Q. Our neighbors are both retired Federal employees. Recently, when we had dinner with them, the topic of long-term care insurance came up, and they told us about a huge rate increase last year. Now, they are paying MORE THAN DOUBLE the cost of their 2016 premium to keep their same benefits — a lot of money for a retired couple on a fixed income and fixed budget.
We were seriously considering long-term care insurance, but are concerned about rate increases, like our friends described, and the risks involved (what if we never need long-term care?). We are not retired or current federal employees, however. Is the huge cost increase for long-term care insurance only for federal employees, or for everyone? Are there any long-term care insurance options that are less risky than traditional long-term care insurance?
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A. The increase that your friends experienced was a whopping 225%, a previously unheard of increase for the Federal Long-Term Care Insurance Program (FLTCIP) program.
Federal employees are not the only ones affected by industry price increases. The cost of traditional long-term care insurance has generally been increasing for everyone over the last decade, and many insurance companies previously offering individual long-term care insurance policies are no longer in business.
Is Traditional Long-Term Care Insurance Right for You?
With long-term care costs generally rising faster than inflation, many people, such as you and your husband, are looking into whether traditional long-term care insurance is a good idea. While there’s definitely a benefit for some people to purchasing long-term care insurance, there are certain issues to consider before you buy (especially when it comes to traditional policies), including some very important facts about how long-term care insurance interacts with Medicaid.
These are some of the advantages and disadvantages:
• Advantage: On one positive note, when it comes to LTC insurance, there may be some tax deductibility for the insurance premiums you pay as an individual (if you itemize deductions) to the extent that the premiums paid exceed 7.5% of adjusted gross income. Many states also offer tax incentives (credits/deductions) to encourage the purchase of LTC insurance.
• Disadvantage: Your premiums might increase drastically as you get older, even if the LTC insurance company told you that you were “locking in” your premium at the time you purchased the policy. This is because the insurance company can go back to the State Bureau of Insurance and request premium increases across the board, which all long-term care insurance companies have done over the years because of greater-than expected claims.
• Disadvantage: For many people who purchased long-term care insurance in the past, they found that premiums became so high that they ended up having to cancel their policies in later years, losing all the money already put into the policy. Or, they were forced to accept drastically reduced benefits in order to keep their premium from increasing.
• Disadvantage: In most cases, when long-term care benefits are actually paid, they are usually far below the actual cost of care. For many of the longest-term residents, benefits were used up before the nursing facility stay ended.
• Disadvantage: Perhaps the biggest disadvantage is that traditional long-term care insurance is “use or lose.” So if you die in a car accident, or drop dead from a heart attack, or die from cancer, you’re not going to need long-term care and therefore all the premiums you’ve paid over the years have been wasted.
It’s Not as Bad as You Think . . . We Offer a Much Better Option
As you may know, I offer specialized elder-focused financial planning services through Lifecare Financial Services, a company I started over 10 years ago. Among our offerings are hybrid products such as annuities and life insurance policies that provide a long-term care benefit which is much less risky than the traditional long-term care insurance described above. The appeal of these hybrid products is that you are guaranteed to receive the benefits you pay for, and these products are often easier to qualify for than traditional long-term care insurance.
These hybrid products can:
•pay for some or all your long-term care costs should you need care
•provide you with income or provide your estate with a tax-free life insurance benefit should you not need care
•offer you a 100% money-back guarantee should you change your mind
A hybrid life insurance policy with long-term care benefit may be worthwhile for you to consider if you have liquid assets, especially tax-qualified assets such as IRA funds, that you probably will not need for retirement income.
For example, you may have already set aside $500,000 in your savings should you need long term care. Let’s presume you are a 60 year old female. As an alternative to self-funding your needs, you could choose to move $250,000 of the $500,000 in your savings into a linked-benefit policy. In doing so you could receive:
•a $507,000 tax-free life insurance benefit to your beneficiaries should you not need long-term care; or
• up to $10,140 per month tax–free for 50 months (or if less money is needed, you can take it out over longer period of time up to the maximum of $507,000) to pay for Home Health Care, Assisted Living, or Nursing Home Care; or
•your entire premium of $250,000 returned to you should you change your mind.
Talk to an Experienced Elder Law Attorney First
If you have done your research and decide that long-term care financial planning might be right for you and your family, you should first meet with an experienced Elder Law Attorney, such as myself, who also does elder-focused financial planning, in order to understand all of your options. Hybrid financial products provide numerous options, but there are also dozens of long-term care asset protection strategies, including the Living Trust Plus™ Medicaid Asset Protection Trust, Veteran’s Aid and Attendance Benefits (for eligible Veterans and their spouses), and Medicaid Planning.
To discuss the strategies listed above further, or if you have not done long-term care planning, estate planning, or incapacity planning (or had your planning documents reviewed in the past several years), please call us to make an appointment for a consultation:
Fairfax Medicaid Planning: 703-691-1888
Fredericksburg Medicaid Planning: 540-479-1435
Rockville Medicaid Planning: 301-519-8041
DC Medicaid Planning: 202-587-2797
About Evan H Farr, CELA, CAP
