3 Ways To Pay For Long Term Care


Being an insurance professional is more than just “selling” an insurance policy.  Any person with the “Gift of Gab” can do that.  A true insurance professional will  know how his policies work and understand how they are to be used.  He is more than just a commission salesman.

All states require insurance agents to pass a written exam before they are allowed to speak with the public about insurance matters.  Allegedly, this is to make certain that an insurance agent understands at least the basics of insurance before they even speak with the public.  After-all, you deserve to believe what you are told about insurance.

If you use a lawyer or accountant, you pay them an hourly rate.  It is illegal in most states for an insurance agent to charge a fee to the public for his professional counsel unless he has the appropriate license.  Those who do not have the appropriate license are compensated in the form of commissions from the insurance companies that they help you contract with.

When you get information from one insurance agent and then buy insurance from your brother-in-law, the insurance agent you consulted first does not get compensated for his time and knowledge.

Unfortunately, politicians and the press feel like they are allowed to discuss insurance matters whether or not they know what they are talking about.  Take for example the CLASS part of the Patient’s Protection and Affordable Care Act.

During the Health Care Reform debates of 2008-2010, the politicians decried about how terrible the current system was for the Long Term Care needs of aging Baby Boomers.  Medicare does not cover Long Term Care expenses and the government program that does, Medicaid, was already headed for bankruptcy.

CLASS was added to Obamacare in order to make certain that Baby Boomer‘s Long Term Care expenses were paid without bankrupting the Medicaid system.  Unfortunately, Secretary of Health and Human Services told congress in October of 2012 that CLASS was unfeasible as written.  In December, President Obama suspended research into a way to make CLASS work.

Absolutely nothing has changed since 2008, when the problem was declared a crisis.  Long Term Care costs continue to increase and there are still only 3 ways to pay for them.

1.  MEDICAID

Medicaid is jointly funded by both federal and state taxes.  It is the government program for health insurance for those in poverty.  Before an individual qualifies for Medicaid, they must be able to pass their states’ 1) Income and 2) Asset tests.  If their income is too high or they have too many assets, they will not get any help from Medicaid.  Unfortunately, Medicaid is the biggest payer of Long Term Care expenses.

Aside from the problem of requiring middle class Americans to “spend down” most of their retirement assets before they are able to get help with their Long Term Care expenses, Medicaid also takes over their decision-making rights..  A person who is using Medicaid must do what Medicaid tells them.  For example, if they need to enter a nursing home, they must go to whatever nursing home Medicaid instructs, regardless of where that facility is located.  Not all nursing homes are approved by Medicaid.

For example, a Baby Boomer whose family is in Houston, TX could find himself in a nursing home in Livingston, TX if that is the closest nursing home that has been approved by Medicaid that has an available bed.

2. PERSONAL ASSETS

Before you can get help with your Long Term Care expenses, whether they be as simple as needing to hire an aide to stay with you while your spouse is at work or moving into an assisted living or skilled nursing facility, you must “spend down” your assets to qualify for the Medicaid system in your state.

Most states allow your spouse to continue to live in your house and own one car and a minimal amount of liquid cash.  Other than that, any real estate or business interests, other than your primary residence, must be sold and the money used to pay for your Long Term Care expenses.  If your retirement savings is in the form of cash or securities, anything in excess of your state’s Medicaid Asset Test level must be used for Long Term Care expenses.

If you are single and have interest in leaving an inheritance to children, Medicaid’s rules are not a huge problem.  However, if you have a spouse who has helped you save for retirement for several decades, you must ask yourself if it is fair to impoverish her because of your limitations.

If you are interested in leaving your home as an inheritance for your children, review your state’s Medicaid laws.  Most states will allow your spouse to continue to live in your primary residence if you must go into a nursing home.  The problem is that Medicaid will place a lien on your home.  When your spouse eventually passes, the house will be sold and Medicaid will be reimbursed for anything that they paid for you before you children get anything.

3.  INSURANCE

Partnership Plans

I know that it is popular to blame the Bush Administration for everything that is wrong with the country now.  However, in my opinion, not everything that was done during the first decade of the millennium was bad.  The Deficit Reduction Ace of 2005 (DRA-05) authorized each state to develop a Partnership Plan to pay for Long Term Care expenses.

Partnership Plans eliminate the Asset Test for Medicaid along with “estate recovery.”  Those folk who have a Partnership qualified Long Term Care insurance policy are able to shelter their assets from Medicaid on a dollar-for-dollar basis.

Why Use Partnership LTCI

Let’s assume, for example, that you have $72,000 of retirement savings.  If that is the case and you have no Partnership qualified LTCI policy, you would be required to “spend down” most of your savings before Medicaid would pay anything.  The amount that you would have to spend on your Long Term Care expenses would vary from state to state.

Your spouse would be allowed to live in your primary residence, however, when she passes, your state’s Medicaid program would have a higher claim on your house’s equity.  If your children are not able to reimburse Medicaid for what they paid for you, there is no problem.  The house would simply be sold during probate and Medicaid paid.  If there is any money left after Medicaid and the probate courts are finished, your children are allowed to divide that money, according to your will.

If you have a Partnership qualified LTCI plan for $72,000, the first $72,000 of Long Term Care expenses would be paid for by your insurance company.  After that, if you still need Long Term Care, Medicaid would kick in.  (Medicaid could not disqualify you based on your assets.)  When your spouse passes, the only claim on the value of your house would be made by the probate court.  Medicaid is not allowed to place a lien on real estate for those who have a Partnership plan.

Although Partnership plans remove most of the problems that are associated with Medicaid, they do not remove all the challenges of working with Medicaid.  It is true that Partnership plans remove the financial concerns over qualifying for Medicaid.  Partnership plans do not remove the “control” problems.

If you have used your Partnership qualified LTCI to pay for a private nursing home or assisted living facility, you may be required to relocate to a Medicaid approved facility if the one you are in is not approved by Medicaid.

Non-Partnership Plans

Prior to 2005, Partnership plans only existed in Indiana, California, Connecticut and New York.  Even after DRA 05, not all states offer Partnership plans.   Most states have approved Partnership plans but there are a handful of states who have not adopted the new plans.

If you live in a state other than one of the 4 that are mentioned above and bought a Long Term Care insurance policy prior to 2006, there is a good chance that the policy you have is not Partnership qualified.

If your policy benefits do not automatically increase by an inflation factor, you do not have a Partnership qualified plan.

If your Long Term Care benefits are provided from a rider on a Life insurance or  Annuity policy, the chances are you do not have a Partnership qualified plan.

Dust off your LTCI policy to see if your policy is qualified as a Partnership plan. It should be indicated on the page of your policy where your other policy benefits are summarized.  If you do not see the words “Partnership Qualified” or something similar, call your insurance company to see if your plan is Partnership qualified or not.

If your plan is not Partnership qualified and you have assets in excess of the amount your state’s Medicaid system requires, ask yourself if you are willing to use the excess to pay for Long Term Care expenses.  If you are not, you really should consider shopping for a Partnership qualified LTCI policy.

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