Medicare, Long-Term Care, and Family

The 98-year old woman lived in an assisted living facility on the eastside of Indianapolis. Wanda* was struggling with dizziness whenever she stood up. Orthostatic hypotension is an excessive fall in blood pressure that occurs when a person stands up or is upright.  Something wasn’t right and the medical personnel at the facility were concerned. And then Wanda fell.

She was admitted to a nearby hospital for treatment. Two of the assisted living facility’s primary caregivers went to the hospital to brief medical personnel about the problems Wanda was having when she stood. They told doctors that Wanda was orthostatic but that they didn’t know why. The doctor overseeing Wanda’s case discharged her after two nights,  but kept her in the hospital for observation for an additional two nights. Wanda was an outpatient for her final two nights at the hospital even though, as far as Wanda or her loved ones knew, the hospital’s medical personnel were taking care of her exactly as they had done before her status change. However, the paperwork drill that “discharged” her from the hospital, but kept her at the hospital as an outpatient, has had severe consequences for Wanda and her family.

Medicare will only cover the cost of rehabilitation following an inpatient stay of at least  three nights. Three nights gets you up to 100 days of coverage by Medicare in long-term care at a skilled nursing facility for rehabilitation (although only the first 20 days are completely covered with the remaining 80 days requiring a co-pay that can run up to $152 per day in 2014). Two nights in a hospital doesn’t get you squat… or not much more than squat. Wanda needed rehabilitation but couldn’t afford it. Worse, Wanda was now a two-person transfer (two people required to move her) and her existing assisted living facility, her home for many years, was unable to accommodate her any longer. It didn’t have the personnel to provide the necessary level of care and Wanda couldn’t afford to hire a private caregiver to augment the assisted living facility’s staff.

Wanda has moved in with her family. Her granddaughter is now attempting to care for her. She did receive some training in transferring her Grandmother so that she could get into a bathtub or use the toilet – her training was paid for in part by Medicare.  The emotional, financial, and physical toll taken on primary and secondary nonprofessional caregivers is substantial.  According to a 2010 study “Beyond Dollars – The True Impact of Long Term Caring”:

• The average age of primary care givers is 53, with 42% caring for a mother, 14% for a father, and 13% for a spouse.
• 42% reported that the care recipient resided in their home for a period of three years or more.
• The financial impact was widespread, with 83% contributing financially, 63% reporting lost income of an average of 23% of household income, 61% reducing savings by an average of 63%, 57% dipping into their own retirement funds and/or savings, 45% cutting back on their own family expenses, 40% reducing family vacations, and 29% borrowing money, taking out a reverse mortgage and/or selling their home.
• 57% provided care for more than 16 hours each week and 31% provided care for more than 30 hours each week.
• Over a third reported direct negative consequences to their own careers, including 44% working fewer hours, 48% lost a job, changed shifts and/or missed career opportunities, 38% incurred repeated absences from work, and 17% found themselves repeatedly late for work.
• The impact on family and relationships included 44% experiencing an increase in stress with their spouse, 27% reported stress with siblings, 23% experienced an increase in stress with their children, 20% reported reduced time with children, and 58% reduced savings for college education.

The hospital personnel who “discharged” Wanda after two nights, moving her from inpatient status to observation services status,  almost certainly knew that by doing so Wanda wouldn’t be eligible for Medicare covered rehabilitation at a skilled nursing facility (SNF) because of Medicare’s 3-day prior inpatient care requirement. Hospital personnel may have also known, but not cared, that moving Wanda to Observation Status (OS) would be more costly for Wanda and her family because there is no cap on beneficiary cost sharing for OS visits.

Why do it then?

Perhaps because The Affordable Care Act added a section to the Social Security Act establishing the Hospital Readmissions Reduction Program, which requires a reduction in payments to hospitals for excessive readmissions (readmissions to a hospital within 30 days of a discharge from the same or another related hospital following a 3-day inpatient visit).

Unintended consequences are very common when attempting to make public policy for complex, dynamic systems where feedback loops exist and the various players adapt. All too often the innocent are harmed. Wanda is worse off and Wanda’s family is worse off…not what was intended at all when the Affordable Care Act was signed into law.

 *Wanda isn’t the 98-year old’s real name. I promised the director of the assisted living facility I wouldn’t use any real names, including her own. She was worried about HIPAA violations.

The Long Term Care Time Bomb

A parent walked up to me before the start of softball practice last week with some bad news. His grandmother had died and he was taking  one of my best infielders to Florida for the funeral.  Tory would be at the 14U fastpitch games on Friday, I was told,  but would miss Saturday and Sunday (if we didn’t get bounced from the NSA Indiana State tournament on Saturday).

Of course I felt bad for him; a death in the family, expected or not, is never easy.  The softball parent’s grandmother was 91-years old and had been in a nursing home.  He let me know that the family wasn’t surprised the end had come.  Grandma had been in the nursing home for a while.  I already knew, without having to ask, that the nursing home was costing someone a substantial amount.  Nevertheless, he volunteered his shock at the expense.

Conflicting emotions abound within and among family members when a death watch begins.  The financial burden simply adds to the stress.  People often feel guilty when they find themselves wishing for it to end, and guiltier still when money fears rise. Spouses wanting to know if there will be anything left for them when it is their turn. Sons and daughters, grandsons and granddaughters, loving their elders, understanding the suffering, but often hoping that there will be some money left for their own retirement, or their childrens’ education.  The cauldron of emotions bubbling up inside long-term care situations can create mental and physical turmoil that brings its own collateral damage.

Long-term Care planning is an often overlooked aspect of retirement planning, yet it is a hugely critical piece of the planning puzzle, given the tremendous increases in long-term care costs, both current and projected.  Long-term care cost varies around the country, but can run from $63,875 on average in Phoenix, AZ in 2011 to as much as $124,830 on average in the same year in Boston MA. Yet many people do not plan for long-term care expenses at all when planning their retirement. In fact, a recent Nationwide Financial survey of 813 respondents showed that 57% had not taken long-term care costs into consideration.  Furthermore, the survey respondents, as a group, were woefully out of touch with the rising costs of long-term care. The survey respondents estimated on average that nursing home care will cost only $111,507 per year by 2030, less than half the actual industry estimates of $265,000 per year.

Denial is not a viable planning strategy, yet it is a common course of (in)action. Although 57% of respondents in the Nationwide survey said they haven’t taken long-term care costs into consideration, fully 70% of Americans over age 65 will need long-term care at some point, according to the U.S. Department of Health and Human Services.   Another data point that shouts denial – Americans age 50 or older, not currently in retirement, estimate they will live only 20.7 years after they retire, while those already in retirement expect to live 27.1 years in retirement.  Planning your finances for a 21 year retirement, while subsequently experiencing a 27 year retirement, is not a winning strategy…

While it is true that the trend is toward retiring later, it is also true that lifespans are increasing rapidly.

Science writer Josh Mitteldorf  points out that increases in life expectancy since 1970 run more than 10 years in Japan and 9 years in Europe. He goes on to write that for every year that goes by, 3 months are added to life expectancy for people over 70-years of age.  Unfortunately, dementia is a rapidly growing condition among seniors that is tightly tied to aging.  The risk of dementia doubles every five years in people 70-years and older, according to Harvard economist David Laibson.

Each case of dementia costs between $41,000 and $56,000 annually, according to a recent study done by the RAND corporation.  Researchers project that the total costs of dementia care will more than double by 2040, to a range of $379 billion to $511 billion, from $159 billion to $215 billion in 2010.  But it isn’t just the coming rapid increase in dementia that is likely to continue to drive health care costs higher. New treatments for such common diseases as prostate cancer are prolonging life, but also bringing heavy financial burdens to the healthcare system and individuals as well. One new treatment for prostate cancer, for instance, runs $100,000 per year.

Don’t count on the government to bail you out though. The United States already spends more than one-third of all tax receipts on healthcare according to the White House Budget Office. Last year the federal government collected about $2.5 trillion in revenue and spent over $900 billion in healthcare. Medicare alone cost $545 billion while Medicaid cost  approximately $250 billion.  Nevertheless, seniors continue to spend hundreds of thousands of dollars in out-of-pocket health-care expenses during retirement. Yet despite the high out-of-pocket expenses and the tremendous impact health-care costs can have on a retirement, one recent Harris Interactive survey found that 38% of those surveyed hadn’t discussed retirement health-care costs with a financial planner or financial advisor.

What’s that you say? You’re not going to need a nursing home? Assisted living? In-home care?

The occurrence of Alzheimer’s is projected to triple by 2050. Other diseases among the leading causes of death for seniors include cardiovascular disease, cancer, chronic respiratory disease and stroke, according to the Centers for Disease Control (CDC) – all of them involve lengthy treatments and care. The Center for Medicare and Medicaid Services says 64% of seniors struggle with three or more activities of daily life (ADLs), such as bathing, dressing, eating, getting in an out of bed or chairs, walking or using a toilet.  Approximately 44% of people reaching age 65 are expected to enter a nursing home at least once in their lifetimes. about 53% of the 44% staying in a nursing home will do so for one year or more. The Department of Health and Human Services estimates 10% of those entering a nursing home will be there for five or more years. The American Association of Retired Persons estimates that the lifetime probability of becoming disabled in at least two ADLs or being cognitively impaired is 68% for people aged 65 or older.

Building a flexible financial plan to optimize your chances of having a comfortable retirement demands taking health care planning and costs into account.  Do it for yourself. Do it for your spouse. Do it for your kids, your grandkids, and all of your other loved ones. All too often the fallout from long-term care situations creates ripples of trauma that reach far beyond the individual needing the long-term care. Avoidance, the Ostrich Effect, can create needless additional pain and suffering, pain and suffering that can be avoided with some thoughtful planning.

Long-Term Care Crisis

Medical costs are exploding.

And America is aging rapidly as the leading edge of the nation’s 78 million baby boomers – now 67 – careens into retirement and into the heavy health care utilization years.  Instances of Alzheimer’s, in particular, will surge since age is the primary risk factor for the disease. It is currently estimated that just 13% of people 65 and older have Alzheimer’s while nearly half of those 85 and older suffer from the disease, according to the Alzheimer’s Association.  The number of Americans with Alzheimer’s will almost triple from 5 million today to almost 14 million by 2050 – more victims than the current population of Illinois.

Unfortunately, it is all too common for early signs of the disease to escape notice, even as the high-level functions required to handle financial tasks like paying bills, balancing a check book, or reading a brokerage account statement are degraded.  All too often, recognition that a loved one has dementia is delayed until some shocking event occurs. For example the man who called up his daughter asking for a loan to pay some bills…even though he had a net worth of some $5.5 million, much of it liquid.  Or the widow who bought the same variable annuity from the same insurance salesman some 9 months apart… apparently having forgotten she bought the first one. 

But the coming long-term care crisis isn’t just limited to Alzheimer’s or other forms of dementia (such as cardiovascular dementia). Already 1 in 7 people over age 65 needs in-home care, and nearly 40 percent of those older than 85 need some form of care, according to the Urban Institute.  An additional 1.6 million seniors live in nursing homes, and half of them are 85 or older. As many as 70 percent of  people who are now 65 will need long-term care at some point during their remaining lives, also according to the Urban Institute.

The financial burden of long-term care is enough to shatter a retirement plan, given the rapidly rising costs. Long-term care costs can now top $100,000 per year in some areas and the average cost per year for a nursing home is projected to be $265,000 per year by 2030, according to Nationwide Financial.  Yet the vast majority of Americans make no allowance for possible long-term care costs in their retirement plan.

The Employee Benefit Research Institute sponsors a detailed look at the retirement confidence of U.S. workers and retirees every year.  The institute’s findings are discouraging to say the least.  Private long-term care insurance is owned by about 1 in 8 seniors aged 65 and older, but fewer than 9 percent of people between the ages of 55 and 64 own it. Fewer than 20 percent of Americans earning more than $100,000 per year have long-term care policies.  Those Americans looking for state and federal governments to pick up the tab might find themselves waiting in vain for needed assistance given that government healthcare and entitlement program cutbacks are inevitable (Unfunded government liabilities – primarily social security, medicare, and Medicaid – have soared to over $75 trillion by some estimates. Government can’t possibly meet all of those commitments and will default in some form or other – most likely with inflation playing a major role).

Planning for long-term care costs is a MAJOR part of any retirement plan, yet almost no one does it nor do many even talk about it.  In fact, a minority of people over 50 years of age have discussed the implications of long-term health care costs with their children or their parents and less than one-quarter have talked with their financial advisors about it, according to one recent survey.  Only 10 percent have discussed long-term care with their children, while 6 percent have talked about it with their parents and only 23 percent have talked about it with their advisor (the last is particularly astonishing given that most people are relying on their financial advisor to help them have a successful retirement!)

NOW FOR THE REALLY IMPORTANT PART!!!!!!!

It is possible to create a retirement plan that contains a carefully thought out long-term care contingency. Long-term care insurance is changing rapidly, but it is still possible to navigate through the choices to arrive at an acceptable solution, especially with the help of a knowledgeable advisor. As well, there are estate-planning steps that can be taken to protect assets for future generations. Finally, there are public/private partnerships that have formed to help deal with the rising cost of insurance, while still allowing participants to shelter assets for their loved ones.  For instance, the state of Indiana  has a long-term care insurance program known as the “Indiana Partnership” that provides residents with high quality, affordable long-term care insurance policies containing a Medicaid Asset Protection benefit, which can shelter at least some assets, rather than requiring all assets to be spent prior to Medicaid eligibility.

Positive steps can and should be taken. No plan is not an answer to what promises to be one of the most pressing financial crisises of the next 30 years.

Still aren’t pursuaded to act? Then how about this…

“The adult son of a former nursing home resident has been determined responsible for paying his mother’s $93,000 bill by a Pennsylvania appeals court, reports Forbes, and this might be the beginning of a new trend. 

Pennsylvania is one of 30 states that have filial responsibility statutes—laws that impose a duty on adult children to care for their indigent parents. About two-thirds of those states, including Pennsylvania, allow long-term care providers to sue family members to recover unpaid costs.”

In medieval times it was quite common for families to be forced to take on the debts of their parents. Often debtors were thrown into prison until the family paid off the debt… sounds like maybe our future is our past… at least when it comes to the looming long-term care crisis.