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Long-Term Care
If you can afford the premiums and you are
insurable, the best solution to the prospect of significant long-term
care costs is long-term care insurance. Most long-term care insurance
policies today pay for home care and assisted living as well as for
nursing home care. The problem is choosing a good policy and being
able to afford it.
Long-term care insurance is a contract between an insurance company
and a policyholder to pay for certain types of coverage under certain
conditions. In general, long-term care policies are sold by insurance
agents to policyholders, although group policies are becoming
increasingly available from large employers, membership organizations
like AARP, and health maintenance organizations.
Despite the wide range of policy options, there are a few rules of
thumb for purchasing a policy. Following these rules tends to drive up
the insurance premium, but if an individual is going to invest in
long-term care coverage, he or she should buy a good policy.
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Buy enough coverage. It doesn't
make much sense to pay insurance premiums and then be bankrupted by
nursing home fees anyway because of insufficient coverage. As with
other medical expenses, the inflation rate in nursing home fees is
quite high. In addition, people should probably assume that they
won't be entering a nursing home for at least 10 years. At that
time, the cost of the nursing home will be about twice what it is
today.
Here's a formula for figuring out how much coverage to purchase:
average daily cost of a nursing home today x 2, minus your
monthly income divided by 30, equals amount of coverage to purchase.
For instance, if the average nursing home in a region costs $150
a day and your monthly income is $1,500 a month, then you should buy
coverage of $250 a day ($300 - $50 = $250). Somewhat less coverage
can be purchased if an inflation rider is bought (meaning that the
insurer's payments rise with inflation) or if you are prepared to
contribute some of your savings to the cost of care.
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Buy at least three years of coverage.
After moving to a nursing home, you may want to transfer assets to
your children, or to whomever you would like to benefit, if you
haven't done so already. As explained in another section (see
The Transfer Penalty), Medicaid penalizes such transfers by
imposing a period of ineligibility that can be as long as three
years (or five years for transfers to certain trusts). After those
three years have passed, you can qualify for Medicaid to pay your
nursing home costs (provided the assets remaining in your name do
not exceed Medicaid's limits). If this is your strategy, you will
need long-term care coverage only for the years before Medicaid
coverage commences. Therefore, you need to purchase at least three
years of long-term care coverage. If you do not intend to transfer
assets to become eligible for Medicaid, then you will need more than
three years of insurance coverage. In addition, if you have a
combined home care and nursing home benefit, three years will not be
enough.
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Buy a home care option or rider.
One of the problems with Medicaid is that although it pays for
nursing home care, in most states it pays for only limited home care
(New York State is a notable exception). Thus people often feel
financially compelled to move to a nursing home, where the state
will pick up the cost. Until there is a change in the law, most home
care will have to be paid for out-of-pocket or by insurance. It
doesn't make much sense to pay insurance premiums to replicate the
Medicaid situation--coverage at a nursing home but not at home.
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Fill out the application completely
and make sure the insurance company evaluates it before issuing the
policy. If in order to qualify for insurance you fail to tell
the insurer about an illness, the company may refuse you coverage at
the time benefits are needed. It is better to be denied a policy and
to be able to plan knowing that coverage is not available than to
believe that coverage will be forthcoming, only to have it denied
when it is needed. Likewise, you should make sure that you purchase
from an insurance company that evaluates--or in insurance company
parlance "underwrites"--the policy from day one. If not, the company
could refuse you coverage when they evaluate the application at a
later date.
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Compare insurance companies and
rates. Make certain that the insurer is rated A or A+ by
A.M. Best
or another service that rates insurance companies. Your coverage
will not be very effective if the insurer goes out of business. In
addition, rates charged by insurance companies in the long-term care
field tend to vary widely. Compare different companies' rates and
offerings before making a decision.
Which spouse gets the coverage?
Often, a married couple will be able to afford coverage for only
one spouse. Looking at statistics alone, the wife should purchase the
policy. In our society women tend to live longer than men and to
provide more care than men. The result is that women are much more
likely than men to end up in a nursing home for a long period of time.
In addition, the Medicaid rules provide some protection for the spouse
of a nursing home resident. For these reasons, the best bet for
couples who can afford the premiums for one policy only is to purchase
it for the wife. Couples should bear in mind, however, that this is
playing the odds and is not a sure thing.
Can you afford long-term care insurance?
A rule of thumb is that payment of the long-term care insurance
premium should not affect your standard of living. Thus, premiums are
affordable if they are paid with money that you would otherwise set
aside to add to savings. An alternative would be to purchase an
annuity that pays sufficient benefits to cover the long-term care
insurance premiums.
The tax deductibility of long-term care insurance premiums
Under the Health Insurance Portability and Accountability Act, also
known as "Kennedy-Kassebaum," passed in 1996, "qualified" long-term
care insurance policies receive special tax treatment. To be
"qualified," policies issued on or after January 1, 1997, must adhere
to regulations established by the National Association of Insurance
Commissioners adopted in January 1993. Among the requirements are that
the policy must offer the consumer the options of "inflation" and "nonforfeiture"
protection, although the consumer can choose not to purchase these
features.
The policies must also offer both activities of daily living (ADL)
and cognitive impairment triggers, but may not offer a medical
necessity trigger. "Triggers" are conditions that must be present for
a policy to be activated. Under the ADL trigger, benefits may begin
only when the beneficiary needs assistance with at least two of six
ADLs. The ADLs are: eating, toileting, transferring, bathing, dressing
or continence. In addition, a licensed health care practitioner must
certify that the need for assistance with the ADLs is reasonably
expected to continue for at least 90 days. Under a cognitive
impairment trigger, coverage begins when the individual has been
certified to require substantial supervision to protect him or her
from threats to health and safety due to cognitive impairment.
Policies purchased before January 1, 1997, will be grandfathered
and treated as "qualified" as long as they have been approved by the
insurance commissioner of the state in which they are sold. Most
individual policies must receive approval from the insurance
commission in the state in which they are sold, while most group
policies do not require this approval. To determine whether a
particular policy will be grandfathered, policyholders should check
with their insurance broker or with their state's insurance
commission.
Premiums for "qualified" long-term care policies will be treated as
a medical expense and will be deductible to the extent that they,
along with other unreimbursed medical expenses (including "Medigap"
insurance premiums), exceed 7.5 percent of the insured's adjusted
gross income. However, the deductibility of premiums is limited by the
age of the taxpayer at the end of the year, as follows (the limits
will be adjusted annually with inflation):
|
Age attained
before the end of the taxable year |
Amount allowed as
a medical expense in |
|
40 or under 41-50 51-60 61-70 71 or
older |
2001 |
2002 |
|
$ 230 $ 430 $ 860 $ 2,290 $ 2,860 |
$ 240 $ 450 $ 900 $ 2,390 $ 2,990 |
Consult With a ‘CLTC-Certified’ Agent
If you are considering long-term care insurance, you probably
should consult with a qualified professional to determine whether you
can afford this type of coverage and whether the policy you are
considering meets necessary standards. .
Long-term care insurance has attracted much media attention, and
many insurance agents are now selling it. However, long-term care
insurance is a complex product that should be approached with caution.
ElderLawAnswers believes that insurance agents and brokers
selling long-term care insurance should be highly trained and know how
to recommend the right coverage based on a client’s finances and
objectives. .
ElderLawAnswers has determined that The Corporation for
Long-Term Care’s professional designation “Certified in Long-Term
Care” (CLTC) offers a rigid program that meets these criteria. The
Corporation for Long-Term Care was established by a founding member of
the National Academy of Elder Law Attorneys, the country’s premier
legal organization addressing elder law issues, and is dedicated to
training agents to solve clients’ long-term care needs. .
Moreover, the Corporation for Long-Term Care’s program is “third
party,” meaning that it is not affiliated with any insurance company
or supported financially by the long-term care insurance industry.
This is important because you will want an agent who represents a
number of insurance carriers so you can choose from a variety of
policies. The Corporation for Long-Term Care also has received the
support of your state insurance regulator by the granting of
continuing education credits. .
Take a moment to visit the CLTC Web site at
www.ltc-cltc.com, where you will find:
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A directory of CLTC graduates in your
area
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The CLTC mission statement
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Course material
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