The longer you live, the more likely it is that you will require long term care (i.e. nursing homes, assisted living facilities or home health care). According to longtermcare.gov, about 70% of people who reach age 65 will need long term care. About 35% of people who who reach age 65 will require nursing home care. We have already discussed the multiple ways to pay for long term care. In short: cash, long-term care insurance, Medicaid (or some combination thereof).
What is long term care insurance?
Long term care (LTC) insurance is one way to pay for nursing home, assisted living facility (ALF) or home-health care expenses. Like any other kind of insurance, you pay premiums for a benefit that you may or may not use in the future. Long term care insurance will generally require a health examination and will examine your prior health records as part of an underwriting process. if you are 75 years old, have been diagnosed with Alzheimer's or Parkinson's and have a very poor health history, your premiums will be significantly higher (if not rejected altogether) than a 45 year old in generally good health. You want to make sure you are honest during the underwriting process because if you make any “material misrepresentations,” (e.g. failing to disclose pre-existing conditions) your long-term insurance carrier may refuse to pay the benefit even after years of paying premiums.
LTC insurance policies are generally bought individually, but life insurance with a long-term care rider is another option gaining in popularity (sometimes their underwriting is less strict than the stand-alone LTC policy) where you have the ability to draw down on the life insurance death benefit (referred to as an “accelerated death benefit”) to pay for long-term care expenses such as hiring a home-health aide, entering an ALF or skilled nursing facility, adult day care, or hospice care.
Florida Medicaid Long Term Care Partnership Program
The Florida Medicaid Long Term Care Partnership Program encourages individuals to purchase long term care insurance by not penalizing them if they later apply for and obtain Medicaid long term care benefits. The way this happens is that Medicaid will do an “asset disregard” up to the value of the qualified long term care policy if and when the Medicaid application is submitted. In other words, for every dollar paid by the long-term care policy, Medicaid will allow an extra dollar in assets to be retained by the Medicaid applicant. For example, if a Medicaid applicant received $150,000 in LTC insurance benefits, they may retain up ton $152,000 in assets instead of having to spend down to the normal Medicaid asset limit of $2,000.
LTC policies that qualify under the partnership program are also tax qualified (a portion of premiums may be claimed as a tax deduction). In addition these plans must have an inflation protection benefit.
How LTC Insurance Pays: When and How Much?
There are generally two ways long-term care insurance policies are designed to pay out when you make claims:
- Expense Method: pays benefit only when you receive eligible services (i.e. you submit bills and the policy reimburses you).
- Indemnity or Disability Method: pays a set dollar amount when the insurance company determines you are eligible to receive the benefits (amount is paid directly to you regardless of the LTC expenses you incur).
Long term care insurance policies will usually have a lifetime or maximum benefit limit (after they policy has paid a certain amount, it will cease to pay any further). LTC policies normally pay a daily benefit amount (e.g. $150 per day or $350 per day).
When am I eligible to access my LTC Insurance Benefits?
This is referred to as a benefit trigger. The polices are typically written around activities of daily living (ADLs). The six main activities of daily living are further described in the link, but they are: dressing, walking, transferring, bathing, feeding, and toileting. Most LTC policy benefits will be accessible when you cannot do two or three out of the six ADLs or develop a serious cognitive impairment such as Alzheimer’s disease.
However, once the benefits have been triggered, there is usually a waiting period (known as an “elimination period”), usually 90 days, before your LTC policy will begin to pay the benefit. With this elimination period, if you only need a short time in a nursing home (say after a car accident for rehabilitation), your LTC policy may not wind up paying any benefits. You can obtain a shorter elimination period by paying a higher premium.
Who Should I Obtain Long-Term Care Insurance From?
I am an elder law attorney who focuses on Medicaid planning. People come to me when they are realizing that a nursing home or LTC is in their future and want to plan ahead (or in crisis and in need of Medicaid now). I work with clients who have LTC insurance (often a low daily benefit, such as $150 per day, which may cover less than ½ of a nursing home bill) and those who do not. This article is just to educate those doing their research.
Neither myself, nor anyone in my office, sells Long-term care insurance. I am happy to refer you to reputable long-term care insurance brokers in the South Florida area.