America is rapidly moving to a two-tiered system of long-term care services. One provides a broad spectrum of services ranging from an optimal amount of high quality home care to elegant and well staffed continuing care retirement communities for those who can pay for it; while the other offers very limited services ranging from a few hours of home care per week to often dreary, poorly staffed, nursing homes.

State and federal officials are about to implement newly legislated long-term care budget cuts that will further limit care options for those who rely on public funding for their care. Meanwhile, the pool of workers in the labor intensive, long-term care industry continues to shrink as the numbers of frail and disabled elders grows at an ever-increasing rate.

Many Americans still don’t understand that most health insurance coverage, including Medicare pays only for short term, skilled care. We are expected to pay for the rest from our savings, other assets, with funds from family members, or from the benefits of a private long-term care insurance policy.

When they discover this harsh reality, older Americans and their family members wonder if they can protect their home and their life savings without depleting them to pay for the costs of a chronic illness. Because care is so costly, an increasing number of older Americans need assistance from their grown children, many of whom live far from their aging parent’s home.

A recent study by the University of Maryland revealed that these caregivers now pay an average of $392 a month out-of-pocket, compared with $196 just 7 years ago. The expenses include travel, medicine, phone bills, medical supplies, meals and home maintenance.

The evidence continues to grow that the choices and the quality of care provided to those who rely on public funding is much more limited than for those who can pay privately. Nursing homes that rely on Medicaid funding are seriously under-staffed, their personnel are often poorly trained, staff turnover exceeds 50 percent a year, and the situation is expected to get worse, not better as our population ages.

Today, placement in a nursing home when we become frail and in need of help, can usually be avoided. If you’d rather receive care at home, in an Assisted Living Facility, or otherwise maintain your independence and your choice of care providers, consider such long term care financing alternatives as private long-term care insurance, a federally guaranteed reverse equity mortgage,or a Life Settlement which allows you to sell an existing life insurance and use the funds to pay for your care now.

Because long-term care insurance requires you to be in good health, this planning option is not available to everyone, especially older applicants for whom the premiums may also be prohibitive.

Some newly developed financing alternatives such as life insurance policies with a long-term care rider and fixed annuities that also have long term care riders should also be explored before deciding on the planning path that best suits your unique needs.

Because a review of these options can put the average person on “information overload” Informed Eldercare Decisions, Inc. has developed an information kit that is designed to provide an overview of long-term care planning alternatives in a consumer friendly format. A “Personal Long-term Care Planning Profile” form is also provided. This will help to get a more specific picture of what planning choices make the most sense. This information will help us to prepare a specific set of recommendations including the costs, the tax implications, and the pros and cons of each option.

To obtain your free information kit and Personal Long-term Care Planning Profile” send an E-mail with your postal address to bob@elderlifeplanning.com. Put Free long-term care kit in the subject line. OR call Bob O’Toole, toll free at 1-800-375-0595 and leave a message with your mailing address.

We recommend that consumers consider the following steps which will help them to make an informed decision, rather than succumbing to a high pressure sales pitch from someone who may not be the most qualified professional to advise you about the complicated process of planning for long-term care.

1. Schedule an initial consultation with an elder-law attorney who is a member of the National Academy of Elder Law Attorneys. (NAELA) Elder law specialists deal with legal issues affecting the elderly and disabled including, health and long-term care planning, probate and estate planning, guardianship & conservatorship, and eligibility for publicly funded services when you can no longer afford to pay for the costs of your care.

When planning for long-term care, don’t overlook the possibility that incapacitation — or even the strains of caregiving — could impair your ability to manage finances with your usual thoroughness. To avoid asset depletion:

You can plan for and document your desires concerning incapacitation in a living trust. A power of attorney can be used to enable a trusted designee to conduct transactions on your behalf.

2. Schedule an initial consultation with an elder care specialist who is more than just an insurance broker.

To help you decide which of the many alternatives available to plan for the costs of long-term care, an eldercare specialist should have extensive experience in, and knowledge about, the complex spectrum of services that make up the long-term care system in the U.S. They should also have well developed relationships with several of the top rated insurance carriers, banks who are qualified to participate in the federally insured reverse mortgage program, and also be knowledgeable about such financing alternatives as the new long-term care annuities and life insurance policies that allow the insured to use the death benefits to pay for home care, assisted living and nursing home care if needed.

A Brief Overview of Alternative Methods of Paying for Long-term Care Costs

What is long-term care insurance? Long-Term Care Insurance provides funds to help you pay for the many costs that are not covered by Medicare or other forms of health insurance. Traditional health insurance plans such as Blue Cross Blue Sheild, HMO’s, Retiree health benefits, and Medicare are designed to pay for costs associated with illnesses and injuries from which the insured is expected to recover; these are typically known as acute conditions. Traditional health insurance plans typically provide coverage for doctor visits, hospitalization, and maybe even some prescription medicines. But if the individual’s condition progresses to the point where he or she requires constant supervision, traditional health insurance would likely not provide coverage.

This is where Long-Term Care Insurance comes in. Long-Term Care Insurance has been designed to pick up and provide coverage where Health Insurance leaves off. So in the case where the individual’s condition has progressed to the point where he or she requires constant supervision or assistance carrying out basic activities of daily living (like bathing, eating, toileting, dressing and moving about), Long-Term Care Insurance would provide funds to help cover the insured’s long-term care expenses.

Owning a long-term care insurance policy allows the policyholder to maintain his or her independence and freedom of choice over how and where their care services are provided. Long-Term Care Insurance allows you to protect your assets and ensure that your long-term care needs will not create a physical or financial burden on your family.

Using Life Insurance as a Resource Several insurance companies have recently introduced life insurance policies with long-term care riders. The long-term care riders provide funds for long-term care costs by allowing the policy holder to draw on the death benefit while still living to pay for care in much the same way as a long-term care insurance policy does.

Some policies pay benefits for terminal conditions only; others pay for chronic conditions requiring custodial care. The amount available to you with a long-term care rider can range from 25 to 100 percent of the death benefit, depending on the policy. For an additional premium, some carriers offer extended benefits, which can continue after the death benefit is exhausted

Benefits paid for conditions or expenses that are “qualified” by the IRS are not subject to federal income taxes.

Some people are uncomfortable with the fact that they may pay long-term care insurance premiums for many years, never need enough care to qualify for benefits, and not receive a refund on the premiums. Life insurance policies with long-term care riders are one way to address this concern. Other benefits are that these policies may be more affordable and they may allow some who cannot meet the health qualifications to obtain a long-term care policy to be insured.

The major drawback of this alternative is that the amount of cash available to pay for the very expensive costs of long-term care is usually less than a long-term care insurance policy will pay and benefits may run out sooner.

Still another variation on using life insurance to pay for long-term care costs is known as a Life Settlement. Life insurance policyholders can recover a significant source of cash to pay for the costs of long-term care or other needs by selling unneeded life insurance policies-even if the policy has no cash value.

Life settlements are a creative option to give policy owners a more desirable alternative to surrendering or terminating a life insurance policy

What it is life settlement? In its basic form, a life settlement is the transfer of a life insurance policy from the policyholder to a third party, usually a large bank or investment firm. The entity that purchases the policy makes all future payments in order to keep the policy active. In return for turning over the policy (and its proceeds), the policyholder receives a cash payment today.

The sale of this policy (at a discount from the face value) transforms what is often seen as a future asset into a current asset. With current economic conditions created by poor retirement fund performances, this potential asset has taken on much greater significance for many people.

Many older Americans have life insurance policies they view as unnecessary because they no longer meet the original need that was intended when they bought the policy. They mistakenly believe that they can only generate a substantial payback for all those premiums they’ve paid if they die-or turn the policy in for it’s modest cash value.

As estate tax rules change and the policies clients purchased to pay these taxes become unnecessary, this trend is likely to increase. Allowing unneeded policies to lapse can be a costly mistake. Both individual and corporate clients and even employers can sell the right to collect on these otherwise dormant assets and get a substantial cash payment now.

Using a Reverse Mortgage to Pay for Long-term Care Costs If you are at least 62 years of age and you own your home, you could use a reverse mortgage to pay for long-term care.

A reverse mortgage, is a means of borrowing money from the amount you have already paid for your house. You are freeing up money that would otherwise only be available to you if you sold the house. You can stay in the house until you die, without making monthly payments. The loan is repaid when the borrower dies or sells the home. The balance of the equity in the home will go to the homeowners estate.

Payments can be received monthly, in a lump sum or the money can be used as a line of credit. The funds received from a reverse mortgage are tax free.

While the eligibility age is 62, it is best to wait until your early 70’s or later. The older the borrower, the larger the amount of equity available to borrow will be. There are maximum limits set by the federal government each year as to how much of the equity can be borrowed. Usually only about 50% of the value of the home is made available in the form of a reverse mortgage.

You can use the funds from a reverse mortgage to cover the cost of home-health care. Because the loan must be repaid if you cease to live in the home, long-term care outside the home can’t be paid for with a reverse equity mortgage unless a co-owner of the property who qualifies continues to live in the home.

To obtain your free information kit and Personal Long-term Care Planning Profile” send an E-mail with your postal address to bob@elderlifeplanning.com. Put Free long-term care kit in the subject line. OR call Bob O’Toole, toll free at 1-800-375-0595 and leave a message with your mailing address.

Bob O’Toole, President of Informed Eldercare Decisions, Inc. is a nationally known elder and disability care specialist. He currently serves on the board of directors of the National Association of Professional Geriatric Care Managers, and is a former editor of the Geriatric Care Management Journal.

Prior to founding Informed Decisions, Inc, Bob worked for 10 years as a senior administrator in the Massachusetts Home Care System and for one of the leading private long term care consulting firms.

A frequent public speaker on aging issues, Bob has contributed chapters to two books on elder care and geriatric care management issues and has written numerous articles on the delivery of elder care in the private marketplace. His articles have appeared in Geriatric Care Management Journal, Health Insurance Underwriter, Inside Case Management, Journal of Compensation and Benefits and Workspan magazine