Planning for long-term care: protecting yourself and your family with long-term care insurance.

"I've always had a saying," said retired club manager Joseph Brem, CCM, "'There is no today if yesterday l didn't plan for tomorrow.'"

So when Brem retired in 1993 from Paradise Valley Country Club in Scottsdale, AZ after an accomplished career in club management--which included being named Club Management Manager of the Year in 1989--he was certain that he was set up well for his later years. "I felt we had taken care of ourselves," he said. "We had saved up some money, and I had a pension from the club." In an ideal world, and after many years of hard work, it was time for the Brems to start enjoying their golden years.

"Then, in February of 1995," he continued, "My wife Jane suffered a brain aneurysm, which left her paralyzed on one side." The severe nature of Jane's condition required that she receive constant care if she were to stay in the couple's home. Such an arrangement, however, was costly. "Medicare covered 100 days of nursing care, but I eventually decided that I would take care of her myself."

Months went by and after a year of serving as Jane's caregiver, Brem was suddenly faced with his own medical emergency. "In 1996, I had my heart attack," he said. The build-up of stress and the focusing of attention away from his own needs had taken a gradual toll on Brem's health. "From that point on, it became necessary for me to hire outside nurses to come in and care for Jane. Placing her in a Medicare-supported facility was, in my opinion, completely out of the question."

For the next several years, nurses and auxiliary care professionals paid daily visits to the Brems' home in order to take care of Jane's needs. Since the cost of in-home care far exceeded the cost of care in a Medicare-funded nursing home--and the cost had to be paid entirely out-of-pocket--the financial toll was enormous. "When Jane passed away in October of 2000," Brem said, "I was two months from being completely wiped out." The resources Brem had amassed during his career were simply no match for the overwhelming cost of long-term, in-home care.

"This is something that every manager should be aware of, because it can happen to anyone."

The True Cost of Long-Term Care 

The Brems' experience illustrates the importance of understanding the limitations of government programs such as Medicare. Unfortunately, there is a common misconception that Medicare or another federal or state program will shoulder the entire financial burden of long-term care. There are, however, a myriad of strict guidelines for what Medicare will pay for, for whom, and for how long. This is especially true in the case of private club managers, whose income and assets may likely limit or exclude them from certain programs until they have "spent down" to a government-determined qualifying level.

In general, Medicare consists of two elements: hospital insurance, which pays for skilled care in a nursing home or for home health care once certain requirements are met; and medical insurance, which is supplemental and optional coverage. The entire program is designed for individuals age 65 and over, who also meet a set of requirements established by the Social Security system. What is most notable, however, is that Medicare does not cover the costs of long-term or custodial care. It will only pay for "medically necessary skilled nursing facility or home health care," according to Medicare's website at www.medicare.gov/LongTermCare/Static/Home.asp. In addition, of the home health aide services Medicare does pay for, it only does so "on a part-time or intermittent basis." Finally, all of these services must be rendered by facilities or organizations that are "Medicare-approved."

The term "skilled" makes all the difference when discussing the nuts and bolts of long-term care. Medicare defines long-term care as "a variety of services that includes medical and non-medical care to people who have a chronic illness or disability." Skilled care, however, is designed to address acute health care needs, not the daily caregiving tasks of feeding, bathing, or help with using the bathroom. Unless at-home care functions such as these are deemed medically necessary, Medicare will not cover those expenses. And the cost of such care can add up--fast.

When Jane suffered her stroke, Medicare covered a portion of her skilled nursing home care for up to 100 days. For the first 20 days of care, Medicare will cover 100 percent of a patient's nursing care bills. For days 21-100, however, unless an individual carries a Medicare supplemental insurance policy such as Medigap, the patient is required to pay the co-payment from their Medicare policy. And after day 100, no further non-skilled care is provided. The Medicaid program will assist with some of these functions, but these benefits are reserved for older people with low incomes and limited assets--$2,000 or less in many states.

The bottom line: managers have to make other arrangements to pay for long-term care, if and when it becomes necessary. Medicare will pay for medically necessary treatment and care, but not the custodial care offered in alternative settings as adult daycare centers, assisted living facilities, or in one's own home. The idea of self-insuring--saving enough money to pay for all expenses out-of-pocket--is not a reasonable option for most individuals. A 2003 survey by Metropolitan Life Insurance estimates that by the year 2021, when today's 60-year olds might need such care, the annual cost of care at a nursing home will be $175,200, or $480 per day.

Long-Term Care Insurance

Faced with such staggering figures, a growing number of people are turning to what is known as long-term care (LTC) insurance, a type of coverage that has been around since the mid-1980s. According to AARP, however, the overall role of LTC insurance is still limited: Currently, it only pays for about 11 percent of all long-term care costs.

"LTC insurance began about 20 to 25 years ago as a nursing home type of contract," said Allan Silverberg, a financial advisor with St. Louis-based B.A. Barnhart & Associates. "Unfortunately, most people still see it only as that."

Originally designed as basic Medicare supplement policies, the new breed of LTC insurance plans are designed to pay for a wide range of medical and support services for people living with a degenerative condition (Parkinson's, stroke), a prolonged illness (cancer), or a severe cognitive disorder (Alzheimer's). Unlike basic nursing home policies, LTC insurance offers individuals a greater degree of choice in choosing the care that's right for them, whether it is through the use of home care aides, assisted living facilities, etc.

Benefits are generally activated when the policyholder is unable to perform two out of six functions known as "activities of daily living," or ADLs, without assistance. The six ADLs are: climbing out of bed, walking to the bathroom, using the toilet, bathing or showering, getting dressed, and eating. LTC policies pay an amount either on a daily or monthly basis. For this reason, it is important to know the cost of care in your area before selecting a policy, as it can vary widely by region and state. Each policy also includes an "elimination period," or the period of time you will pay for services on your own before the insurance kicks in. Finally, the total period of time for which benefits can be received can range from several years to a lifetime of coverage. All of these factors will affect that the price of the yearly premium, which can vary greatly when figured in with other criteria such as age at time of enrollment.

Silverberg suggests the following guidelines when selecting a LTC insurer:

* Make sure that the policy will cover at least 70 to 80 percent of your incurred expenses.

* Insist on the inclusion of an inflationary rider in the policy. This is the best way to protect you from rising costs in the future.

* Have a plan with as little upfront wait for healthcare benefits.

* Look for an insurer who will provide you with you a care coordinator who will assist you in putting together a plan of need.

* Be on the lookout for policies that offer sizeable discounts for husbands and wives who buy policies together, and for non-smokers.

* Get the maximum amount of coverage you feel you need.

The Price of Peace of Mind

The decision to purchase LTC coverage should be made sooner rather than later. "People in their 40s or 50s should be looking into this coverage," Silverberg said. Waiting any longer to purchase LTC insurance not only makes the annual premiums more expensive, but also may exclude you from coverage because of underlying reasons.

LTC insurance coverage is still relatively new. A common concern in the industry is properly pricing coverage for years to come. Individuals seeking coverage should look to carriers that have been in the LTC insurance business for a long time and have not raised their rates to their present policyholders. The fact that premiums have not been raised is not an absolute guarantee that rates will not be raised in the future.

Silverberg suggests steering clear of policies that contain an unreasonable number of waivers, particularly those that refuse coverage for mental illness. While all of the policies generally agree on basic terms such as the number of ADLs a person is unable to perform, each customer needs to find the policy that works best for their situation.

As it stands, LTC insurance may not be perfect, but it can go a long way in protecting you from economic disaster. "It's basically a roll of the dice as to whether you will actually need the coverage or not," Joe Brem said. "But if you can maintain your standard of living and pay the premium, then it makes sense. I've been advocating this since October 2000, and I think more managers should seek to add this to their benefits package."

Investment products and services are offered through Wachovia Securities Financial Network, LLC, member NASD/SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wachovia Corporation. Insurance products and services are available through insurance subsidiaries of Wachovia Corporation and other underwriters. Not available in all states. The opinions expressed in this article are those of the author and are not necessarily those of Wachovia Securities Financial Network or its affiliates.