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Feb 1993

Planning for the elderly - concepts and definitions. (Personal Financial Planning)

by Secomski, Kenneth G.

    Abstract- Majority of the 30 million people in the US over the age of 65 do not have the financial resources to meet their possible long-term health care needs. It is therefore necessary for companies to provide their employees with information not only on wealth planning, but also on health-care planning. There are several ways by which individuals can provide for possible long-term care for themselves when they grow old. One technique is through health care proxies which allow grantors to specify their medical treatment preferences via their health care agents. Another strategy is to make a living will that contains the specific measures the grantors wish to be taken should they fall gravely ill. A durable power of attorney, on the other hand, gives agents the legal right to perform tasks performed by grantors. Other health-care planning techniques include purchasing catastrophic health insurance or long-term care insurance.

Health Care Proxies. Many states have adopted a Health Care Agents and Proxy Law. These statutes permit individuals to convey their wishes regarding medical treatment. The designated agent will then be allowed to make health care decisions in accordance with the grantor's wishes. It should be noted that the grantor has the right to place specific limitations on the agent's authority. Specific desires to limit the agent's authority should be explained in the proxy.

Living Will. A living will serves as guidance for the agent in making health care decisions that are consistent with the grantor's wishes, usually connected with heroic life efforts. The living will is different from the health care proxy in that the living will is a fixed document that covers only those things specifically mentioned. It lists the measures to be taken should the grantor become seriously ill and require life sustaining treatment or artificial nutrition and hydration. The health care proxy affords greater flexibility in that it permits the declarant to inform the agent of the various medical treatments he would be willing to undergo, as well as those that he does not want, as discussed above. The living will is not authorized by statute in some states. However, many financial planners are recommending both the health care proxy and the living will. Since the living will is used as further instructions to the agent named in the health care proxy, it should be considered.

Durable Power of Attorney. A power of attorney is used to designate someone as agent to perform certain tasks that the grantor could perform. The problem with a general power of attorney is that it becomes void upon the principal's incapacitation.

A durable power of attorney remains in effect upon the incapacitation or subsequent illness of the principal. Many financial institutions are not comfortable with the durable power of attorney and may try to deny its use, although they are legally obligated to accept it. Institutions should be asked to confirm acceptance of durable powers. Many will ask that their own forms be used.

Catastrophic Health Insurance. Health care treatment is becoming increasingly specialized--open heart surgery, organ transplants, microscopic surgery, and radium therapy are examples. Health care services are also administered in various settings--hospitals, out patient surgical centers, nursing homes, rehabilitation centers, or hospices. At the same time, the cost of modern medical care has steadily increased. A serious illness or injury, particularly those requiring some of the newer and more costly health care services, could spell financial ruin if there is little or no medical protection.

There are major medical plans which will keep pace with the advances and associated costs of health care. The plans are specifically designed for maximum flexibility, offering varying levels of initial protection, and unlimited maximum benefits for most expenses. A program can be developed based on the particular situation to provide the highest level of insurance against catastrophic financial loss which can occur as the result of expensive medical care--in and out of the hospital.

Long-Term Care Insurance. Insurance policies covering long term care services are a new form of insurance. All long-term care policies place certain limits on benefits and may exclude certain benefits completely. In choosing a long-term care policy that will best meet personal needs, it is important to understand the limitations and exclusions which are contained in long-term care policies. The most common exclusions and benefit limitations which should be reviewed are:

* Lifetime maximum--the period of time or dollar amount limit for which long-term care benefits will be paid for the lifetime of the policy.

* Deductible or waiting period--the number of days' presence in a nursing facility, or the number of days of home health care before long- term care benefits will be paid under the policy.

* Pre-existing Condition Limitation--the period of time after the policy is purchased before benefits will be payable for care related to the pre-existing conditions (usually six months to one year).

* Does the policy cover Alzheimer's disease? If a long term care policy does not specifically state that it covers Alzheimer's disease, you should request a written assurance from the insurance company that the policy covers Alzheimer's disease.

There are other major concerns when reviewing a long term care policy, and professional guidance should be obtained.

Medicare. Medicare is a Federal health insurance program designed for those age 65 or older. It consists of Part A, hospital insurance, which covers inpatient hospital care and certain follow-up care, and Part B, medical insurance, which covers physician services and other services not included in hospital insurance. The hospital insurance is free and everyone, regardless of income level, qualifies for the benefits. Medical insurance is optional, and requires a premium. However, a qualified applicant who has little income or resources may qualify for the "Qualified Medicare Beneficiary" program in which the state of residence will pay medical premiums, deductibles and co-insurance. In addition, many private insurance companies offer supplemental Medicare insurance, often termed "Medigap."

Medicare does not pay for most long-term care services. Individuals should not rely on Medicare to meet their long term care service needs. In addition, all custodial care is excluded by Medicare. However, skilled nursing facility care is covered by Medicare on a very limited basis assuming certain conditions are met.

Medicaid. Medicaid is used to assist low income individuals in the payment of medical expenses. It is a joint Federal and state welfare program. Medicaid eligibility is limited based upon income and asset levels. Each state has its own eligibility requirements.

Medicaid payments are made only to health care providers and are limited to amounts established by the Federal government. Medicaid generally pays the Medicare deductible, co-insurance and monthly premium amounts for individuals who are eligible for both Medicare and Medicaid. Medicaid eligibility must be reviewed on a state by state basis, since some state eligibility requirements are broader and more generous than the Federal law requires.

In addition, there is a distinction between "income cap" states and "spend down" states. In an income cap state, once a Medicaid applicant's income exceeds the maximum Social Security amount per month, the applicant is ineligible for Medicaid benefits. In a spend down state, any income in excess of the maximum income level can be used by the individual to pay for their own medical expenses, and thereby reduce their income below the state standard. This spend down process will allow Medicaid to cover expenses once the excess income has been depleted.

Medicaid cannot be planned without considering estate planning. Transfers to an irrevocable trust can still be used. However, certain formalities must be observed to exempt assets from inclusion as an available resource for Medicaid.

Self Impoverishment. All Medicaid applicants must meet certain asset restrictions before qualifying. In all states, assets are limited to a reasonable amount of property such as the following:

Principal residence. For a married individual, the home remains exempt as long as a spouse, or minor, or disabled child lives there. A single person's home retains its exempt status as long as there is a possibility that the person could return to the home.

* Household goods, furnishings and personal items

* A life insurance policy with a face value up to $1,500

* Burial expenses up to $2,500 reduced by the face value of any life insurance policy

* Wedding ring, engagement ring, and one automobile.

If an individual can reduce his/her assets to the above they will become eligible for Medicaid assistance.

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