A. Statistics show that more than 70% of people age 65 or older will need long-term care sometime in their future, so you are certainly wise to plan ahead. There’s definitely a benefit for some people in purchasing long-term care insurance. However, there are certain issues to consider before you buy, including the rising costs and how long-term care insurance interacts with Medicaid.
LTC costs are rising faster than inflation, and yes, you read it right — LTC insurance premiums rose this year an average of nearly 9%, according to a new industry report by the American Association for Long-Term Care Insurance (AALTCI).
Each January, AALTCI compares top-selling policies offered by major insurers to determine average rates. This year’s analysis included rates from 10 insurers. On average, for a healthy 55-year-old man, LTC insurance costs $2,075 per year for $164,000 in initial benefits, up from $1,765 last year, the report found. The average cost for a healthy, single woman of the same age is $2,411, up from $2,307. Couples generally get a discount if they buy a joint policy. A married couple, both age 60, would now pay $3,930 combined, up from $3,840, for $328,000 of initial coverage. Keep in mind that these amounts are far below the costs of long-term care, which costs $10,000- $12,000 a month in the metro DC area. At that rate, your benefits would be used up in a little more than a year.
The rates cited in the report are for new policies. Premiums for outstanding policies, particularly older ones, have been increasing as well, in part because people are living longer and insurers had underestimated the level of claims. Premiums typically will be lower if you buy when you are younger (in your 50s), rather than waiting until your 60s or 70s. Coverage not only becomes more expensive as you age but also becomes more difficult to qualify for at all, since health problems are more likely as you age.
If you are considering long-term care insurance, you should look at the pros and cons, and weigh your options. The following are some important facts you should take into consideration before purchasing a long-term care policy:
- 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.
- As you can see from the average rates provided above, long-term care insurance benefits are usually far below the actual cost of care. For many long-term care residents, LTC insurance benefits don’t cover the entire monthly bill, and even if it does, the benefits are often used up well before the need for care ends, so even with LTC insurance a family could still wind up depleting significant assets, and in many cases going broke.
- 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.
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. Keep in mind that there are dozens of long-term care asset protection strategies other than long-term care insurance.
-Medicaid Planning can be started while you are still able to make legal and financial decisions, or can be initiated by an adult child acting as agent under a properly-drafted Power of Attorney, even if you are already in a nursing home or receiving other long-term care assistance. In fact, the majority of our Life Care Planning and Medicaid Asset Protection clients come to us when nursing home care is already in place or is imminent.
-If you are still healthy and not yet on the “long-term care continuum,” then instead of Life Care Planning and Medicaid Asset Protection Planning you should consider our Living Trust Plus Asset Protection Trust, which is a simpler and less expensive method of asset protection for clients who will most likely not need any long-term care for at least five years. For most Americans, the Living Trust Plus™ is the preferable form of asset protection trust because, for purposes of Medicaid eligibility, this type of trust is the only type of self-settled asset protection trust that allows a settlor to retain an interest in the trust while also protecting the assets from being counted by state Medicaid agencies.
As always, 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 Farr Law Firm, P.C. in Fairfax at 703-691-1888, in Fredericksburg at 540-479-1435, in Rockville at 301-519-8041, or in Washington, DC at 202-587-2797 to make an appointment for a consultation.
About Evan H Farr, CELA, CAP
