Long-Term Care (LTC) Insurance Planning
- Longevity is a real and significant risk to your retirement income
- You need assets dedicated to LTC expenses
- You should not count on the government
- With longevity, comes increasing chance of LTC need
- Your assets may not be sufficient to pay LTC expenses
- The government may not be able to help you
Long-term care (LTC) insurance is meant to help cover costs associated with extended health care expenses. If you have a medical emergency, your health insurance covers your treatment. However, if your emergency caused impairment that makes it impossible to perform two out of six activities of daily living (ADLs), you may qualify for benefits if you have an LTC plan. If not, you will “spend down” your personal assets including IRAs, 401(k)s and other assets until you have $2,000 left.
At that point, your state’s Medicaid program may assist. Many times, the spouse that is the caregiver is overwhelmed with a multitude of financial, emotional and physical realities. Do you want to “spend down” your assets to pay for care for your loved one? To preserve assets, we often see that the caregiving spouse will try to perform the care to save money often incurring physical harm to themselves.
Whether you believe it or not, you are funding long-term care. If you don’t have insurance, you are simply counting on the idea that your assets and income will be enough to cover the cost of care. Depending on your situation, this may be the case. However, if you have less than $2 million in assets, your estate could be dramatically impacted. LTC annual costs in a nursing home can exceed $100,000 per year.
After you have exhausted your personal assets through “spending down,” you will then have to begin the process of obtaining Medicaid, which may not offer the flexibility, quality of care, choice of facility, or other options you could control with an appropriate LTC policy. With 1 in 5 Coloradans on Medicaid, some are concerned about the quality of care with increasing costs and demands on the Colorado Medicaid program.
There are new strategies available that may be a good fit for you. Have you heard of asset-based long-term care or hybrid LTC plans? These plans offer guaranteed benefits, no price increases, and they get rid of the “Use it or lose it” risk of traditional plans. If you need benefits, the LTC benefits pay out based on qualification. If you die without taking benefits, a death benefit pays out to your beneficiary. If you cancel the policy, you may receive some or all of your premiums back. Some strategies offer return of premium guarantees in addition to small growth year after year.
The one big advantage traditional LTC plans have is that many qualify for the state partnership plan whereas asset-based LTC does not. In addition to providing the care needed to allow you to maintain the best quality of life possible, LTC insurance may also protect additional assets through a program known as Colorado Partnership for Long-Term Care. It enables Colorado residents who purchase long-term care partnership insurance to have more of their assets protected if they later need the state Medicaid program to help pay for their long-term care. Colorado is using this approach to give its citizens greater control over how they finance their long-term care and to help shore up the public safety net against upcoming demographic pressures.