©2013, College for Financial Planning, all rights reserved.

Module 6Planning for Incapacity,

Disability & Long-Term Care

Chartered Retirement Planning CounselorSM Professional Designation Program

Learning Objectives

6–1: Explain the legal instruments that clients can use in planning for mental or physical incapacity.

6–2: Describe the eligibility requirements and benefits provided under Medicare.

6–3: Explain the Medigap problem and strategies for its solution.

6–4: Describe the characteristics of Medicare Advantage Plans.

6–5: Describe the policy features to be considered when evaluating disability income insurance.

6–6: Describe the policy features to be considered when evaluating long-term care insurance.

6–7: Describe the characteristics of Health Savings Accounts.

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Questions to Get Us Warmed Up

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Learning Objectives

6–1: Explain the legal instruments that clients can use in planning for mental or physical incapacity.

6–2: Describe the eligibility requirements and benefits provided under Medicare.

6–3: Explain the Medigap problem and strategies for its solution.

6–4: Describe the characteristics of Medicare Advantage Plans.

6–5: Describe the policy features to be considered when evaluating disability income insurance.

6–6: Describe the policy features to be considered when evaluating long-term care insurance.

6–7: Describe the characteristics of Health Savings Accounts.

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Power of Attorney

• Written document executed by one person (principal) authorizing another (attorney-in-fact) to act on his or her behalf

• Plan and structure prior to onset of incapacity

• General power of attorney: not an effective tool for incapacity

• Durable power of attorney: the agent’s authority does not cease when the principal becomes incapacitated

• Springing durable power of attorney: agent’s authority begins upon incapacity of principal

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Conservator

• Guardian of personal property

• Resort of last measure where prior planning was insufficient

• Court-appointed fiduciary responsible for managing the property and financial affairs ofo legally incapacitated person (e.g., a minor) o mentally incapacitated person

• Court may require a competency hearing for incapacitated adults

• Court may require posting of a performance bond for conservator

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Medicare Provisions Part A

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Medicare Provisions Part B

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Medicare Part A Costs and Coinsurance

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* A spell of illness is unrelated to any particular malady. Instead, a spell of illness begins when the person is hospitalized, and it ends when the person has been out of a hospital or skilled nursing facility for 60 days.

Medicare Part B

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Medicare Part D: Prescription Drugs

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  Individual Medicare Total

Deductible - $325 $ 325.00 $ 0 $ 325.00

Coverage - $2,645 $ 661.25 $ 1,983.75 $ 2,645.00

Donut Hole - $3,763.75 $ 3,763.75 $ 0 $ 3,763.75 Total $ 4,750.00 $ 1,983.75 $

6,733.775

Learning Objectives

6–1: Explain the legal instruments that clients can use in planning for mental or physical incapacity.

6–2: Describe the eligibility requirements and benefits provided under Medicare.

6–3: Explain the Medigap problem and strategies for its solution.

6–4: Describe the characteristics of Medicare Advantage Plans.

6–5: Describe the policy features to be considered when evaluating disability income insurance.

6–6: Describe the policy features to be considered when evaluating long-term care insurance.

6–7: Describe the characteristics of Health Savings Accounts.

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Gaps in Medicare Coverage

• Medicare-approved charges not paid by Medicare are called Medigapso Deductibleso Co-paymentso Coinsurance amounts

• Medigap insurance policies only cover Medicare-approved charges

• Medicaid may cover gaps for impoverished people who cannot afford a Medigap insurance policy

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The 12 Standard Medicare Supplemental Insurance Policies

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PlansBenefits A B C D E† F* G H† I† J*† K LBasic care package

Skilled nursing care

50%

50%

Part A deductible 50%

50%

Part B deductible 50%

75%

Excess doctor’s charge

100%

80%100%

100%

Foreign travel At-home recovery

Prescription drugs

Preventive screening

*Plans F and J also have a high deductible option. These high-deductible plans offer the same benefits as plans F and J. You must pay a deductible of $2,000 per year before the policy pays anything. There also may be additional deductibles that must be met including a separate prescription drug deductible per year for Plan J and a separate foreign travel emergency deductible per year for both plans.†As of 2010 Plans E, H, I and J will no longer be available to purchase, but existing plans can be maintained.

Details of Medicare Supplemental Insurance Policies: K & L

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Benefits Plan K Plan L

Basic care package

Skilled nursing care 50%

50%

Part A deductible 50%

50%

Part B deductible 50%

75%

Excess doctor’s charge

Foreign travel

At-home recovery

Prescription drugs

Preventive screening

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Medigap Plans M & N

Offered as of June 1, 2010. Both plans should have somewhat lower premiums than other

plans.

Plan M• Covers 50% of the Part A inpatient hospital deductible. • Does not cover the Part B deductible. • Covers the core benefit and skilled nursing facility (SNF) daily

coinsurance charges• Has the foreign travel emergency benefit.

Plan N• 100% coverage for the Part A inpatient deductible. • Does not cover the Part B deductible. • Coverage for the Part B coinsurance charge is subject to a new

copayment structure with co-pays of up to $20 for office visits and up to $50 for emergency room visits.

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Employer-Provided Health Coverage

Health Reimbursement Arrangement (HRA)• Available to all employees• For actual (substantiated) medical expenses• Can be used to pay health insurance premiumsRetiree Medical Account (RMA)• Notional accounts (not pre-funded)• Provides health care benefits during retirementVoluntary Employee Benefit Association

(VEBA)• Usually an employee benefit trust• For all types of employee benefits – including

retiree health care

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Medicare Advantage (Part C) Medicare Managed Care

Options

• Health Maintenance Organization (HMO)o Beneficiary may only have to pay Part B

premium and copays (e.g., for office visits)o If HMO plan terminates, beneficiary may

select another HMO (if available) or shift to traditional Medicare coverage (i.e., Medicare Part A; Part B; and perhaps Part D)

• HMO with Point of Service option (POS)

• Preferred Provider Organization (PPO)

• Special Needs Plans

• Private Fee-For-Service plans (PFFS)

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Part C: Medicare Medical Savings Account (MSA)

• Medicare makes a deposit into beneficiary’s account

• Withdrawals used to pay medical expenses are not taxable

• NOTE: Medicare MSAs were not replaced by

Health Savings Accounts (HSAs)

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Learning Objectives

6–1: Explain the legal instruments that clients can use in planning for mental or physical incapacity.

6–2: Describe the eligibility requirements and benefits provided under Medicare.

6–3: Explain the Medigap problem and strategies for its solution.

6–4: Describe the characteristics of Medicare Advantage Plans.

6–5: Describe the policy features to be considered when evaluating disability income insurance.

6–6: Describe the policy features to be considered when evaluating long-term care insurance.

6–7: Describe the characteristics of Health Savings Accounts.

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Short-Term vs. Long-Term Disability Policies

Short-term disability coverage

• Normally provides benefits for six months up to a year

• Some policies provide coverage for disabilities for up to two years.

• Waiting period typically = zero to seven days.

• Usually are offered as group policies.

Long-term disability coverage

• Insures against the risk of longer periods of disability, o often until age 65 in

the case of illnesso for life in the event of

an accident

• Waiting period typically = 30 days to two years

• Companies may offer as group policies

• Individual policies are widely available.

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Disability Insurance (DI) Terminology

• Elimination period: period between start of disability and beginning of policy benefitso Also called the waiting period

• Benefit period: period during which policy benefits are paid (e.g., to age 65)

• Benefit amount: the percentage of monthly income that will be replaced by the policyo Benefits are based on income and job

classificationo Normal underwriting will limit maximum

benefits to a percentage of income; policies do not cover 100% of pre-disability income

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Definition of Disability

• Social Securityo Unable to worko Disability must be expected to

last at least 12 months or result in death

• Any occupationo Normally cannot work at any

occupation• Modified any occupation

o Unable to work at any occupation for which individual is suited by education, training, experience, and prior economic status

• Own occupationo Unable to work at own (specific)

occupationo Only available to select

occupations

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D.I. Underwriting & Renewal

• Primarily based on job classification

• Better benefits, policy definitions, renewal terms, and policy rates go to higher job classificationso Blue collar (lowest)o White collar (mid)o Professional (highest)

• Renewal optionso Noncancellable

• Cannot increase rates (unless identified in initial contract)

• Guaranteed renewableo Guaranteed renewable

• Rates can be increased (must be for an entire rate class)

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Long-Term Care Insurance (LTCI)

Long-term care (LTC)

• medical and personal services provided to individuals who have lost their ability to live independently due to prolonged illness, disability, or cognitive disorders.

Activities of Daily Living (ADLs): benefit triggers for HIPAA-

qualified Policies (for potential tax benefits)• Dressing

• Bathing

• Toileting

• Maintaining Continence

• Transferring (bed to chair; chair to bed)

• Eating

• Plus Cognitive Impairment

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LTCI Terminology

Waiting period• As with DI policies; the period between a qualifying

event and the start of benefit payments

Daily benefit• The dollar amount of benefits paid to a beneficiary

o May be per diem amount oro Reimbursement for actual expenses (usually with

a daily cap)Skilled nursing care• Care by a Registered Nurse (RN)

(normally round-the-clock, while in a nursing home)

• Required by Medicare for benefits

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Health Savings Accounts (HSAs)• HSAs allow individuals with high-deductible health

insurance coverage to contribute cash each year for current or future health care expenditures.

• Advantages include:o tax-deductible contributionso contributions and earnings thereon grow tax-

freeo withdrawals may be used to pay for qualified

medical expenses are tax-freeo are portableo may be rolled over

into other HSAso may be used to pay for

qualified medical expenses during retirement

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Question 1

Which is not a typical way to plan for the management of property if a client becomes incapacitated?

a. Appoint a conservator of the property.b. Spend down the assets.c. Create a durable power of attorney.d. Create a trust.

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Question 2

All are true regarding living wills excepta. they apply to routine illnesses.b. they must be signed.c. they must be witnessed by people who are

not heirs of the maker.d. they allow the maker to dictate what life-

sustaining measures may be taken if the maker becomes incapable of consenting to treatment.

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Question 3

Occupational classification affects many aspects of private disability policies. Which of the following is not true regarding occupational classification?

a. Blue-collar workers usually obtain lifetime benefits, while professionals normally receive shorter benefits.

b. More policy riders are available to white-collar workers than to blue-collar workers.

c. The definition of disability is less liberal for blue-collar workers.

d. Occupations can be moved between classifications due to claims history.

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Question 4

Custodial care helps individuals perform activities of daily living (ADLs). ADLs do not include

a. dressing.b. driving.c. bathing.d. eating.

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Question 5

Which of the following is not true regarding the tax-deductibility of qualified long-term care insurance (QLTCI) premiums?

a. Individuals and couples filing jointly can deduct medical expenses that exceed 7.5% of adjusted gross income (AGI). QLTCI premiums qualify as medical expenses.

b. Self-employed individuals can deduct QLTCI premiums as a business expense.

c. Partners can deduct QLTCI premiums as a business expense.

d. QLTCI premiums are deductible for this year only, after which they are no longer deductible.

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©2013, College for Financial Planning, all rights reserved.

Module 6End of Slides

Chartered Retirement Planning CounselorSM Professional Designation Program