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Aging Well Takes More than Time

New Laws, Rising Costs Make Planning Mandatory

By Mark Huffman
ConsumerAffairs.com

November 13, 2006

• Aging Well Takes More than Time • All About Annuities • Afraid of Outliving Your Money? • Picking the Right Mutual Funds --- • Senior Consumers News

For the last 50 years or so, it was not unusual for elderly people to spend their last days in a nursing home, surrounded by strangers, too seldom given much personal attention, too often neglected and abused.

Today, nursing homes are becoming a last resort. Instead, the emphasis is on "aging well," maintaining an established quality of life in familiar, comfortable surroundings.

"Most Americans prefer to remain in their own homes, especially by the time they become a little frail and need assistance to perform such activities as getting out of bed, dressing, making meals, feeding themselves and making sure they take their medications," said Val J. Halamandaris, President of the National Association for Home Care and Hospice.

Even those who depend on Medicaid for long-term care no longer must spend their final days in nursing homes. The U.S. Supreme Court ruled in 1999 that Americans have a constitutional right to be cared for in the least restrictive environment -- which means at home.

Halamandaris says the future of aging is at home, allowing trained health service providers to care for the elderly where they are most comfortable. National polls consistently show that some 80 percent of Americans express a preference for aging at home, and those numbers are likely to climb in the future.

"We deal with a lot of baby boomers who are dealing with their aging parents. It's been a real wake-up call for them and many have told us they want to do everything they can to make sure that, when the time comes, they can remain in their own homes," said Tom Lee, an elder care attorney and executive director of Senior Resources of America.

To do that, Lee says, requires planning. And just like saving for retirement, planning for old age is more effective if you start early.

What goes into planning for old age? First and foremost is living a healthy lifestyle, followed by planning your finances.

The best old age is one that resembles your younger years, and most experts in the aging field will tell you their goal is to live a healthy and vigorous life well into their 80s or 90s, then die suddenly without a protracted period of frailty and dependence on others. Making this happen requires eating right, avoiding tobacco, staying fit, picking your ancestors carefully and being lucky.

Of course, not everyone is lucky enough to be healthy 'til the end. Most of us will need long-term care at some point, and that's when we'll learn that quality care is expensive. Whether the care is administered at home or in an institution, the costs can be staggering.

For seniors age 65 and older, Medicare covers many -- but certainly not all -- of the routine health care costs associated with aging. However, it does not cover the extra care required by an elderly person who can no longer perform many of the routines of daily living and it does not cover long-term nursing home care.

Cost-Cutting Hits Hard

In the past Medicaid, a program for the poor, covered nursing home costs for many elderly who simply couldn't afford the cost of long-term care. But thanks to the Deficit Reduction Act of 2005, Medicaid is no longer an option for a growing number of Americans.

"Federal law has changed so that an individual with a home with over $500,000 in equity will be excluded from eligibility for Medicaid," Lee told ConsumerAffairs.com.

That means someone in that situation would have to sell their home and spend the proceeds on nursing home care before Medicaid would kick in.

"The other major change in this new law affecting Medicaid has to do with the 'look-back period' for transfers of assets," Lee said. "People in the past have been able to transfer their assets to family members as they have approached the time for custodial care. Under the old law the look-back period was three years. Under the new law, its 60 months, or five years."

If someone transfers assets to a family member within that five-year period prior to applying for Medicaid, they would be excluded from Medicaid based on a formula that includes their state's monthly Medicaid benefit and the amount of the assets transferred. For example, if someone transferred $50,000 and the state Medicaid programs pays $2,500 a month in support, they would be banned from Medicaid coverage for 20 months, or almost two years.

Shrinking options, rising costs and a growing demographic bulge are making elder care a growing concern for many families. That also makes it a growing concern for businesses. In fact, long-term care for adults is starting to rival childcare as a problem affecting the business focus of American employees.

"Already, in many companies, we find that workers are more concerned with caring for a parent than a child," said Dan Cahn, Senior Vice President of Business Development for LTC Financial Partners, a leading long-term care insurance broker.

Cahn points to a 2006 study conducted by the MetLife Mature Market Institute which found that American companies lose a total of $33.6 billion per year as a result of demands on employees who must care for an incapacitated loved one, such as an aging parent.

The losses stem from a combination of absenteeism, workday interruptions, unpaid leave, and other productivity-related causes including replacement cost when employees quit to tend a loved one fulltime.

"With 77 million Baby Boomers set to retire, an ever greater percentage of workers will be distracted by elder-care needs," said Cahn. "The childcare crisis was solved by day care centers, flextime and such. Now we need to face the long-term healthcare crisis."

Planning is Everything

Lee agrees. The key element, he says, is planning. Regardless of how the political winds blow over the next few years, families can no longer count on the government to provide comprehensive care for the frail elderly.

"The sooner you start planning, the better," he said.

The first step is setting up estate planning documents. Those documents should include at a minimum:

• Will - A legal document to distribute your assets at death. This is the very simplest and most basic preparedness step;

• Power of Attorney - Very simply, designating someone else to manage your financial and legal affairs in the event you become incapacitated. Without this, relatives may be unable to access your financial accounts to pay for the care you need. (For an account of how this simple step saved the day, at least temporarily, for one older gentleman, see A Bad Fall.

• Health Care Directive - Sometimes called a "living will," a document that contains binding legal instructions for the administration of medical care if you become incapacitated. For example, you may want to specify no "heroic" measures or resuscitation if you are in a coma. Laws vary by state and you should consult an attorney to be sure your directive does what you want it to.

For some seniors, a living trust may also be advisable, although many scam artists use living trusts to scam seniors, persuading them to buy worthless annuities that do nothing but drain their life's savings. You should talk with your accountant and a trusted, reputable attorney familiar with elder law before setting up a living trust.

Warning! In general, living trusts are not appropriate for anyone with a net worth of less than several hundred thousand dollars. Alarm bells should go off if anyone tells you otherwise.

Long-Term Care Insurance

The next step is determining where you want to age and how you will pay for the care that you will need. Whether you choose to remain at home or to receive institutional care, the cost can amount to thousands of dollars a month. Pensions, Social Security, savings and other assets may -- but most likely won't -- cover it. That's why a growing number of consumers are looking into long-term care insurance.

A long-term care insurance policy pays a daily benefit once the policyholder meets certain guidelines. For example, a policy might pay a benefit of $150 a day for up to three years.

A big advantage of long-term care insurance is that it gives you more freedom to choose where you want to be cared for. There are several options:

• Home care - A trained health aide can be hired to come to your home each day to help you with the activities of daily living outlined above;

• Adult day care - A family member drops you off at an adult day center which offers activities, meals and, in some cases, light mental or physical therapy;

• Assisted living facility - Assisted living is generally sold as the next best thing to home. Most centers resemble luxury apartment buildings. Residents get help with daily activities, meal service and a wide range of social and recreation activities.

• Nursing home - Basically the last resort for many seniors, a nursing home all too often robs the elderly of their dignity while providing the barest minimum of care.

Most professionals agree that the biggest advantage of long-term care insurance is that it lets you decide what level of care you want, and are willing to pay for. If you buy a high-end policy, you will be able to spend your later years at home or in a luxurious assisting living facility. Without a policy, you're liable to end up being warehoused in a bare bones nursing home.

The annual premium depends on your age and health, when you purchase the policy and what level of care and inflation protection you choose. Like life insurance, most long-term care insurance requires medical underwriting.

Lee says it's not as stringent as life insurance, but you won't have much trouble finding seemingly healthy consumers who've been turned down. Being diagnosed with depression will often send up red flags at underwriting time.

"It's important for people to apply for long-term care insurance earlier in their lives rather than later," Lee said. However, critics note that buying long-term care too early can also be expensive. While the premiums are lower, you are paying for a much longer time. Thus, it's important to do the math.

Long-term care benefits kick in when the policyholder requires custodial care. Doctors assess whether the policyholder can perform a certain number of "activities of daily living," as they're called -- tasks such as meal preparation, showering, getting dressed, light housekeeping, etc. If your doctor certifies in writing that you are unable to perform any two of these activities, the benefits are paid, up to the limit set in the policy.

While long-term care insurance provides important benefits, it is not for everyone. Those who are independently wealthy obviously don't need it, and it is not appropriate for the "working poor," those who can barely make ends meet. But for those who are comfortably middle-class, a long-term care policy is often a good investment.

The Kaiser Family Foundation a few years ago issued a valuable report, Private Long-Term Care Insurance: Who Should Buy It and What Should They Buy?

The Kaiser report looks at how many working-age families can afford long-term care insurance, whether it is a sensible investment for people who are decades away from requiring long-term care, and how policies can be made more flexible, to keep pace with changes in long-term care delivery and financing.

The report also examines the affordability of long-term care policies for older people, what kind of policies make sense for seniors, and whether there are less costly products that might reach more buyers and still provide some meaningful protection.

"When you look at the risk of needing nursing home or in home care versus the cost, in most cases, as far as I'm concerned, it makes sense to get the coverage," Lee said. "You have car insurance and homeowners insurance and the risk of needing long-term care is higher than either one of those."

Maybe so, but others argue that many Americans would be better off putting the same amount of money into a diversified investment portfolio. It is a complex decision and one that should not be made without consulting with your tax advisor, an elder law attorney and a trusted certified financial planner.

A final cautionary note: Long-term care insurance is just that -- insurance -- and a policy is only as good as the company behind it. It's important to buy from a large, well-established company with an excellent rating. Again, unbiased, expert advice is essential.

Despite all the risks of being unprepared, there's little evidence that baby boomers are giving aging very much thought. A study commissioned by the GE Center for Financial Learning found that most boomers are unprepared for their long-term care needs. The study found only seven percent had an adequate plan in place.

The study found that 70 percent of baby boomers are relying on their own resources to take care of their long-term care needs. That leads health care professionals, aging experts, and even the National Governor's Association to fret that aging issues could well find Americans woefully unprepared when the demographic bulge born following World War II finally comes face to face with the realities of old age.

What Can You Do?

If you're preparing for your own old age or looking for help making arrangements for your parents, it's important to get expert advice early. It's an unfortunate fact of life that scam artists tend to prey on the elderly and it is a good rule of thumb to trust no one except those whose expertise is certified by a professional organization of some kind.

Likely candidates include:

• Elder Law Attorneys - Attorneys with special expertise in handling the legal issues that come with old age. They can also refer you to certified financial planners, geriatric care managers, social workers and others. Check with the National Academy of Elder Law Attorneys.

• Financial Planners - The Certified Financial Planner Board of Standards can direct you to CFPs in your area.

• Aging Organizations - The National Council on Aging's "Benefits Check-Up" is a quick, free and confidential way to be sure you're getting all the help you're entitled to.

They say that living well is the best revenge. Now's the time to get started.

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