Long term care expenses can ruin the best laid financial plan, unless they are part of the plan. Long term care insurance can be expensive. But it doesn’t necessarily have to be expensive. The key is in the planning.
Executive Summary: It’s complicated. Consider consulting with a qualified independent insurance agent. Consider calling the State Health Insurance Assistance Program (SHIP) before meeting with an agent. In Indiana you can reach SHIP at 1-800-452-4800. In Kentucky the number is (877) 293-7447. In Illinois the number is (800) 252-8966. You can call me, Bill Stant, at (812) 988-6793 (office) or (812) 345-1033 (cell), or send me an email at: [email protected]
What Is Long Term Care? Long Term Care is custodial care. Custodial care is care that is expected to be required indefinitely or for at least 90 days. Long term care can be delivered in your home or in an institution such as an assisted living facility, a nursing home, or in a community care facility. Community care facilities can be senior centers or adult day care facilities.
Who Needs Long Term Care? About 70% of Americans over the age of 65 will need some kind of long term care services, with 40% needing care in a nursing home. Women are more likely than men to need long term care. The average stay in a nursing home is 2.6 years.
In the years 2013 to 2014 almost 70% of nursing home residents were women. Over 15% of nursing home residents were under age 65. Over 50% of nursing home residents were diagnosed with Alzheimer’s disease or other dementias. Almost 63% of long term care services users in nursing homes relied on Medicaid to pay for their care.
The Cost of Long Term Care: For most middle-class households some, perhaps most, of the financial risk of long term care expenses can be transferred to an insurance company while some can be self-insured. With some planning the cost of the insurance can be manageable.
You are more likely to experience sticker-shock if you insist that your long term care insurance plan covers all of the financial risk of long term care expenses.
If you can afford roughly 2.6 years-worth of the following annual costs without disrupting your standard of living or undermining your financial security, then you may not need to buy an insurance solution. If you are married, multiply the costs in the chart by 2 to estimate the cost of a possible worst-case scenario.
Why Buy Long Term Care Insurance? The financial risk of catastrophic long term care expenses is not the only reason to consider insurance. An insurance solution can protect family members and friends from having to provide care that is better provided by trained professionals.
Being a caregiver can be physically and emotionally exhausting for a loved one. It typically requires the caregiver to forego career opportunities, take on related expenses, and give up time with spouses and children. Your loved one may not be physically capable of handling some of the care you may need. I know this from personal experience.
An insurance solution can help you maintain your independence and dignity and allow your time with loved ones and friends to be quality time. Insurance can also be the key to avoiding spending down your assets. It can make it possible for you to leave assets to your loved ones after you are gone.
What About Medicare? Medicare does not cover long term care because long term care is custodial care. Medicare covers rehabilitative care, intended to aid in recovery from an illness or injury, in a qualified facility, if it was preceded by a 3-day hospitalization for the same illness or injury.
For any one benefit period Medicare may pay for up to 100 days in a nursing or rehab facility. For the first 20 days in any one benefit period, Medicare Part A pays the full amount. But for the next 80 days in a benefit period, the patient is responsible for a daily copayment of $167.50. https://www.medicare.gov/pubs/pdf/10050-Medicare-and-You.pdf
What About Medicaid? Though it varies somewhat from state to state, Medicaid imposes strict requirements to qualify for assistance with long term care costs. In Indiana, for example, Medicaid requires that all income in your name, except for a $52 monthly allowance, be used to pay for your long term care expenses before Medicaid pays. In addition, all non-exempt assets except for $2,000 ($3,000 if married) must be used to pay for long term care before Medicaid will pay.
Indiana Medicaid’s definition of exempt and non-exempt assets is complex. Indiana Medicaid uses the term “resources” to refer to assets. Details can be found at the Indiana Long Term Care Insurance Program (ILTCP) web site: https://www.in.gov/iltcp/index.htm. While you are there be sure to download the “What You Should Know About Long Term Care” booklet and the “Spousal Impoverishment Protection Law” pamphlet.
The Spousal Impoverishment Protection Law provides spend-down limits for spouses of Medicaid nursing home residents. The spouse living at home may keep monthly income, including their share of joint income, up to $2,057.50, or $3,090 if living expenses are high. If the home-spouse’s personal income plus their share (50%) of joint income is more than $3,090 per month, he/she cannot keep any of the nursing home spouse’s income.
If you are a home owner and you, your spouse, or dependent children live in the home, the home is not counted as a non-exempt resource (aka asset). Most resources are considered joint assets between a husband and wife no matter in who’s name the asset is placed. The spouse living at home can keep up to $123,600 of assets that are countable (aka non-exempt). https://www.in.gov/iltcp/2340.htm
BUT - If there are no dependent children living in your home and you are sharing your home with someone to whom you are not married then your home is a non-exempt countable asset for purposes of the spend-down. If you rent your home to someone else and do not live there yourself then the rent is income that has to be spent on your long term care expenses in order to qualify for Medicaid’s support.
Medicaid can look back 5 years from the date of your application to see if your assets were transferred for “less than fair value,” for example, to a trust. If so, no long term care expenses will be paid by Medicaid until you have spent on long term care an amount equal to the fair market value of the assets transferred.
In addition, the Indiana Family & Social Services Administration (FSSA) Estate Recovery Program is required by law to seek to recover from the estate of any Medicaid recipient age 55 or older an amount equal to what Indiana Medicaid paid for the recipient’s long term care services. https://secure.in.gov/fssa/dfr/4874.htm
Elder Law Attorneys and Trusts: It is possible to utilize estate planning professionals such as elder law attorneys to shelter your assets from the dreaded Medicaid spend-down. Using this approach typically involves transferring ownership of your assets to relatives or to one or more trusts. But if you worked hard and built assets and income to the point that you could afford to pay the legal fees required by this strategy, why would you want to end up depending upon Medicaid at all?
Relying on Medicaid necessarily limits your choices of where to receive care. It can limit the range of care services you receive. And it can limit your options for improving the quality of care.
Why plan to apply for Medicaid when you have the option to pay insurance premiums instead of legal fees? To be fair, legal fees, unlike most insurance premiums, are usually not ongoing costs once your asset-shifting plan is established. But Medicaid is intended to help those without the resources to help themselves. Before heading down the road of legally planned asset transfers, ask yourself: Do you really want to become artificially impoverished and possibly lose control of what used to be your assets?
Until poverty is fully eradicated, Medicaid, if it survives, will be a necessary welfare program. But in today’s political climate welfare programs are unfairly stigmatized. Not surprisingly, Medicaid is always looking for ways to close the loopholes that allow the affluent to become artificially indigent and thereby artificially eligible for Medicaid assistance with long term care expenses.
Long Term Care Planning with Insurance: A good plan for long term care, ideally part of an overall financial plan, will establish the proper balance between self-insuring and transferring risk to an insurance company. But it is important not to procrastinate.
You may be healthy now. But you might not be healthy in the future. Long term care insurance, whether traditional or hybrid, is medically underwritten. If you wait until you have health problems you might not be able to qualify for a long term care insurance solution.
It’s complicated. Consider consulting with a qualified independent insurance agent. I can be reached at (812) 988-6793. [email protected]. Or fill out the contact form on this website. Thanks!