Long-Term Care Insurance- The Good, the Bad, and the Ugly

November is Long-Term Care Awareness Month, a continuing effort to raise public awareness about long-term care insurance and planning. Statistics show that more than 70% of people age 65 or older will need long-term care sometime in their future. That statistic alone dictates that you need to have a plan in place. With long-term care costs rising faster than inflation, long-term care insurance is one of the fastest growing insurance products on the market. While there’s definitely a benefit for some people in purchasing long-term care insurance, there are certain issues to consider before you buy, including some very important facts about how long-term care insurance interacts with Medicaid.

The Good

Medicare, the public health insurance system for seniors over 65 and disabled adults, does not pay one penny for long-term care. Medicare only pays for medical care delivered by doctors and hospitals, and in certain cases short-term rehabilitation which might take place in a nursing home. Please read our blog post on the 100-day rule for details. Long-term care insurance can pay for in-home care so seniors can live in the comfort of their own home, and help cover the high costs of nursing home care, if needed. Below are some of the advantages to purchasing long-term care insurance:

• As the industry has evolved, greater consumer protection standards have been implemented and the insurance policies offer a wider range of benefits and options.
• 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 insurance.

The Bad

When it comes to long-term care insurance, there are eligibility requirements (relatively good health) as well as benefit limits (maximum dollar amount or days covered) and no policy will cover 100% of your costs. There are other disadvantages:

• The biggest disadvantage to long-term care insurance is that your premiums might increase drastically as you get older, despite the fact that the 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 year because of greater-than expected claims experience. 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. In fact, statistics show that only five out of every one hundred persons nearing retirement age who purchased long-term care coverage still had it by the time he or she reached 80 years old.

The Ugly

According to a recent report by the Office of the Assistant Secretary for Planning and Evaluation (ASPE), part of the U.S. Department of Health and Human Services (HHS), changes in the Long-Term Care (LTC) insurance market, including higher-than-expected benefits and lower-than-anticipated returns on investments, have caused many major carriers to exit the market. Below are other important considerations:

• About half of all long-term care policies lapsed before any benefits were paid; policy holders were unable or unwilling to continue paying their premiums.
• Of those people who bought insurance and later entered a nursing facility, about half never collected a dollar from their long-term care policies.
• No benefits were ever paid to the many people who bought nursing facility coverage but instead received home care or entered a residential facility not covered by the insurance.
• When long-term care benefits were paid, they were 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.

If you are considering long-term care insurance, first look at each policy very closely because each one is written differently. Also, look closely at the insurer’s claims payment history and whether they have been increasing premiums for existing policy holders. If you have done your research and decide long-term care insurance is right for you and your family, you should incorporate it as part of your long-term care plan, not as the only form of planning for long-term care.  There are dozens of long-term care asset protection strategies other than long-term care insurance. For example, the Living Trust Plus™ Medicaid Asset Protection Trust is just one of many long-term care asset protection strategies.

Medicaid Planning and Long-Term Care Insurance

There are numerous important Medicaid-related issues that must be considered and understood before purchasing long-term care insurance. For instance, it is very possible to buy too little or too much coverage.  For married couples who can only afford coverage for one spouse, it is also critical to understand which spouse should obtain the coverage.  Unfortunately, most insurance agents who sell long-term care insurance have no understanding of Medicaid nor the Medicaid-related issues that must be considered.  Whether you are a potential purchaser or an insurance agent who sells long-term care insurance, please read our Long-Term Care Insurance FAQ to get a basic understanding of these important Medicaid issues.

Call the Farr Law Firm for Long-Term Care Planning

If you have not done long-term care planning, or if you are considering purchasing long-term care insurance, please call the Farr Law Firm at 703-691-1888 in Fairfax, 540-479-1435 in Fredericksburg, or 202-587- 2797 in Washington, DC to make an appointment for a consultation.