'Second Generation' Long'Term-Care Planning

The Obama administration recently reversed course on a major provision of its landmark health care reform law. On Oct. 14, 2011, it was announced by Health and Human Services Secretary Kathleen Sebelius that the CLASS Act (Community Living Assistance Services and Support program) will not be implemented, despite rigorous effort to make it financially viable. CLASS was meant to offer a voluntary, publicly administered long'term-care insurance program that would allow elderly and disabled individuals needing care to stay at home and not move into a nursing home facility. The architect of the plan, Sen. Edward Kennedy, envisioned a social insurance program that would have workers pay into a fund during their healthy, working years in order to qualify for an insurance payout should they became disabled in the future. Ultimately, the CLASS Act was scrapped due to fears that the program could not be made fiscally solvent.

The death knell of this program is a setback for employers who were anticipating this program as a turnkey way to introduce long'term-care planning to employees. Most prudent employers recognize that unless employees are working privately with a financial adviser this insurance gap may not be addressed, leaving employees and their assets vulnerable.

In the absence of the implementation of the CLASS Act, employers who have not done so already might want to consider offering a private long'term-care insurance plan with an enrollment strategy that touches on paying for and planning for long-term care. History has taught us that while addressing how to pay for care is a necessity, having a formal care plan is just as important. When educating employees about long'term-care planning as a part of their comprehensive insurance coverage, it is helpful to expose them to professionals who can help design a plan, including geriatric care managers who can address designing and implementing a care plan as well as elder law attorneys to discuss documents that address health care preferences.

While numerous companies have previously offered long'term-care programs to employees, these first-generation efforts largely focused on recognizing the probability of needing care and payment options. If the decision was made to purchase insurance to transfer all or some of the risk, the planning was considered to be complete. Absent from the insurance education process was guidance about addressing health care preferences with family members or others who might be faced with difficult decisions about their care in the future. The reality is that the purchase of insurance to fund costs is only one of the components of a comprehensive Long'Term-Care Plan ' something that many learned after the fact.

Two Case Studies

Many employers believe that they help solve their employees' potential problems by offering long'term-care plans in good faith as part of their comprehensive insurance programs, but in many cases it has become evident as claims started to trickle in that there were critical gaps in planning that had not been anticipated. As an insurance adviser, I experienced this firsthand with a claim for an affluent client who had opted to purchase long'term-care insurance to fund future disability and long'term-care costs. Several years later when his health declined he required a daily aide to remain at home. A claim was filed with his insurance carrier, and he was found eligible for benefits immediately. The existing long'term-care insurance was functioning according to plan.

Unfortunately, over time, he required medication administered by injection and began to display signs of dementia. My client had four supportive adult children who visited regularly with one daughter who acted as the “quarterback” to manage his home and liaison with the home health care agency. When she informed the agency that her father needed injections, they indicated that she would require a registered nurse in addition to the aide, which would drive up the costs of daily home care dramatically. The daughter investigated transferring her father into a nursing home and found that he could receive the care of an aide as well as a registered nurse in a nursing home facility for substantially less out of pocket than remaining at home. Given that her father now had multiple issues, she felt the move to the nursing home would be a safer alternative than remaining at home.

Two of his children agreed that this was the right strategy, but the other two disagreed. The two dissenting children knew their father had verbally indicated to the entire family several years ago at a holiday celebration that he wanted to remain at home until death, if possible. While he didn't have enough insurance to fund all of the long'term-care expenses, his resources were more than sufficient to finance this higher level of care indefinitely. The dissenting children believed that the motivation to move their father to a nursing home was about preserving their inheritance and not about a concern for his safety. While all of the siblings had attended prestigious colleges and several had graduated from law school, they were counting on an inheritance to solidify their own long-term financial security.

Unfortunately, while my client had completed extensive planning to minimize estate taxes, his documents to address planning for a disability were very generic. He had an Advanced Health Care Directive and Living Will, but they did not state clearly his desire to stay at home irrespective of cost until it was no longer feasible either medically or financially. While I had discussed this extensively with him and it was reflected in my notes, it was not documented elsewhere. Ultimately, he remained at home until his death. Tragically, the relationship among his four children was damaged beyond repair with several siblings permanently estranged because of the dispute over his end-of-life care.

A second claim I was involved in with disputing siblings was just as unfortunate. Two sisters came to see me about their mother who had been residing in an assisted living facility for several years. Due to changes in her mental status, she had begun to wander the halls during the evening. The assisted living facility indicated that the sisters needed to hire a daily private-duty aide or move their mother to a memory impairment floor. The sisters did not agree on the best course of action; the addition of a private-duty aide would increase costs substantially, and one sister felt that her mother would not have approved of this additional expense. Between the mother's long'term-care insurance policy, pension and investment portfolio, affordability was not an issue. However, at this point almost $600,000 had been spent for care, and the dissenting sister was concerned that her mother's entire estate would be spent paying for her care. The dispute placed a heavy burden on sisters already carrying the weight of caring for and making heart-wrenching decisions for a declining, elderly parent.

The above case studies reflect the challenges when siblings do not agree on an elder parent's care; the conflicts can escalate when “blended families” face these issues without adequate written guidance. While estate planning routinely addresses protecting assets for adult children when a wealthy spouse marries again, often planning for a disability is largely ignored. Savvy spouses may recognize that their need for care could threaten the inheritance of adult children and they may purchase insurance, but once again this is only a component of a comprehensive plan.

'Second Generation' Long'Term-Care Planning

Understanding the importance of addressing how to pay for care, prudent employers need to engage in what I would call “Second Generation” Long'Term-Care Planning. Appointing a health care agent who will have the legal authority to make decisions is vital, but without more detailed instructions, it may not be sufficient to ensure that your employee's health care goals are implemented ' unwritten and unspoken goals need to become more explicit for planning to be complete. It is imperative to encourage employees to consider drafting a written long'term-care plan to detail their preferences while planning their long'term-care coverage, and to share it with family members or advisers before a crisis strikes. Employers shouldn't let the repeal of the CLASS Act derail their efforts in educating employees about planning for long-term care. While the CLASS Act would have provided access to an insurance plan for all employers and potential technology tools that might have eased enrollment, private insurance plans are available from a variety of traditional employee benefit providers. Options include plans with group discounts and/or underwriting concessions, as well as “second generation” enrollment materials to help employees determine how to pay for care and develop a comprehensive long'term-care plan for arranging care at the time of claim. Many carriers have recognized that insurance is just one element of a comprehensive plan and have developed materials that encourage a more complete approach to planning for a disability.

Kim Natovitz, CLU, is the founder and president of The Natovitz Group, Inc, an independent general agency that specializes in long-term care planning. Over the last 20 years, she has worked with financial advisers and clients to design and implement long-term care insurance plans for individuals as well as employer groups. Natovitz is an approved continuing educator provider for insurance brokers and certified financial planners and regularly conducts industry updates for accountants, attorneys and other advisers.

The Obama administration recently reversed course on a major provision of its landmark health care reform law. On Oct. 14, 2011, it was announced by Health and Human Services Secretary Kathleen Sebelius that the CLASS Act (Community Living Assistance Services and Support program) will not be implemented, despite rigorous effort to make it financially viable. CLASS was meant to offer a voluntary, publicly administered long'term-care insurance program that would allow elderly and disabled individuals needing care to stay at home and not move into a nursing home facility. The architect of the plan, Sen. Edward Kennedy, envisioned a social insurance program that would have workers pay into a fund during their healthy, working years in order to qualify for an insurance payout should they became disabled in the future. Ultimately, the CLASS Act was scrapped due to fears that the program could not be made fiscally solvent.

The death knell of this program is a setback for employers who were anticipating this program as a turnkey way to introduce long'term-care planning to employees. Most prudent employers recognize that unless employees are working privately with a financial adviser this insurance gap may not be addressed, leaving employees and their assets vulnerable.

In the absence of the implementation of the CLASS Act, employers who have not done so already might want to consider offering a private long'term-care insurance plan with an enrollment strategy that touches on paying for and planning for long-term care. History has taught us that while addressing how to pay for care is a necessity, having a formal care plan is just as important. When educating employees about long'term-care planning as a part of their comprehensive insurance coverage, it is helpful to expose them to professionals who can help design a plan, including geriatric care managers who can address designing and implementing a care plan as well as elder law attorneys to discuss documents that address health care preferences.

While numerous companies have previously offered long'term-care programs to employees, these first-generation efforts largely focused on recognizing the probability of needing care and payment options. If the decision was made to purchase insurance to transfer all or some of the risk, the planning was considered to be complete. Absent from the insurance education process was guidance about addressing health care preferences with family members or others who might be faced with difficult decisions about their care in the future. The reality is that the purchase of insurance to fund costs is only one of the components of a comprehensive Long'Term-Care Plan ' something that many learned after the fact.

Two Case Studies

Many employers believe that they help solve their employees' potential problems by offering long'term-care plans in good faith as part of their comprehensive insurance programs, but in many cases it has become evident as claims started to trickle in that there were critical gaps in planning that had not been anticipated. As an insurance adviser, I experienced this firsthand with a claim for an affluent client who had opted to purchase long'term-care insurance to fund future disability and long'term-care costs. Several years later when his health declined he required a daily aide to remain at home. A claim was filed with his insurance carrier, and he was found eligible for benefits immediately. The existing long'term-care insurance was functioning according to plan.

Unfortunately, over time, he required medication administered by injection and began to display signs of dementia. My client had four supportive adult children who visited regularly with one daughter who acted as the “quarterback” to manage his home and liaison with the home health care agency. When she informed the agency that her father needed injections, they indicated that she would require a registered nurse in addition to the aide, which would drive up the costs of daily home care dramatically. The daughter investigated transferring her father into a nursing home and found that he could receive the care of an aide as well as a registered nurse in a nursing home facility for substantially less out of pocket than remaining at home. Given that her father now had multiple issues, she felt the move to the nursing home would be a safer alternative than remaining at home.

Two of his children agreed that this was the right strategy, but the other two disagreed. The two dissenting children knew their father had verbally indicated to the entire family several years ago at a holiday celebration that he wanted to remain at home until death, if possible. While he didn't have enough insurance to fund all of the long'term-care expenses, his resources were more than sufficient to finance this higher level of care indefinitely. The dissenting children believed that the motivation to move their father to a nursing home was about preserving their inheritance and not about a concern for his safety. While all of the siblings had attended prestigious colleges and several had graduated from law school, they were counting on an inheritance to solidify their own long-term financial security.

Unfortunately, while my client had completed extensive planning to minimize estate taxes, his documents to address planning for a disability were very generic. He had an Advanced Health Care Directive and Living Will, but they did not state clearly his desire to stay at home irrespective of cost until it was no longer feasible either medically or financially. While I had discussed this extensively with him and it was reflected in my notes, it was not documented elsewhere. Ultimately, he remained at home until his death. Tragically, the relationship among his four children was damaged beyond repair with several siblings permanently estranged because of the dispute over his end-of-life care.

A second claim I was involved in with disputing siblings was just as unfortunate. Two sisters came to see me about their mother who had been residing in an assisted living facility for several years. Due to changes in her mental status, she had begun to wander the halls during the evening. The assisted living facility indicated that the sisters needed to hire a daily private-duty aide or move their mother to a memory impairment floor. The sisters did not agree on the best course of action; the addition of a private-duty aide would increase costs substantially, and one sister felt that her mother would not have approved of this additional expense. Between the mother's long'term-care insurance policy, pension and investment portfolio, affordability was not an issue. However, at this point almost $600,000 had been spent for care, and the dissenting sister was concerned that her mother's entire estate would be spent paying for her care. The dispute placed a heavy burden on sisters already carrying the weight of caring for and making heart-wrenching decisions for a declining, elderly parent.

The above case studies reflect the challenges when siblings do not agree on an elder parent's care; the conflicts can escalate when “blended families” face these issues without adequate written guidance. While estate planning routinely addresses protecting assets for adult children when a wealthy spouse marries again, often planning for a disability is largely ignored. Savvy spouses may recognize that their need for care could threaten the inheritance of adult children and they may purchase insurance, but once again this is only a component of a comprehensive plan.

'Second Generation' Long'Term-Care Planning

Understanding the importance of addressing how to pay for care, prudent employers need to engage in what I would call “Second Generation” Long'Term-Care Planning. Appointing a health care agent who will have the legal authority to make decisions is vital, but without more detailed instructions, it may not be sufficient to ensure that your employee's health care goals are implemented ' unwritten and unspoken goals need to become more explicit for planning to be complete. It is imperative to encourage employees to consider drafting a written long'term-care plan to detail their preferences while planning their long'term-care coverage, and to share it with family members or advisers before a crisis strikes. Employers shouldn't let the repeal of the CLASS Act derail their efforts in educating employees about planning for long-term care. While the CLASS Act would have provided access to an insurance plan for all employers and potential technology tools that might have eased enrollment, private insurance plans are available from a variety of traditional employee benefit providers. Options include plans with group discounts and/or underwriting concessions, as well as “second generation” enrollment materials to help employees determine how to pay for care and develop a comprehensive long'term-care plan for arranging care at the time of claim. Many carriers have recognized that insurance is just one element of a comprehensive plan and have developed materials that encourage a more complete approach to planning for a disability.

Kim Natovitz, CLU, is the founder and president of The Natovitz Group, Inc, an independent general agency that specializes in long-term care planning. Over the last 20 years, she has worked with financial advisers and clients to design and implement long-term care insurance plans for individuals as well as employer groups. Natovitz is an approved continuing educator provider for insurance brokers and certified financial planners and regularly conducts industry updates for accountants, attorneys and other advisers.