Show Me the Money - PDF by Levone


									Show Me the Money
Private Funding Through LTC Insurance and Reverse Mortgages
Presentation at the Private Duty Home Care Association 2nd Annual Leadership Summit Phoenix, AZ January 22-23, 2007

Barbara R. Stucki, Ph.D.
Director, Use Your Home to Stay at Home Initiative

Role of LTC insurance (LTCi) and reverse mortgages in funding home care.

Where each fits in the funding continuum, links to Medicaid, potential funds for home care.

How LTC insurance and reverse mortgages work to pay for home care.
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LTC insurance 101 - policy features, innovations and market trends. Reverse mortgages 101 - how these loans work, funds for home care, market trends.


Role of Private Funding Options for LTC


LTC planning options
Plan Ahead Aging in Place Reverse mortgage Crisis

LTC Insurance








Insurance approach
Tool for asset protection. Protects against rare but catastrophic events.
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LTCi: Help with 2+ ADLs or with cognitive limitation. Medicaid: Nursing home level of care.

Can leverage a fixed monthly payment into immediate and substantial coverage. Strict eligibility criteria limit access.
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LTCi: Medical underwriting. Meet benefit triggers. Medicaid: Income and asset limits.

Challenges with LTC insurance
Insurers determine which services will be covered (policy terms, plan of care). LTCi is expensive. It becomes more costly for those who purchase at older ages. Policyholder may lower premium costs with:
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Longer elimination period. Shorter benefit period.

May consider other available assets to co-insure the risk.

Greater role for home equity to pay home care costs?


Home equity loan approach
Tool for accessing a portion of housing wealth to increase cash flow. Loan funds can be used for any purpose, including prevention. Funds available depend on the amount of equity and any existing debt on the house.
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About 80% of senior households are homeowners. Median senior home value (2005)= $143,679. About 68% of senior homeowners own their homes free and clear of any debt.

Broader role of home equity for aging in place
- Extra help reduces strain. - Pay out of pocket expenses. - Support working caregivers.

- Strengthen ties of reciprocity. - Neighborhood vitality.


- Reduce isolation.

- Home repairs, maintenance. - Adaptive tech, home mods. - Preventive measures.

Ways to tap home equity
Sell the house and move. Conventional home equity loan or line of credit. Single purpose loan – State or local programs to help with repairs or property tax deferral. Reverse mortgages.


Challenges with home equity loans
Home loan costs can add up over time - Upfront costs, mortgage insurance, interest payments. With a conventional loan, need to make monthly payments or could lose the house.
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Challenge for elders with declining or unstable health. Risk of predatory loans for low-income seniors.

With a reverse mortgage, the loan is due if last borrower moves to the nursing home/ALF.
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May not qualify for Medicaid if have extra funds. Use up equity, so may not be able to afford NH/ALF.

Links to Medicaid

Deficit Reduction Act of 2005
Reduces Medicaid planning. Transfer of assets look-back period extended to 5 years. Seniors with home equity more than $500,000 no longer qualify for Medicaid.
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States can increase limit to $750,000. Can use a reverse mortgage or other loan to reduce the amount of home equity.

Nationalizes the LTC insurance Partnership Plans.

Implementation January 1, 2007.


LTC Insurance Partnership Plans
Four ongoing programs since 1988 – CA, NY, CT, IN. Program now open to all states. Allows policyholders to protect some assets from Medicaid resource limits.
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Dollar-for-dollar model. Offers protection when insurance runs out.

Qualifying LTC insurance policies must meet Partnership standards. Big unresolved question – Reciprocity between states.

Medicaid treatment of home loans
Funds in a line of credit do not count as a resource for eligibility. Cash received from a loan does not count as income during the month it is received. Any cash left at the end of the month is counted as a resource for eligibility. Loan funds can be used for any purpose that benefits the senior. They cannot be transferred. Home loans may be in first lien position – so they get paid before any estate recovery.

LTC Insurance Market


LTC insurance market trends
2004 Individual sales decline 25%. Group sales decline 73%. Total in-force close to 7 million Americans. 2005 and 2006 Market remains flat.

Source: LIMRA Marketplace Spring 2005

Rising premiums - What happened?
Policyholders keep their loans.
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Lapse rates lower than expected. Especially for younger policyholders who have the 5% compounded inflation feature.

Lower interest rates - Investment spreads narrowed. Higher than expected claims for some health conditions.
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Especially for Alzheimer’s disease. A problem for companies with liberal underwriting practices.

Potential Market Reverse Mortgages


13.2 million older households are candidates for a reverse mortgage
N=27.5 million households**

Homeowners, RM candidate <$20K RM (7%)
1.8 million

Homeowners, not RM candidate* (22%)
6.1 million

Not homeowners (22%)
6.0 million

Homeowners, RM candidate $20K+ RM (48%)
13.2 million

* Not a RM candidate – mobile home as primary residence, spouse age <62, insufficient equity ** Home ownership status unknown among 1% of total households (0.4 million).

Reverse mortgage candidate households, by Medicaid risk level
N=13.2 million LTC target households who are HECM candidates Spenddown risk (25%)
3.32 million

Low risk (61%) High Medicaid risk 1.40 million (11%)
8.03 million

Medicaid beneficiary (3%)
0.44 million

Reverse mortgage funds available for LTC, by Medicaid risk group
N=$953 billion

Spenddown risk (22%)
$ 209 billion

Low risk (68%) High Medicaid risk (8%) $77 billion Medicaid beneficiary (2%)
$22 billion $644 billion


NCOA studies on using reverse mortgages for aging in place
Use Your Home to Stay at Home report – 2005.
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Funded by CMS and Robert Wood Johnson. Available at

Two consumer booklets on using home equity for aging in place (immediate need, planning ahead).
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Funded by National Reverse Mortgage Lenders Assn. Available at

Reverse Mortgages for LTC study – 2006-2007.
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Funded by ASPE and AoA. Sites – Minnesota, Los Angeles, Washington State.

Long-Term Care Insurance The Basics
Examples from the Federal Employee LTC Insurance Program

Key features of LTC insurance
Individual and group (workplace) policies. Guaranteed renewable – Policy cannot be cancelled if pay premiums. Premiums may increase for the group but not for individuals. Cost – Increases with age at purchase.
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Discounts for couples, those in excellent health. Rated policies for those with higher risk.

Return of premium.


Choices that affect cost and benefits
Type of policy - Reimbursement versus per diem. Type of coverage
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Facility only – nursing home, assisted living. Comprehensive – Home care and facility care. Daily/weekly/monthly benefit amount. Length of benefit (up to lifetime).

Amount of benefits - “Pool of money.”
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Elimination or waiting period. Inflation protection - Compound versus periodic.

Eligibility for benefits
A Licensed Health Care Practitioner has certified within the last 12 months that:


Unable to perform, without Substantial Assistance, at least 2 ADLs for an expected period of at least 90 days due to a loss of functional capacity; or Need Substantial Supervision due to Severe Cognitive Impairment Hands-On Assistance - Physical help by another person without which you would not be able to perform the ADL. Standby Assistance - Require another person within arm’s reach to prevent injury while you perform the ADL. Require continual monitoring by another person (including cueing) to protect you from threats to your health and safety.

Substantial Assistance
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Substantial Supervision

Alternate plan of care
Insurer can authorize benefits for services that are not specifically defined as “covered services.”
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A facility that is not otherwise covered. Supplemental items that enable a person to remain at home, such as home modifications, durable medical equipment, and emergency response systems.

Alternative service requirements.
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Must meet LTC service needs and be cost-effective. Cannot include services provided by a person who lived in the home at the time you became eligible for benefits. For facility-only policies, these do not include services that are provided outside a facility.


Home care benefit payments
May be limited vs. facility care. Variations:

Percentage of actual charges, up to daily benefit.
Example: $120 charge x 80%= $96 paid (< $150 daily benefit).


Covered 100%, up to a percentage of daily benefit.
Example: $150 benefit x 80%= $120. So $120 charge paid.

Payment for 2+ services received in a week may reflect different percentages for different services.
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Hospice care at home – 100% of daily benefit. Informal care – 75% of daily benefit.

War and catastrophe exclusions
War exclusion: Conditions arising due to war or acts of war, declared or undeclared, or service in the armed forces or auxiliary units. Catastrophic event – Event(s) affecting many enrollees, that threatens the financial stability of the program.


Could include: Natural disaster (e.g., flood or earthquake); epidemic, or other widespread health crisis; or act of terrorism. Could affect the amount or duration of benefits.

Barbara R. Stucki, Ph.D. Director, National Council on Aging Use Your Home to Stay at Home Initiative 541-322-5610


A presentation by: Peter Bell, President National Reverse Mortgage Lenders Association


A personal financial management tool designed to enable homeowners over 62 years of age convert the equity in their home to $$$.


What are reverse mortgages used for?
Pay off existing mortgage & other debt Major Purchase Health care costs

Provide supplementary Home care & income assistance Stand-by cash reserve Lifestyle enhancement Home modification Tax & estate planning



Why use a reverse mortgage rather than other options?
Home equity loan or HELOC Sell and move Preference for aging in place


How does the reverse mortgage work?
“Reverse Mortgage” because flow of payments is reversed; lender pays borrower.


How is the amount available determined?
Home value Age of borrower(s) Interest rate FHA area loan limits



What are the payment options?
Lump sum Line of Credit (w/growth feature) Life tenure payments Term payments Combination Switch at any time


Common Misperceptions
Bank owns the house Can be forced out of the home Can out-live your money Can end up owing more than home’s value Bank will get full value of home in the end


How are reverse mortgage interest rates determined?
HECM Monthly adj Annual adj Home Keeper 1 yr T-bill + 150 basis pts 360 basis pts Avg CD rate + margin Proprietary LIBOR + 500 basis pts. Cap 10% 5%



Numerous consumer safeguards
Disclosures Counseling Origination fee limits Uniform interest rates Non-recourse feature No equity sharing NRMLA Code NRMLA Best Practices Website Certifications Ethics Committee HUD approval & enforcement State laws


What are the costs involved with reverse mortgages?
Mortgage insurance premium Origination fee Appraisal fee Servicing fee Paid out of loan proceeds


What happens at the end of the loan?
Move-out or death Balance due = funds advanced + accrued interest Pay-off from other sources Sell Refinance



Are there any risks of foreclosure?
Lifetime right to remain in home Surviving spouse on title protected Tax and insurance default Failure to maintain home


Example – HECM on $250,000 home in Phoenix
65 yr old HECM mo. HECM annual 75 yr old HECM mo. HECM annual 85 yr old HECM mo. HECM annual Lump Sum $ 129,572 $ 91,358 $ 154,601 $ 123,690 $ 181,359 $ 159,931 Monthly $ 777 $ 650 $ 1,036 $ 955 $ 1,569 $ 1,526


To learn more, visit
Info on reverse mortgages Calculator State by state lender list Order Consumer Books


Peter Bell, President
National Reverse Mortgage Lenders Association 1400 16th St., NW, Suite 420 Washington, DC 20036 202-939-1741 202-265-4435


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