The Wall Street Journal noted in its June 11, 2012 issue, “A 65-year-old man has a 60 percent chance of living to age 80, and a 40 percent chance of reaching 85. For women, the odds are 71 percent and 53 percent respectively. All of this has made the 85-and-over age bracket the fastest-growing segment of the population.”
According to a 2011 study by Money Magazine, the healthier we are as we age, the greater the odds of needing ongoing chronic care later in life. Think about it. If we’re healthier, aren’t the odds greater that we could wind down more slowly? If unhealthy, aren’t the odds of “going fast” increased?
Since this is counterintuitive, many people cite their present good health as reasons not to own long-term chronic care insurance.
Also, it’s not just about getting older. Accidents account for a large share of chronic care needs. 40 percent of people receiving services are under 65.
Though not at all a pleasant subject, let’s say you decide that self-insuring may not be in the best interests of your family and estate, and you should at least look into long-term care insurance.
What are your options?
1. Consider a Partnership Policy: In an effort to encourage people to be insured, most states have enacted Partnership Policies. Medicaid (the state program for the indigent) requires that assets be substantially reduced or liquidated before subsidizing the cost of one’s care. With an Arizona Partnership Policy, the cost of care paid for by your long-term care policy is exempt from Medicaid’s spend-down requirements. As an example, if you wish to exempt $400,000 of your estate from Medicaid’s qualification rules (and remember, their qualification rules can include the value of your home), you can buy a less expensive long-term care policy with a $400,000 benefit limit. If you exhaust your policy’s insurance amount, Medicaid steps in at that point. When it does, $400,000 of your assets will still go to your heirs, since this amount was exempted from the spend-down requirements.
2. Consider repositioning an annuity, life insurance policy, or CD: Insurance companies have developed an interesting option for people who have decided to self-insure. Say you have set aside $100,000 to pay for long-term care, if needed by you and/or your spouse. The problem is, with the shockingly high cost of substantial home and/or facility care, this can be woefully inadequate. A new type of “hybrid” policy allows for you to have long-term care insurance on the other side of the $100,000. Money not used for long-term care expenses goes to your heirs. In most of these policies, NO ongoing yearly premiums need be paid. The entire vehicle finances itself. The Pension Protection Act of 2006 also makes it possible to transfer annuities or life-insurance policies into one of these hybrids, without creating a taxable event.
3. Look carefully at the four major parts, if choosing a traditional, comprehensive policy: The four parts are the size of the daily (or monthly) benefit, the elimination period (the deductible — the number of days you pay for care, until your policy starts to pay), the number of years the policy will pay for care, and the inflation protection provisions. Some new policies make it possible for spouses to combine their coverage, insuring both of them under one pool of money. Many policies now allow for ALL the benefits to be used for home care. People today are often aware that the average need for long-term care lasts about 2.5 years. But that’s the average, so half of all claims are longer!
4. Insure for at least a year: If a comprehensive long-term care policy, or a hybrid policy, is prohibitive, check into policies that pay for care for up to a year. This gives your family time to prepare, in the event of a chronic care need. If you have no insurance, since Medicare does NOT pay for these services, you’re immediately on your own.
5. Have the talk with your family: Search “Genworth Talking to Loved Ones” for guides about broaching this sensitive but crucial topic. An additional element to consider is that when a family member provides for your care, according to the Wall Street Journal, they incur a lifetime cost of $280,000 (on average!) in lost compensation, retirement contributions and personal expenses, not to mention what can be extreme stress. Yes, it’s a big issue; a family issue!
It’s risky to postpone getting the facts about long-term care insurance, because everyone has to meet a “present health threshold” to qualify for coverage. You can’t wait until you need it to get it. It’s not a perfect solution, but the other three options aren’t either, that of self-funding the cost, relying on family, or liquidating assets. Remember, asset transfers to qualify for Medicaid cannot be done within five years of Medicaid qualification paperwork being submitted (called the “look back period”). Also, the state of Arizona practices “asset recovery” — AFTER your death, the state vigorously pursues any assets it can claim, from surviving family members.
Tom Russell is an independent health insurance broker, specializing in Medicare Plans, Health Insurance and Long-term Care Insurance. He has served the area since 1994. Call (928) 474-1233, or visit www.TomRUSSELLinsurance.com.