Let’s Talk About Long-Term Care Insurance
One of the most effective ways to protect your retirement savings from the high price of assisted living, in-home care or a stay in a nursing home is a long-term-care insurance policy.
WHAT IS LONG-TERM CARE?
Long Term Care is personal or custodial care assisting people with activities of daily living that include eating, bathing, dressing, using the restroom and moving from place to place
Skilled care is the treatment of medical conditions provided by licensed professionals such as nurses, therapists and physicians
These types of care may take place at home, in the community, in an assisted living facility or a nursing home
This care may be required as a result of chronic physical condition or illness, disability or cognitive impairment
Long-term care is one of the most overlooked retirement planning issues
Unlike medical and hospital care, most long-term care is not designed to cure medical conditions
WILL YOU NEED IT?
Long term care insurance is designed to help you cover the costs of a nursing home or other skilled care as you age. As with most insurance policies, you must consider purchasing it before you need it.
The statistics vary but they all indicate that you are likely to need long-term care:
Approximately 70% of those Americans who live to the age of retirement will need long-term care services at some point in their lives 1
42% of people in need of long-term care are 64 years old and younger 2
HOW MUCH DOES IT COST?
The cost of long-term care depends on factors such as where you live and the type of care you receive. The cost of care is expected to increase dramatically.
National (median) cost of long-term care
Type of care Cost Per Year
Nursing home 3 $80,300 to $91,250
Assisted living facility 3 $43,200
Home health aide services 3 $45,760
WILL MEDICARE PAY FOR LONG-TERM CARE?
Not really. As a federal health insurance program, it provides short-term medical benefits.
Medicare benefit restrictions and considerations include:
Medicare only pays for skilled care
In general, other than hospice care, the condition being treated must be improving in order to continue receiving Medicare benefits
As a financially burdened program, there is no guarantee that today’s Medicare benefits will be available in the future
WILL MEDICAID PAY FOR LONG-TERM CARE?
Yes, but only if you’re broke! Medicaid is a needs-based, welfare program. It is the only public benefits program that pays for nursing home care.
As joint state and federal program, the federal government sets guidelines while individual states make rules and administer programs. This accounts for the Medicaid differences from state-to-state.
Medicaid is only available to people who meet financial qualifications:
Assets
A nursing home patient is not allowed to have more than $2,000 worth ($3,000 per married couple) of “countable assets”4
The “community spouse” living at home is allowed to keep a limited amount of “countable assets” to live on 5
Income
Income limits and calculations vary by state
Look-back period
The look-back period (time before gift to review all previous transfers) is 60 months (to determine Medicaid eligibility)
Amount transferred / Average monthly private-pay cost of nursing home in state = Penalty period (months of Medicaid ineligibility)
The penalty period will not begin until: The transferor has moved to a nursing home, spent down to the asset limit for Medicaid eligibility, applied for Medicaid coverage, and been approved for coverage except for the transfer
Transfers to certain recipients may not trigger a period of Medicaid ineligibility
HOW WILL YOU PLAN FOR EXPENSES?
You don’t have to plan for the future, but you may have to experience it.
You should consider several ways to pay for the cost of long-term care:
1. Plan to pay for the cost yourself or ask family members to pay for it
2. Purchase a combination insurance policy:
Life insurance / long-term care insurance combination
Annuity / long-term care insurance combination
Withdrawals from these policies to pay for long-term care are not taxable
Life insurance will retain its tax advantages when combined with long-term care insurance
3. Purchase a traditional long-term care insurance policy:
Additional funds may be available to pay for long-term care insurance upon retirement if you cancel disability insurance
Premiums for tax-qualified long-term care policies may be federally tax-deductible and may offer additional tax incentives in some states
Most policies require the inability to perform two or more ADLs, activities of daily living, to provide benefit payments
Cognitive impairment, a reduction in your mental faculties alone may initiate benefit payments
There are several possible benefits to obtaining long-term care insurance coverage:
You can select a policy that meets your specific needs
Provides more control and choice of the type and quality
of careLess dependence on friends, family members and
the governmentHelps to protect your assets and preserve your
financial legacy
WHAT SHOULD YOU CONSIDER?
There are many considerations when buying long-term care coverage. It is important to select a policy that provides the coverage you want. In general, the greater coverage you receive the more your premiums will cost. Since you may need care many years from now, you should consider insurance companies that demonstrate financial strength and stability.
Factors may include:
The age of the insurance company
The credit rating of the insurance company which is provided by companies such as AM Best, Standard & Poor’s, Moody’s and Weiss Ratings
BOTTOM LINE
Long term care insurance expense is becoming an increasing reality as we are living longer as a population. For the millions of Americans who do not make enough money to cover the high cost of care for themselves, long term care insurance can be the best option to be prepared for the development of a life-disrupting disability.
2015 Long-Term Care Planning Handbook, Federal Handbooks, Inc.
Health Policy Institute, Georgetown University, analysis of data from the 2005 National Health Interview Survey and the 2004 National Nursing Home Survey.
Genworth 2015 Cost of Care Survey, March 20, 2015. For nursing home costs, $91,250 assumes a private room and $80,300 assumes a semi-private room. Assisted living facility costs assume a one bedroom, single occupancy rate. Home health care costs assume home health care aide services 44 hours per week for 52 weeks.
Amounts may vary by state. A Long-Term Care Partnership Program, now available in most states, allows individuals qualifying for Medicaid to keep one dollar of assets for every dollar paid out by a qualifying long-term care policy. Requirements vary by state, and not all states currently participate in the program authorized by the Federal Deficit Reduction Act of 2005.
Amounts may vary by state.
The long term care insurance is usually added in the form of a rider on the permanent life policy. Any amount used to pay for long-term care is subtracted from the death benefit.
