This Article is the 5th and Final in a Series on “Medicare Does Not Cover Long-Term Care after 100 Days”
The last article focused on ways to qualify for Medicaid to pay for Long Term Care (LTC).
At the opposite end of the spectrum are those who can afford to self-pay for their LTC with income, savings, and/or investments. In addition, they may be able to afford to purchase traditional LTC insurance via monthly premiums or roll over investments to a plan to help protect them if they’re not sure if they have enough to pay for their longevity and they want to avoid Medicaid at all costs.
This article focuses on the majority who fall between the extremes of poor and affluent. Those who have a modest amount of personal assets worth preserving but not enough to pay for long-term care services out of pocket. They can rollover some investments or afford the monthly premiums to buy a policy providing moderate coverage but not a full-bodied product with unlimited lifetime benefits. They are not averse to applying for Medicaid if necessary, especially if they can preserve some if not all of their personal assets in the process.
A smart approach to use for those who are not able to fully fund their LTC are Partnership Programs. The program’s goal is to encourage consumers to purchase affordable long-term care insurance (LTCI) policies and to shift financial responsibility to Insurers and reduce the burden on state Medicaid programs. Partnership-qualified LTC policies generally have limited lifetime maximums; $100,000 to $300,000 is typical. In a partnership plan, the LTC policy helps with the self-pay requirements of most LTC facilities. Long Term Care facilities typically require anywhere from 12 to 36 months of self-pay before they will accept Medicaid as payment. It can also make sense to match the policy’s total benefits to the amount of assets the insured wants to pass on to heirs.
The key benefit is the applicant can keep assets equal to the policy’s paid benefits. These assets are exempt from Medicaid estate recovery upon the insured’s death.
If the insured requires long-term care services, the LTC policy pays out its benefits. Then, if the insured continues to need care after the policy’s benefits are exhausted (or the cost of his or her care exceeds the policy’s benefit level), he or she can apply for Medicaid. However, the standard asset limit that the state Medicaid program would otherwise impose does not apply to the owner of an LTC partnership policy.
For example, if someone has a $150,000 LTC partnership policy they can retain personal assets of $150,000. Those assets would be protected against Medicaid’s spend-down requirement. Only assets are protected; most of the income of the person receiving care still gets paid toward care.
For those who are concerned about the “use it or lose it” aspect of traditional LTC Insurance, here are 2 popular options:
Hybrid Annuities
For many, a hybrid annuity may be a suitable option for LTC funding. Hybrid annuities are fixed single premium deferred annuities with long-term care insurance riders. These products are designed to provide a means to cover the cost of LTC insurance and to generate LTC benefits if that need arises; and to accumulate funds on a tax-deferred basis for any future purpose, if LTC is not needed.
For example, an individual who deposited $100,000 in a hybrid annuity that grew by the time an LTC claim occurred would have $300,000 to $450,000 of long-term care coverage, depending on the multiple. Other product designs provide for an LTC fund equal to some multiple of the original premium deposit.
If long-term care is needed, the benefit is funded first through monthly payouts of the annuity’s cash value. If the cash value is depleted and care is still needed, then at that point, the LTC rider becomes operative and will continue to pay the same monthly amount for an extended period, such as 25 or 50 months.
If long-term care is not needed, the hybrid annuity operates like any other deferred annuity. The owner can continue the contract as long as he or she wishes, earning tax-deferred interest, withdraw the contract’s values and pay taxes on the earnings, or annuitize the contract, meaning to go ahead and convert the lump sum into a stream of payments.
Having the option to use the contract’s funds for other than long-term care is one of the primary advantages of a hybrid annuity. It overcomes the concern many consumers have about purchasing a stand-alone LTC insurance policy: that long-term care will not be needed and that premiums paid for such coverage would be “wasted.”
Hybrid annuities are typically issued with a waiting period (such as two years from the time the product is purchased) before benefits will be paid, as well as an elimination period (such as 90 days) once an LTC claim is filed. Many hybrid annuities also offer optional inflation protection provisions.
Hybrid Life Insurance with LTC Benefit
Life insurance policies can include a long-term care benefit, either as part of the policy or as a rider. These “hybrid” policies provide for an advance on the policy’s death benefit, payable tax-free, to cover long-term care costs while the insured is living. If the insured is certified as needing long-term care (i.e., he or she cannot perform two of the six specified activities of daily living), the benefit can be paid as a drawdown on the death benefit. The LTC benefit is typically defined as a percentage of the death benefit, paid monthly. For example, a $100,000 life policy might provide for a monthly long-term care benefit of 3 percent. Accordingly, this policy would pay $3,000 a month, up to 33.3 months, at which point the benefit would be exhausted. Any portion of the death benefit not paid out for long-term care would be payable as a death benefit to the insured’s beneficiaries at the insured’s death.
In summary, 70 percent of individuals over 65 will require some type of long-term care during their lifetimes. An LTC policy improves your chances of receiving care in the home verses having to go into a facility. If the time comes when you have to go into a facility, it is very difficult to find quality facilities that have open beds accepting Medicaid. Most facilities require at least some period of self-pay before they will accept Medicaid as payment. A hybrid policy funded with a lump sum now can exponentially increase the coverage you receive in the future and avoids the “use it or lose it” concern of traditional LTC insurance. Aging is inevitable. But facing it unprepared doesn’t have to be.
Mary Hiatt is a Retirement & Insurance Advisor and President of Mary the Medicare Lady (A non-government entity.) She is Certified in Long Term Care Programs, Policies, & Partnerships and Annuities. She offers Educational Workshops on Medicare, Long Term Care and more at no charge. She offers eligible spend-down plans and works with reputable estate planning Attorneys to help her clients get Medicaid. Not connected with or endorsed by the U.S. government or the federal Medicare program. Medicare Supplement insurance plans are not connected with or endorsed by the U.S. government or the federal Medicare program. See www.hiattagency.com or contact licensed independent agent mary [at] hiattagency [dot] com or call or text 402 672 9449 for more information.