Understanding Long-Term Care Insurance

The title "long-term care" refers to the help that people with chronic illnesses, disabilities or other conditions need on a daily basis over an extended period of time. The type of help needed can range from assistance with simple activities (such as bathing, dressing and eating) to skilled care that's provided by nurses, therapists or other medical professionals.

Employer-based health coverage will not pay for daily, extended care services. Medicare will cover a short stay in a nursing home, 20 days, or a limited amount of at-home care, but only under very strict conditions. Any stay longer than 20 days, (21-100), requires you to co-pay for this benefit.  This co-pay varies from region to region.  After 100 days, you must pay full costs. To help cover potential long-term care expenses, some people choose to buy long-term care insurance.

Policies offer many different coverage options. Since you can't predict what your future long-term care needs will be, you may want to buy a policy with flexible options. Depending on the policy options you select, long-term care insurance can help you pay for the care you need, whether you are living at home or in an assisted living facility or nursing home. The insurance might also pay expenses for adult day care, care coordination and other services. Some policies will even help pay costs associated with modifying your home so you can keep living in it safely.

Factors to consider

Your age and health: Policies cost less if purchased when you're younger and in good health. If you're older or have a serious health condition, you may not be able to get coverage, and if you do, you may have to spend considerably more.

The premiums: Premiums often increase over time, and your income may go down. If you find yourself unable to afford the premiums, you could lose all the money you've invested in a policy.

Your income: If you have difficulty paying your bills now or are concerned about paying them in the years ahead, when you may have fewer assets, spending thousands of dollars a year for a long-term care policy might not make sense. If your income is low and you have few assets when you need care, you might qualify for Medicaid. Medicaid pays for nursing home care; in most states it will also cover a limited amount of at-home care. Unfortunately, in order to qualify for Medicaid, you must first exhaust almost all your resources and meet Medicaid's other eligibility requirements, (there is a “lookback” period, which is up to five years in many states).

Your support system: You may have family and friends who can provide some of your long-term care should you need it. Think about whether or not you would want their help and how much you can reasonably expect from them.

Your savings and investments: A financial adviser, or an attorney who specializes in elder law or estate planning, can advise you about ways to save for future long-term care expenses and the pros and cons of purchasing long-term care insurance.

Your taxes: The benefits paid out through a long-term care policy are generally not taxed as income. Also, most policies sold today are "tax-qualified" by federal standards. This means if you itemize deductions and have medical costs in excess of 10.0 percent of your adjusted gross income you can deduct the value of the premiums from your federal income taxes. The amount of the federal deduction depends on your age. Many states also offer limited tax deductions or credits.

Long-term care policy sources

Individual plans: Most people buy long-term care policies through an insurance agent or broker. If you go this route, make sure the person you're working with has training in long-term care insurance, and the benefits of policy benefits, (elimination period; cost-per-day; inflation protection; waiver of premium, etc).

Employer-sponsored plans: Some employers offer group long-term care policies or make individual policies available at discounted group rates. A number of group plans don't include underwriting, which means you may not have to meet medical requirements to qualify, at least initially. Benefits may also be available to family members, who must pay premiums and might need to pass medical screenings. In most cases, if you leave the employer or the employer stops providing the benefit, you'll be able to retain the policy or receive a similar offering if you continue to pay the premiums.

Plans offered by organizations: A professional or service organization you belong to might offer group-rate long-term care insurance policies to its members. Just as with employer-sponsored coverage, study your options so you'll know what would happen if coverage were terminated or if you were to leave the organization.

State partnership programs: If you purchase a long-term care insurance policy that qualifies for the State Partnership Program you can keep a specified amount of assets and still qualify for Medicaid. Most states have a State Partnership Program. Be sure to ask your insurance agent whether the policy you're considering qualifies under the State Partnership Program, how it works with Medicaid, and when and how you would qualify for Medicaid. If you have more questions about Medicaid and the partnership program in your state, check with your State Health Insurance Assistance Program. 

Joint policies: These plans let you buy a single policy that covers more than one person. The policy can be used by a husband and wife, two partners, or two related adults. However, there may be a total or maximum benefit that applies to everyone insured under the policy. For example, if a couple has a policy with a $100,000 maximum benefit and one person uses $40,000, the other person would have $60,000 left for his or her own services. With such a joint policy you may run the risk of one-person depleting funds that the other partner might need.

9 Ways To Pay For Long-Term Care Without Buying Insurance

1. Choose the appropriate long-term care: Other options aside from a nursing home include hiring a home health agency, adult day services and moving to a residential group home or an assisted living facility. Assisted living can be less expensive than a nursing home if the person doesn’t have medical needs. Choosing the right option can help save money in the long run.

2. Use Social Security or a pension to pay for care: “Most people use their Social Security check to first pay this bill. It is guaranteed income, and this, paired with other guaranteed monthly income such as a pension, can reduce the long-term care bill,” said Hans Scheil, a Certified Financial Planner and founder of Cardinal Retirement Planning in Cary, N.C.

3. Withdraw money from an Individual Retirement Account (IRA): The income received may qualify for a medical expense deduction. “Taking money from an IRA will raise a person’s taxable income, but the tax deduction from using this money only for long-term care costs basically turns one’s IRA into a tax-free health savings account.”

4. Look into the Veterans Aid and Attendance program: This little-known Veterans Administration offering provides up to $1,830 per month for anyone who has served as little as 90 days in the military during a time of war and  up to $1,176 for a surviving spouse. “There are other requirements such as income and asset maximums,” said Scheil. “We have helped many people qualify for this and it can significantly reduce the long-term care bill.”

5. Search for long-forgotten whole life insurance policies and savings bonds: Cashing in those old savings bonds sitting in a safety deposit box could help with long- term care expenses. And John Barnes with My Family Life Insurance in Andover, MA, advises to forage for whole life policies bought years ago. If it has cash value that won’t be needed, Barnes said, the policy could be sold for as much as 50 to 75% of the death benefit.

6. Activate a chronic illness rider: If you or your parents own a term life or permanent life insurance policy with a chronic illness rider, you might be in luck. “The triggers for the chronic illness riders are the same as the triggers needed to qualify for a long-term care insurance claim; you can qualify if you can’t do two of six activities of daily living without assistance or if you need assistance for cognitive impairment,” said Gordon E. Conwell III, owner of Americanterm.com, based in Flourtown, PA.

7. Sell a home or get a reverse mortgage: Reaves had to sell her parents’ home to help pay for their long-term care, but if one spouse is still living in a home, a reverse mortgage might be an option to help pay expenses for the other’s long-term care.

8. Apply for Medicaid: The rules for Medicaid assistance, (limited to people with low incomes and assets), differ in every state and you or your parents may not qualify if substantial assets were transferred into someone else’s name during the past few years. Check with a financial adviser in your state.

9. Don’t discount your faith community: Reaves said some religious affiliations and congregations have foundations for members needing help paying for long-term care. Reaves cited a client whose family applied to a Jewish-affiliated foundation that awarded $1,000 per month to help offset the patient’s long-term care costs.

Buy a long-term care policy early. When you are young and healthy.