A few days ago I was reading an article on the Kiplinger blog, “When Long Term Care Insurance Premiums Rise.”
I really cannot find anything wrong with the information that is in that article. I just do not think that it goes far enough. There are some questions that you must ask yourself while you are reviewing your Long Term Care insurance (LTCI.)
Is your existing policy Partnership qualified?
The Deficit Reduction Act of 2005 (DRA5) is the controversial legislation that was signed into law by President George Bush. It was the last realistic attempt by the politicians in D.C. to solve the dilemma of paying for the Long Term Care bills for aging Baby Boomers.
Under the terms of DRA5, states were authorized to partner with private insurance companies to pay for Long Term Care bills. If you live in a state that has taken advantage of the partnership rules you are able to shelter some of your savings from two of Medicaid’s most heinous regulations.
These shelters only apply when you have a qualifying Long Term Care insurance policy. For every dollar that is paid by private insurance, you are able to shelter a dollar of your assets.
- Asset Test – Before Medicaid will help pay for a Home Care Aid or nursing home, you must “spend down” your asset value to the level that your state requires. If your Long Term Care insurance policy is “Partnership Qualified” and is insufficient to pay for all your Long Term Care bills, Medicaid will force you to “spend down” an amount of your assets equal to what the insurance company paid for you.
- Estate Recovery – One of the state’s rights, when Medicaid pays for Long Term Care expenses, is the right to place a lien on your estate. Although your spouse will be allowed to stay in your house while he/she lives, when you spouse dies, the state must be repaid for what it paid for your Long Term Care expenses before your children get anything.
Partnership plans protect you if you live longer than you expected. If you run out of Long Term Care insurance, Medicaid is able to pick up where your Long Term Care insurance left off.
Be aware that not every LTCI plan is “Partnership Qualified.” If your Long Term Care insurance does not have an “inflation” factor, there is a very good chance that your policy is not “Partnership Qualified.”
Do you have the correct inflation factor?
The cost for nursing homes and Home Care aides are greater than most people think and they increase each year. The COST OF CARE tool from Genworth will give you an idea of how much Long Term Care costs in your area.
When you buy LTCI you will probably be given the chance to choose an “inflation factor.” A policy with an “inflation factor” will automatically increase the benefits that are payable for future Long Term Care expenses.
Just be aware that “inflation factors” increase your premium. If all you want is an insurance policy that will only pay part of your Long Term Care, you may only want a LTCI policy that has no “inflation factor.”
Policies that have no “inflation factor” will typically give you the opportunity to increase your policy benefits at some time in the future regardless of your health. Just be aware that any increases you elect will be at a higher premium.
However, if your goal is to make certain that all of your future Long Term Care expenses are paid by your insurance company, you really should consider adding an “inflation factor” when you first buy your LTCI.
Most of the older LTCI policies only offered a 5% “inflation factor.” Many of the more current policies offer a compromise between the expense of a 5% “inflation factor” and having no protection for price increases.
If your concern is having enough money to pay for nursing home confinement, I still recommend the maximum “inflation factor.” However, less than 7% of people who make LTCI claims require full-time nursing home care.
The majority of people only need occasional assistance. They are able to do just fine in an assisted living facility or with a Home Care aide. If you think that you will only need that type of care, many insurance companies offer a 3% “inflation factor.”
Does your policy have the riders you need?
Riders are the way you are able to add benefits to your LTCI policy in order to customize it for your needs. Your insurance company will often charge you additional premiums for these benefits.
When you are reviewing your LTCI, make certain that your policy includes all the benefits that you want. The Infographic, “What Riders Are Available” shows 4 of the most common riders that are often available. Your insurance company will probably offer you more.
Do you really need a maximum policy?
In the past couple of years, many insurance companies have stopped providing LTCI policies with unlimited benefits. You will probably buy a “pool” of money to be used to pay your Long Term Care expenses.
Ideally, you live in a state that has opted to create a Partnership arrangement between the insurance companies and Medicaid. If you do, and you have purchased a “Partnership” qualified policy for the total amount of your savings, you have no problems.
If, and when, your insurance benefits are exhausted, your state’s Medicaid should pick up the bill. You may be required to change your care giver to one that is already approved by Medicaid but you still have a safety net.
On the other hand, if you have a LTCI policy that is not “Partnership” qualified and exhaust the plan’s benefit, you will need to “spend down” your assets to pay for your Long Term Care until you are able to qualify for Medicaid in your state.
Do you have the right type of insurance?
One of the most common complaints about LTCI policies that I hear is, “I have been paying premiums on this policy for years and when I need it, the insurance company does not pay.”
How do you tell people that their financial problems are their own fault without looking like another scummy insurance stooge?
The fact is that LTCI policies are constantly evolving. When the concept of Long Term Care insurance began in the late 1970s, the policies only covered nursing home expenses. Home Care, Assisted Living and Adult Day-Care benefits have been added over time along with many additional benefits.
If you have an older policy, it is worth your time to review your policy every 5 years or so. Make certain that you know what benefits your policy pays and what it does not. Here are just a couple of examples of problems that I have personally seen or heard about. There are many more.
- Many older policies will only pay if you are confined to a nursing home. If you are able to remain at home (“age in place”) they will not pay anything. The solution is to upgrade your policy to one that will pay for a Home Aide.
- A parent is able to remain at home but has to frequently rely on his daughter to take off from work to take him to the doctor. He would like to reimburse her for the income she lost at work but his LTCI will not pay a family member. The solution is to have a policy that pays a CASH benefit. The insured has no restrictions on how he can use that money. He is able to pay his daughter for her time.
There are many other examples of problems that can be avoided. However, the only way to avoid problems with LTCI is to anticipate them while you are still healthy enough to pass underwriting.