Sunday, September 24, 2017

FAQs on Long-Term Care

     Realistically speaking, most of us will need some kind of personal care at one time or another. I posted an article on the subject, Is Long-Term Care Insurance for You? that covered many of the basics, brought to us by Jeremy A. Kisner, a financial expert at Surevest Wealth Management in Phoenix, Ariz.

     Kisner is a Certified Financial Planner and Chartered Life Underwriter, with a degree in economics from UC Santa Barbara. He also writes an informative Retirement Blog that covers various aspects of personal finance and retirement issues.

     As Kisner reports, not much has changed on the issue of long-term care. But there are always more details, more questions. So here are the Frequently Asked Questions he sees regarding long-term care:


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, 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 median cost 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 after you have spent down your assets and do not have enough income 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 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: the 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 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, hybrid life insurance and annuities) have a lower annual expense 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 -- typically 90 days -- when you must pay out of pocket before the insurance kicks in. Once insurance starts, 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 is $200 and your benefit period is 3 years, you would have a pool of $200 x 365 days x 3 years = $219,000. Your benefits would last longer 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 policies have a host of riders that enable you to customize 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.

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. Here's a list of states that participate in the Partnership program.
 

18 comments:

Terra Hangen said...

This is fascinating and is helpful information as I sometimes think about getting LTC insurance.

Celia said...

I'm on my own, the "hangnail" qualifier is apt. Actually very healthy most of my life except for well-managed asthma, oops, not eligible for insurance.

Barbara - said...

Im also alone, and do not qualify even with a well managed condition that has never required hospitalization or anything above the once a day pill. My brother does not qualify because he has a small disc out of place in his back, which again has never affected his ability to care for himself, work or work out in any way.

Stephen Hayes said...

Very informative. I learned much of this when my mother became too sick to care for herself last year. You might consider doing a piece on hospice care. I was so impressed with them. Without their help dealing with doctors would have been a nightmare.

Linda Myers said...

My husband and I took out LTC insurance about 15 years ago. He would not qualify now. It's an annoying payment to make every month, but the "one person dies and the other is left destitute" is hard to think about. You've written an excellent, informative post here.

Keep the Faith said...

I bought a LTC policy before I retired and in my late 50's as it was offered by my employer as part of a group plan which lowered the cost. Also, didn't have to go through a physical as long as I signed up when it was first offered.
I live alone and my relatives are getting older too. My only child lives 500 miles away, so I believe this would help eliminate some of the concerns if I am unable to take care of myself as the years go on.
The premiums did go up last year and I am waiting to see if I will get another increase this year. My State is a partnering state, so Medicaid isn't a problem unless those people in Washington continue to play games with the program.

Heidrun Khokhar, KleinsteMotte said...

That is a lot to take in. We live inOntario Canada and have vatious options. The best are of course self funded ones. But public health plans are there for those in need, usually a pension fund will be used to cover the public option ,

DJan said...

I don't haVe any LTC and now I'm too old to get it This is a very informative post, Tom. Thank you for all the information. I don't know what we will do if we end up needing it.

Tom Sightings said...

I've mentioned before that, while I'm not a hundred percent convinced that LTC insurance is worth it, both B and I have it. We're in the prime target that Kisner identifies. Besides, B insisted since, if the need arises, she doesn't want me to have to take care of her bathing, dressing, eating, toileting, transferring. She doesn't want to have to take care of that for me, either. And who can blame her? P.S. Stephen, my experience with hospice for my parents was also extremely positive . . . it's a great thing.

Still the Lucky Few said...

Very good information, Tom. Helps a lot of us with 'head-in-the-sand" syndrome to face the future informed rather than unconscious! I'm Canadian, and I can see that I will need to address this topic on my blog soon. Our situation is different, but I believe we have some common problems.

Sally Wessely said...

This is excellent. I must admit that my eyes start to drift and my mind drifts even more when I start reading about long-term care and such. That is because it all seems so BIG and scary. I know the best way to handle such things is to take the bull by the horns and deal with the bull. I am trying to do that. I will print this out and refer to it often. I am dealing with making decisions for my 101 year old mother who resists anyone making decisions for her. It is a rough road. Thankfully, she has needed no care, but that can't last forever.

I reget not getting a long-term care policy ten years ago. I was ready to sign the contract and pay the money. My husband and son talked me out of it. I then started having heart problems and auto-immune issues. I was healthy as I could be when I considered the policy. No one would give me a policy now. I like the security such a policy would bring to my children if they should ever have to care for me. I heard today that those with assets of between $300,000 to $1 million are those who should have the policies. I think that is true. If you have less, you can spend down your assets and get help from Medicaid.

Truly, I am appreciative of the way you have spelled this all out. It has helped me more than the attorney I spent money to consult so I would know all I needed to know to act as my mother's POA.

Anonymous said...

I thought about LTC long and hard. Finally, seeing the price tag in 2014….then figuring out that a bout with cancer would make me unacceptable I chose not to even apply. I’m not sure LTC insurance will even survive the long run. This is an interesting article: http://time.com/money/4250147/long-term-care-insurance-rising-premiums/ . And then a few months later, Genworth, the biggest seller of long-term care insurance policies in the US, announced that they were being acquired by a Chinese investor, China Oceanwide Holdings. It makes you wonder if the underlying financials will ever workout….unless the insurance company raises premiums and restricts payouts even more.

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Anonymous said...

Be careful with that "spend down"! The rule of 13,000 to family per year does not apply here! Medicaid will look at your bank records for the last five years and any amounts, even if you live with your child will be suspicious, and may need to be paid back before you will be accepted into Long Term Care. Start saving those receipts to save on headaches-

Savoring Sixty said...

Very timely article! We are in the process of getting our ducks in a row as we look toward retirement. This is a topic our financial advisor talked about and an area where we definitely need guidance. Thanks for posting.

Anonymous said...

The best time to start thinking about, and coming to a purchase/self-insure decision about LTC insurance, is before most people are emotionally prepared to think about such topics. We started to look at various options when an acquaintance started to talk about "making my mother destitute" so she could qualify for Medicaid. It was a lengthy, circuitous and slightly-demeaning process that stripped a parent of assets that had ben intended to care for her, only to the benefit of her children.
Having decided we would never force our family to take such steps, we purchased LTC coverage in our mid-50s at a time when the premiums were still higher than we liked. We curse whenever we write those checks, but feel better than others who have gotten to a certain age and/or physical condition where LTC coverage just might not be available.

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