Time for a Closer Look at Long-Term Care Insurance
Mr. ToughMoneyLove is looking again at long-term care insurance. So should many of you. I will tell you why in a minute. First, let’s deal with a misconception that you may have…..
Long-Term Care Insurance is Not Just for the Elderly
58% of claimants under long-term care policies are under age 65.
15% of long term care claimants are under age 45.
The majority (66%) of insured long term care is provided in the home; only 17% is provided in a nursing home.
The number one cause (30% of claims) for needing long term care is cancer, not dementia or other age-related ailment.
(Source: UnumProvident Study)
The AARP provides this data on the average U.S. cost of long term care:
$5,566 a month for a semi-private room in a nursing home
$6,266 a month for a private room in a nursing home
$2,968 a month for care in an assisted living unit
$19 per hour for a home health aide
I trust that these statistics have persuaded you to keep reading.
The Recent Market Collapse Creates a Need for More Financial Risk Management
Millions of working adults have experienced dramatic declines in their retirement savings. Many of them do not have pensions and are within 10-15 years of anticipated retirement. These folks may need to take increased investment risks in an attempt to more quickly recover from their losses. To consider taking on more risk on the investment side, responsible investors should compensate by reducing risk in other areas. That’s where long-term care insurance can play a role. A worst case scenario is to lose everything to a health disaster while trying to regain what has been lost in a market disaster. You want to insure against such a scenario. Stated another way, the more that you can insure against a financial risk, the less you need to be concerned about having a retirement nest egg large enough to cover that risk.
Long-Term Care Partnerships Make Insurance More Valuable
One of the biggest problems and dilemmas in considering long term care (LTC) and LTC insurance is the role of Medicaid. Stated simply, Medicaid regulations require the sick or injured person to effectively exhaust all personal assets before Medicaid can be used to pay for long term care. Healthy adults considering LTC insurance will mentally weigh the premium costs against the value of the assets that would be at risk before Medicaid could be used.
The Deficit Reduction Act (DRA) of 2005 changed the game somewhat. Under the DRA, a state can adopt insuranceregulations that establish Long Term Care Partnerships applicable to residents of that state. The “partnerships” are between long term care insurance companies and the state’s Medicaid-qualified long term care program. The primary benefit of the Partnership is to allow a beneficiary of long term care to retain more assets yet be eligible for LTC reimbursement by Medicaid. This is done by purchasing a long-term care policy that meets Partnership regulations. If you do, then you can obtain Medicaid LTC benefits without depleting all of your assets.
It works like this. Assume that you are insured under a LTC policy that pays you $300,000 in benefits, after which the benefits are exhausted. You can then become eligible for long term care under Medicaid. However, instead of having to spend down all of your own assets to achieve eligibility, you are allowed to retain an amount equal to the insurance benefits you received. In this example, you could retain $300,000 in personal assets while receiving Medicaid long term care. That’s quite a difference. It puts you in a much better permanent financial position compared to someone who did not have long term care insurance. Those folks must still render themselves almost penniless before they are eligible.
More states are implementing insurance regulations that create these Long Term Care Partnerships. Our state did so, effective October 1. You should check with your state Department of Insurance to determine if your state is on board or if it will soon join the Partnership program.
It’s important to understand that not all long-term care policies are eligible for the Partnership program. An important requirement of the regulations is that, for those under age 65, the policy must include compound inflation adjustment of the benefit. That adds cost to the policy but it’s a worthwhile feature. Make sure you inquire about this issue when discussing a new policy with an agent.
Group Long-Term Care Coverage is More Affordable and Accessible
Another reason why Mr. ToughMoneyLove is actively exploring long term care insurance is the discovery that group LTC coverage can save a lot of money and a lot of underwriting. Our firm is in discussions with a major provider of long-term care insurance. We are being told that with a minimum number of employee participants, we can obtain LTC coverage for employees and employee spouses, at a discount of 25%-35%. These LTC policies are also transportable, meaning that when I retire, I can take the policy with me, as long as I keep paying the premiums.
Another important feature of the group long term care policy is that there is virtually no underwriting. You answer four simple health questions and that’s it. That is critical to me because Mrs. ToughMoneyLove has chronic health problems that would likely disqualify her from obtaining a separate LTC policy. For the group policy, none of the four health questions relate to the problems she has. This means that I will be able to purchase the LTC insurance for her and at normal rates.
A last point about group long-term care coverage is that you don’t need your employer to pay for all or even very much of it. If you are in a small business like ours, a group of interested employees can come together and seek out a plan that would work for them, then present it to the business owner as an option to consider.
As perhaps you can see, although we remain invested for the long term, recent economic events have prompted me to explore other money strategies and tactics to help us reach our financial goals. Using long-term care insurance to cover a significant financial risk is one of those strategies.
Are any of you looking to insure against financial risk?