Long-term care insurance: a life raft for baby boomers.

• Author: Zamora, Enrique

1. INTRODUCTION

   Prior to the nineteenth century, long-term care was not singled out as a service provided to either the elderly or the ill, but rather it was viewed as care that should be provided in the home. (1) This included all medical, surgical, and nursing care. (2) Nursing homes emerged in the United States as poor relief centers in the eighteenth century. (3) Elderly individuals, who could no longer be cared for at home and those who lacked family assistance, were categorized with those dependent on state assistance, including: orphaned children, widows, the insane, the destitute, and those with substance abuse disorders. (4) These individuals were sent to state-sponsored "poor farms" or "almshouses," which were administered by local authorities. (5) From the 1820's through the end of the nineteenth century, the number of these institutions expanded rapidly as America received an influx of immigrants and farmers seeking employment in the city. (6) As a means to motivate families to find other resources to care for the elderly, local governments did nothing to improve the conditions of these almshouses. (7) The ultimate goal was to encourage those receiving care to lead respectable lives devoid of public assistance. (8) However, the care provided in these decaying facilities was substandard at best, and usually abusive or neglectful. (9)

   In response to these publically ostracized institutions and the surge of economic dislocation during the Great Depression, cash benefit programs were created to provide the elderly and the poor with the financial means to support themselves at home. (10) Advocates for creating cash benefit programs also focused on the eradication of almshouses by means of eliminating their financing. (11) This became a reality in 1935 when Congress passed the Social Security Old Age Assistance Act ("OAA"), which barred almshouses from receiving funds. (12) The passage of this act, which matched individual states with funds for the elderly who were retired, was the first time the federal government provided financial assistance to the elderly, and was the forefather of Medicaid. (13)

   Many individuals who were in these institutions due to financial hardship were able to use their cash benefits to either return home or live in private facilities. Unfortunately, the elderly and infirm who required long-term care were left with few resources, which paved the way for private, fee collecting, unregulated sanatoriums to fill the void. (14) Although the care provided was often worse than the standard of care in almshouses, these private institutions were allowed to collect the resident's OAA benefits. (15) By the beginning of the 1950s, the OAA cash benefits, which had been intended to provide the monetary support the elderly required to live at home, had given rise to the nursing home industry.

   In 1946, Congress passed the Hospital Survey and Construction Act, generally known as the Hill-Burton Act, to promote the construction of hospitals and public health centers. (16) Soon after, in 1954, the Hill-Burton Act was amended to include nursing homes, chronic disease centers, treatment centers, and rehabilitation centers. (17) This changed the construction models and required non-profit nursing homes to be modeled after hospitals. More importantly, however, this was the first time legislation referred to nursing home care as part of the healthcare system rather than the welfare system.

   On July 30, 1965, President Lyndon B. Johnson signed Medicare and Medicaid into law, thereby providing low-cost health and hospitalization insurance to America's elderly and medical assistance to the "worthy poor." (18) Medicare was designed to provide health insurance rather than as a mean of custodial support. (19) Consequently, it was carefully written to exclude any form of extensive long-term nursing care unless it was post-hospitalization, convalescent, or rehabilitative care. (20) Initially, the post-hospitalization extended care coverage included up to sixty days of care, but Medicare was later amended to cover up to the first 100 days of care. (21)

   When Medicare and Medicaid were enacted, no one envisioned how the two programs would work together. However, both programs pushed the nursing industry to expand and become more institutionalized. (22) As a means to remedy the inadequate conditions of Medicaid-funded nursing homes, Congress amended Medicaid in 1967 to include a statutory definition of "skilled nursing facility" ("SNF"), which required nursing homes to provide twenty-four hour nursing services supervised by a fulltime registered nurse and mandatory building code standards. (23) Shortly thereafter, Medicare discontinued its extended care coverage prompting Medicare and Medicaid to begin paying for SNFs with Medicare covering post-hospitalization short-term rehabilitative care and Medicaid covering long-term care. (24) However, as discussed later in this article, the coverage provided by Medicare and Medicaid is not unlimited. (25)

   This article begins in Part I by giving a brief introduction to the historical development of long-term care. (26) Part II focuses on what "long-term" care entails and describes the types of individuals who are in need of it. (27) Part III investigates the various costs of long-term care and the sources responsible for paying those costs. (28) Part IV provides a general overview of long-term care insurance. (29) Part V argues that other alternatives to long-term care insurance are not viable options to pay for long-term care. (30) Part VI discusses the implications of the Patient Protection and Affordable Care Act. (31) And finally, Part VII explains who should purchase long-term care insurance and when they should purchase it. (32)

2. WHAT IS LONG-TERM CARE AND WHO NEEDS IT?

   Long-term care involves providing a significant amount of assistance with activities of daily living ("ADL") (33) to an individual who cannot take care of himself or herself for an extended period of time due to a prolonged illness, disability, or cognitive impairment. (34) Long-term care differs from traditional medical care in that it provides "[m]any different services [to] help people with chronic conditions overcome limitations that keep them from being independent." (35) Simply, the goal of long-term care is to assist individuals in their current condition, rather than to improve or remedy medical issues. (36) An individual with a physical illness or disability may need help with some or all of these activities, whereas someone with cognitive impairments is likely to require additional supervision. (37) This care can be provided in a variety of settings, whether at home, in an adult community center, an assisted living facility, or in a nursing home. (38)

   Long-term care is classified into three categories of care, defined by the degree of assistance and the level of care required to perform ADLs. Skilled nursing care services are ordered by a physician, according to a treatment plan, and require professional health care personnel, usually a registered nurse or licensed therapist, on a daily basis. (39) This care is generally provided in a skilled nursing facility, but can also be provided at home with the assistance of visiting nurses. Intermediate care is provided for individuals with stable medical conditions that require daily, but not around-the-clock nursing supervision. (40) Though not as intensive as skilled nursing care, intermediate care also requires a physician treatment plan and can be provided in a nursing home, assisted living facility or home. Finally, persons without medical skills provide custodial care or personal care to assist with ADLs. It can be provided in many settings, such as nursing homes, assisted living facilities, adult day care centers, and home. (41)

   Life expectancy at the turn of the twentieth century was approximately forty-seven years. (42) Today it is 78.3 years, with women outliving men by an average of five years. (43) By 2020, it is expected to reach 79.5 years. (44) It is currently estimated that 70% of people over the age of sixty-five will need some form of long-term care services in their lifetime and 40% will require some form of nursing home care. (45) Of those 40% who will need nursing home care, 10% will remain in nursing home care for five years or more. (46) The generation most likely to need long-term services is the generation known as the "Baby Boomers," which encompasses those who were born post WWII between 1945 and 1965. (47) Baby Boomers have already begun to join and swell the ranks of the elderly. (48) The term "elderly" is typically defined as individuals over the age of sixty-five. On a national level, the population of individuals aged sixty-five and older is expected to double in the next twenty-five years. (49) Presently, 13% of the American population falls into the sixty-five-plus category, and estimates show that by 2030, it will increase to 20%. (50) However, individuals who are eighty-five and older, called the "oldest old," are most likely to require long-term care assistance. (51) This population is expected to grow dramatically in the near future. (52) To make matters worse, Baby Boomers are more likely to be divorced and have fewer children; thereby increasing the odds that they will require long-term care outside of informal family care. (53)

3. THE COST OF LONG-TERM CARE AND THOSE RESPONSIBLE FOR PAYING

   The majority of Americans are ill prepared to face the economic upheaval long-term care can bring to an individual or family. (54) Baby Boomers are no different; a lack of financial planning has left many of them with insufficient savings to last them through the so-called "golden years." For example, the average savings for Baby Boomers is approximately $75,000 (excluding the equity in the home) (55) and the average 401(k) account has a balance of about $80,000. (56) Given that a single year in a nursing...