care plan can also mitigate your financial risk from long-term care expenses to preserve your wealth for your spouse and family.

The Real Reason You Need a Long-Term Care Plan

I can cite all of the statistics about risk and potential costs, but what I’ve learned over the years is that most people don’t expect it to happen to them. Regardless of what the statistics might say about our likelihood of needing long-term care, most people still think it will happen to someone else but not to them. I get it. I’d also like to think that I won’t need long-term care in the future. I try to eat well and exercise. I’m in a profession that helps keep my brain sharp. But I recently learned about one of my colleagues who recently retired…and is showing significant signs of memory loss and early signs of dementia. My point is that none of us is immune from the risks of long-term care impacting us or someone close to us.

I’ve learned that the real reason why most people engage in long-term care planning is due to the potential consequences to their loved ones.

Let’s look at an analogy:

The statistical likelihood of someone dying during their working years is only about 2%. Yet most people buy life insurance. Why? Because the potential consequences of a premature death to their loved ones can be so financially devastating.

According to the National Alliance for Caregiving, only about 6% of long-term care is provided by a spouse. A whopping 83% of care is provided by other family members—the most common being the oldest daughter.

Adult children caregivers often have full-time jobs and have immediate families of their own, including children that are still dependent or semi-dependent.  They are the sandwich generation—caring for their own children while also caring for parents or older relatives. Many family caregivers eventually cut back on their hours or stop working entirely in order to care for their aging loved one.

• The average family caregiver spends more than four years of his or her life caring for a loved one.
• A 2011 MetLife study found that the total financial impact to a family caregiver is $303,880 between lost wages, lost social security and pension benefits due to the lost wages, and out-of-pocket expenses. (Some studies have estimated that this figure may even higher as it is difficult to quantify lost wages, lost opportunities for promotion, and similar.)
• 26% of adult children caregivers wind up spending their own retirement assets paying for their parent’s long-term care.

Professionally, I have found it interesting to observe parents who will go to great lengths to figure out how to pay for their children’s college education but then fail to put long-term care in place. While I’ve yet to see a study with a side-by-side comparison, my guess is that the financial detriment of failing to have a long-term care plan may exceed the financial benefit of helping a child graduate college debt-free.

And the above statistics are focused primarily just on the financial impact on family caregivers. But what about the physical and emotional impact? Many caregivers suffer from increased blood pressure, increased stress, and, often, depression. It’s common for family caregivers to neglect their own well-being. When you’re busy caring for a loved one day in and day out, it can be difficult to near impossible to make time for healthy eating, exercise, and regular wellness checkups.

As one caregiver summarized in the PBS documentary, And Thou Shalt Honor, with regards to caring for her husband with Alzheimer’s disease:

“When I got married, I never understood what ‘in sickness and in health’ meant. Now I do: His sickness, my health. For it to be easy for me, it would have to be over for him, and that’s unacceptable. I often wonder: Will there be anything left of me? Will there be anything left for me.”

Sometimes you’ll hear the expression “he suffers from Alzheimer’s.” But the reality is that he probably isn’t suffering—his family is suffering from Alzheimer’s.

Psychological Benefits of a Long-Term Care Plan

It’s not discussed as often, but the psychological benefits of having a long-term care plan can be tremendous.

Psychological Benefits for You

First, there is the peace of mind for yourself of knowing that you have a plan for the worst-case scenario and you have done what you can to preserve your independence and dignity and protect your loved ones.

Second, it gives you more freedom during retirement. We’ve seen many retirees who, prior to retirement, dreamed of their “golden years,” including traveling and taking up new hobbies. But when retirement arrives, they fear running out of money during retirement. What if there is a recession that wipes out a significant portion of your retirement savings? What if you have significant health care costs or long-term care costs during retirement? If you have a long-term care plan that protects you from future long-term care costs, this gives you more financial freedom to enjoy yourself during retirement.

Psychological Benefits to Your Family

Many financial advisors are notorious for telling their clients that they can just self-fund long-term care expenses and that they don’t need a separate long-term care plan, but consider this story from a colleague:

Jane’s mother was diagnosed with Alzheimer’s disease at age 67. Jane’s family was somewhat wealthy, and they had been advised by their lawyer, accountant, and financial advisor that they could afford to pay for long-term care out-of-pocket. Yet Jane still decided to visit an elder law attorney for advice about Medicaid Planning. “Rationally, we understand that Medicaid planning may not seem appropriate,” she said, “but the disease is running our lives. We don’t know what to do, and we are still afraid that there won’t be enough money.”

Years later, Jane called the elder law attorney. Jane’s father had died before Jane’s mother. Jane thought that the stress of caring for her mother contributed to her father’s death. She said that he was always worrying about money and that there would not be enough.

If the family had had a long-term care plan, they would not have had to worry about running out of money, and they likely would have sought assistance with caregiving sooner. We see this all too often with clients. If they don’t have a long-term care plan, the family members burn themselves out trying to care for their spouse or parent before finally seeking help, all because they’re worried that there won’t be enough money or the money won’t last long enough.

We Can Help You Develop a Long-Term Care Plan

Having assisted many Wake County clients with long-term care planning, our team at Carolina Family Estate Planning understands that developing a long-term care plan is about not just protecting your own independence and dignity, but also protecting those you love from the physical, emotional, and financial toll that caring for a loved one can take.