Genworth’s survey found that the cost of home health care has risen much more slowly than the cost of assisted living or nursing home care.  This is probably due in large part to the growth in the number of home health care agencies.  More competition generally results in lower prices -even in healthcare, where sharply rising costs are the norm.  In Colorado, the cost of home health services rose just over half a percent (0.6%) over the past five years.  This is significantly lower than the 8.2% increase in the cost of assisted living and the 4.1% increase in the cost of nursing home care in Colorado.

The survey looked at state and national trends, so we can compare how long term care costs in Colorado compare with the rest of the country.  Home health care is slightly more expensive here than the national average ($21/hour here, $19/hour nationally).  Assisted living and nursing home care are also more expensive here in Colorado than the national average, and while the cost of assisted living in the US has risen by 5.7% over the past five years, it’s increased by 8.2% in Colorado during that same time.

Although home health care is less expensive than assisted living or nursing home care, the cost can add up quickly depending on how much care is needed.  Having a strategy in place - whether it be via long term care insurance or not – will give people far more options (including the option to choose home health care) than they would have without any planning for long term care.

But although children make up the majority of the Medicaid population, a much larger chunk of the state’s Medicaid budget is spent on care for Colorado’s seniors.  (see page 8 for data from 2004-05).  More recent data from 2007-09 states that Colorado spends more than three quarters of it’s Medicaid dollars on “institutional care” – which obviously includes nursing homes for seniors in need of long term care, but could also include institutional care for younger disabled Medicaid beneficiaries.

If you read the article in the Denver Post about asset testing for Medicaid, it’s important to note that the provision allowing the state to enroll applicants in the Medicaid program based on income rather than income combined with assets only applies to those who are applying for “Family Medicaid” (public health insurance for low income families with children).  Prior to 2006, the state used asset testing as well as means testing for all Medicaid applicants, including those applying for health insurance benefits for low income children and their parents.  Since then, however, low income families with children have been able to qualify for Medicaid (particularly for children) based on the family’s income without regard for assets.

This provision does not apply to seniors applying for Medicaid to cover long term care.  As you’re probably aware, there’s a five year “look back” period where the government can look to see if a person has given away any assets in the five years prior to applying for Medicaid.  And of course assets that are currently in the applicant’s name will also count against his or her eligibility for Medicaid.  It’s always a good idea to contact a qualified attorney in order to make sure you’re in compliance with Medicaid rules regarding asset transfers and Medicaid eligibility.  And if you want to bypass the whole process of having to spend down your assets in order to have Medicaid cover your long term care needs, a good long term care insurance policy might provide peace of mind.

But the DRA also expanded access to Long Term Care Partnership programs by lifting restrictions and allowing any state to participate (Colorado is one of the participating states).  Although the DRA made it more difficult for elderly Americans to transfer their assets to their heirs and then rely on Medicaid to pay for their long term care needs, the expansion of the Long Term Care Partnership program makes it easier for people to retain a portion of their assets (and thus avoid having to become impoverished) and still qualify for Medicaid coverage for long term care if needed – as long as they have purchased a qualifying long term care insurance policy.

The basic premise for the Long Term Care Partnership programs was to encourage people to purchase long term care insurance that would be utilized if and when the person requires long term care.  If the policy benefits are exhausted and the person is still in need of long term care, he or she could then apply for Medicaid benefits to fund additional long term care, and would be able to retain assets totaling the amount that the private long term care policy covered.  So if the person has a long term care insurance policy that covers $200,000 in benefits and then requires additional long term care after the private policy is exhausted, the applicant could qualify for Medicaid while still retaining $200,000 in assets beyond the standard allowances for a home, car, term life insurance policy, etc.  It’s important to note that purchasing a long term care policy under a state’s Long Term Care Partnership program does not guarantee eligibility for Medicaid if and when the beneficiary has exhausted the private long term care coverage.  This is because the state’s income and functional eligibility criteria for Medicaid still have to be met (see 2012 Colorado requirements here).  In addition, participants should be aware that the private long term care policy may offer more flexibility in terms of care options than Medicaid.  So although the private policy may allow home based care, they may be required to transfer to a nursing home if and when the private policy runs out and they switch over to Medicaid coverage.  Obviously, the more private long term care insurance a person can afford to purchase, the greater the likelihood that the participant will be able to rely on the more flexible private coverage for as long as care is needed.  But the Long Term Care Partnership program allows participants who would otherwise meet the income and functional eligibility requirements for Medicaid rely on Medicaid as a safety net without having to spend down almost all of their assets.

This report from the Center For Health Care Strategies, Inc. is one of the most informative I’ve found on the topic of Long Term Care Partnership programs.  Another report from the Kaiser Family Foundation has additional information regarding the DRA’s impact on Medicaid and long term care.  Both will be helpful for families and individuals contemplating their long term care planning.

As is the case with most things we worry about (or don’t), knowing someone who had needed long term care greatly increased the chance that respondents would be worried about their own future need for long term care.  And not surprisingly, people who know someone who has needed long term care are more likely to have purchased long term care insurance for themselves.

Long term care and long term care insurance are widely misunderstood, and the results of the Prudential study illustrate this point well.  Respondents tended to over-estimate the cost of a nursing home stay, but a significant number of them also thought that their private health insurance, Medicare, and/or Medicaid would cover any future long term care needs.  In reality, Medicaid is the only one of those three that truly covers long term care, but in order to qualify for coverage, a person has to have little in the way of personal assets.  People who want to preserve their assets and also cover the cost of future long term care definitely need more of a strategy than relying on Medicaid.

44% of respondents said that they didn’t have long term care because it was too expensive, but overall, respondents greatly over-estimated the cost of a long term care policy.  The average annual premium in 2009 was $2207, but respondents in the Prudential study estimated it to be $3900.  This misperception could be a factor keeping people from purchasing long term care insurance, despite their concerns about their ability to pay for future long term care needs.