Weekly Insight: FAQs about Long-Term Care

It’s been a while since I have written about everybody’s least favorite topic…long-term care (LTC). My last article on the topic, “Is Long-Term Care Insurance for You?” was written for another popular blog called Sightings after 60. My feelings about the topic and viable solutions haven’t changed much since that article. However, in today’s unusually long blog post, I answer specific LTC questions. Here we go:

Q: What is long-term care?

A: Long-term care is both medical and non-medical assistance that hopefully you will never need. However, as you age, at some point you may need help performing the activities of daily living such as bathing, dressing, eating, toileting, continence, and transferring. Long-term care is not designed to cure or rehabilitate you. It is just to help you do the things you need to do each day.


Q: What is the probability that I will need long-term care?

A: Approximately 68% of 65-year olds will require some long-term care during their lives. The statistics vary depending on the source, but a rigorous study of the incidence of long-term care, which was cited in Forbes, projected that 58% of men and 79% of women who are currently 65 or older will need LTC services at some point in their lives.


Q: How long do people typically require long-term care services such as home healthcare, assisted living, or nursing home?

A: Some LTC events are brief. Half of them last one year or less. The other half have an average duration of 3.9 years. Many times, the services can be provided by family members. Other times, the need for care is beyond the scope of what friends and family can do for you.


Q: How much does long-term care (e.g., home healthcare, assisted living, or nursing homes) cost?

A: The cost depends on the type of care and where you live. The least expensive type of care is non-medical home care (e.g., bathing, eating, etc.). The national median cost for non-medical home care is around $20 per hour or about $46,432 annually if you need this help 8½ hours a day, 5 days a week. The other end of the cost spectrum is a private room in a nursing home (AKA: skilled nursing facility). The average cost (median) for a private room in a nursing home is $253 per day or $92,378 annually. Look up Long-Term Care Costs in Your State. These costs are typically not included when most people plan / budget for healthcare costs in retirement.


Q: Who pays for long-term care services?

A: There are basically three funding options:

  1. Self-fund using your income, savings, and/or liquidating assets to pay for care,
     
  2. Buy private insurance
     
  3. Qualify for Medicaid. Medicaid is a welfare program that is only available fter you have spent down your assets and do not have enough incoe to pay for care. There may also be free or subsidized long-term care coverage for veterans through the VA.

Q: What does long-term care insurance cover?

A: Once upon a time, LTC was thought of as nursing home insurance. Most policies today cover home healthcare, assisted living, memory care communities, and nursing homes (skilled nursing facilities). Some policies also cover hospice care. Most long-term care services required are non-medical and provided in the person’s home.


Q: How do I find the right LTC facility for my loved one?

A: Step 1: Ask friends and family whether they have any suggested facilities.

Step 2: You can use these two tools: Eldercare locator from the Department of Health and Human Services, and /or Medicare’s online nursing home comparison tool. Medicare’s comparison tool can help you evaluate nursing homes based on quality to see whether there are any blips in health and safety inspections. It also offers insight into how people rate a facility’s staff.

Step 3: There is no substitute for boots on the ground (AKA: the good old-fashioned site visit). While you are there, do not hesitate to ask residents and their families how they like the facility and staff.


Q: Do you recommend LTC insurance?

A: Everyone should have some plan to pay for LTC if the need arises. This is most important for married couples so that one spouse does not use up all the assets and then leave the other spouse destitute. The plan to self-insure (i.e., pay out of pocket) may be appropriate for mid to high net-worth households (typically over $2 million). Another option is to depend on Medicaid, which is not a great plan unless you do not have a lot of assets to protect. Medicaid is a welfare program that is only available after you have spent almost all your assets. The third solution is to buy insurance so you don’t have to spend down your hard-earned savings. The prime target for LTC insurance solutions are couples with $200k – $2 million in investible assets.


Q: Can the insurance company increase my long-term care insurance premiums?

A: It depends on the type of policy. Traditional LTC insurance (pool of funds) are “guaranteed renewable,” which means the insurance company may increase premiums, but only on an entire class of policies, not on an individual policy. This used to be rare, but now almost every company has raised rates on in-force business. Hybrid products are classified as “non-cancellable,” which means that the insurance company cannot change the rates.


Q: What are “hybrid LTC products”?

A: The insurance solutions include: traditional LTC insurance, as well as the fast-growing hybrid insurance products. The hybrids include life insurance policies that allow the death benefit to be used to pay for LTC or an annuity with a rider that increases your payments during a qualifying LTC event. There are a couple of obvious advantages to the hybrids. Specifically, the death benefit on the life insurance or account value of the annuity is paid to your beneficiary if you do not use the funds for LTC while you are alive. This is a big difference from traditional LTC insurance, which does not have a cash value or death benefit.

These products become more attractive at older ages for two reasons:

  1.  Inflation protection associated with traditional LTC insurance becomes less important when purchased at older ages
  2.  Underwriting guidelines are more lenient on the hybrid products than on traditional LTC insurance. The one downside of hybrids is a large single premium is usually required to fund these products.

Q: How do I qualify for Medicaid?

A: You must spend all your non-exempt assets, which includes investment accounts, savings accounts, retirement accounts, and the cash value of any life insurance—down to $2,000 if you are single before Medicaid kicks in. If you’re married, there are spousal impoverish standards that allow the healthy (community) spouse to keep assets up to the “community spouse resource allowance,” which is set by your state—ranging from $24,180 to $120,900 and monthly income “minimum monthly maintenance needs allowance” of $2,030 – $3,022 (as of 2017).

Exempt assets are not counted and include your wedding ring, one car, and your house. However, there are limits on home equity ($560 – $840k) depending on your state, and many states will put a lien on the house to collect retroactively after both spouses have passed or sold the house.


Q: What is the best age to purchase long-term care insurance?

A: The average purchaser of LTC insurance is 57 years old. Naturally, all insurance solutions (traditional LTC insurance and hybrid life insurance and annuities) are less expensive when purchased at younger ages.


Q: Is it difficult to qualify for long-term care insurance?

A: Yes. If you have a hang nail, you will not qualify. Okay, that’s a slight exaggeration, but it has gotten significantly more difficult to quality for traditional LTC Insurance. The insurance company bases its underwriting on your medical history, family health history, current health status, and lifestyle. When you apply, you must be mentally fit and able to perform all activities of daily living, which are defined as bathing, dressing, eating, toileting, continence, and transferring. Life insurance with a LTC rider is easier to qualify for, and annuities with LTC riders are the easiest. In fact, most of the annuity solutions do not have any medical underwriting. Sadly, they also provide the least effective LTC coverage.


Q: What do these LTC insurance terms mean: elimination period, benefit period, and pool of funds?

A: Traditional long-term care works like most types of insurance. There is a deductible, which is known as the “elimination period.” This is the time when you must pay out of pocket before the insurance kicks in. Ninety days is a typical elimination period. Once the insurance kicks in, you have a daily or monthly maximum the insurance will cover. For example, you would be required to pay the $50 out of pocket if your cost of care is $250 but your daily max is only $200.

There is also a “benefit period,” which is the number of years the insurance will cover you if your cost of care is equal to or greater than your daily maximum. You can figure out your total “pool of funds” by multiplying your daily maximum x 365 days x the number of years. For example, if your daily max was $200 and your benefit period was 3 years, then you would have a pool of $200 x 365 days x 3 years = $219,000. Your benefits would last longer than 3 years if your care costs less than your daily max. For example, your pool of funds would last 6 years if your care was only $100 a day, even though the stated benefit period was 3 years because you would still have money left in your “pool.” These types of policies have a whole host of riders that enable you to customize your coverage. This is why it really helps to work with an agent who is well-versed in LTC.


Q: Are LTC Insurance premiums tax-deductible?

A: Premiums for “qualified” long-term care insurance policies are treated like any other medical expense for tax purposes. You only get a deduction for the amount of total unreimbursed medical expenses (including Medicare premiums) that exceed 10% of your Adjusted Gross Income (AGI). A policy is “qualified” if it was issued after January 1, 1997 and meets certain requirements, among them the policy must offer the consumer the options of “inflation” and “nonforfeiture” protection, although the consumer can choose not to purchase these features. For more detail on this topic, click HERE.


Q: Are LTC benefits taxable?

A: Benefits are tax-free as long as they are less than $360 a day or the cost of care, whichever is greater.


Q: What is the LTC Partnership Program?

A: The Long-Term Care Partnership Program is a Federally-supported initiative that allows individuals who purchase a qualified long-term care insurance policy to protect a portion of their assets from Medicaid spend down.

For example, if you purchase a qualified LTC policy and subsequently collect $300k in benefits, you (or your spouse) would be able to qualify for Medicaid while keeping $300k of additional countable assets. Find out whether your state participates in the Partnership program by clicking HERE.
 

Jeremy A. Kisner, CFP®, CPWA® is a Senior Wealth Advisor at Surevest Wealth Management and author of book: A Good Financial Adviser Will Tell You.
Weekly Insight: FAQs about Long-Term Care was published: by
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