How Will You Pay For Long Term Care If You Need It?
Long-term care is a big uncertainty facing retirees. The cost of a private room in a nursing home in NEPA, as calculated by Genworth’s 2017 Cost of Care survey, can be as high as $111,325 annually. Additionally, the U.S. Department of Health and Human Services estimates that 70 percent of people age 65 and over will need some form of long-term care in their lifetime, yet many retirees have simply not planned for it. Longer life spans into the mid-80s are leaving more retirees subject to the unavoidable effects of aging — stroke, Parkinson’s, Alzheimer’s and osteoporosis. These conditions are some of the leading causes of long-term care. If you have not taken the necessary steps to prepare, you might be placing yourself in a situation where spending large sums of your assets to pay for nursing home care, home health care or an assisted living facility is your only option. You may think that Medicare will pay. However, it will only cover up to 100 days of short-term care, in a skilled setting. Additionally, in order for Pennsylvania Medical Assistance, or Medicaid, to pay for your long-term care, you must have very low assets remaining and you will be subject to a lookback period to qualify. A traditional strategy to address your risk is to purchase a long-term care insurance policy. However, it can be quite expensive and subject to premium increases. In addition, if you purchase a traditional insurance policy, and never use it — or you cancel the policy — you don’t get anything back in return, as these policies have no cash value. However, there have been recent, positive changes in legislation and LTC insurance of which you may be unaware. These changes, combined with some little-known government programs, may hold the keys to help you address the problem: “How will I pay for long-term care if I need it someday?” In 1996, HIPAA laid the groundwork. It created a way for a life insurance policy’s death benefit to be paid to you income tax free — while you are still alive — to pay for your qualified long-term care expenses. This is called a chronic illness rider on a qualifying life insurance policy. Pension Protection Act In 2006, the Pension Protection Act created the framework for “Asset Based LTC Annuities” — fixed annuities issued after 2010, with a long-term care Continuation of Benefits rider. For purely illustrative purposes, let’s assume you have a $100,000 qualifying long-term care annuity, and the rider on your annuity triples the value to $300,000 to pay for your qualifying long-term care expenses. If you need long-term care and qualify by the insurance company’s standards, the long-term care Continuation of Benefits rider will then pay you a tax-free, monthly LTC benefit from your $300,000 pool of benefits over a set period of time. A long-term care Continuation of Benefits rider is also available on some qualifying life Insurance policies. COB will continue your LTC benefits for a set period of time (typically four to six years), and at least one company offers you lifetime LTC coverage. With COB coverage, your base policy is similar to your deductible, and the COB comes into play on extended claim. This results in a significantly lower premium than what is seen in the traditional “use-it, or lose-it” long-term care insurance marketplace, and is helping to make asset based long-term care a feasible option for more retirees. The Pa. LTC partnership In 2007, Act 40 established a “Long-Term Care Partnership,” which offers Pennsylvanians additional long-term care protection while helping to conserve taxpayer dollars. A Pennsylvania long-term care Partnership Policy allows you to protect your assets, dollar-for-dollar, in the amount of long-term care policy benefits paid out to you, if you ever need to apply for Medicaid. For example, if your qualifying PA long-term care Partnership Policy paid for $150,000 of your long-term care, then you would be entitled to keep $150,000 in assets, and not be required to spend that amount down if you apply for Medicaid. You must have an inflation rider on your LTC policy to qualify as a PA Partnership Policy if you are under age 76. Veteran’s aid and attendance pension If you are a veteran who served at least 90 days, with at least one day during wartime (does not have to be in a war zone) and you were honorably discharged; then you may be able to qualify for the VA’s “Aid and Attendance” pension to help pay for your LTC costs on a tax-free basis. Veterans and surviving spouses are eligible if they require the help of another person to assist with activities of daily living, as certified by a medical professional. (https://www.benefits.va.gov/pension/aid_attendance_housebound.asp). MIKE DILLON is long-term care insurance specialist at 1st Financial Investments Inc. in Clarks Summit and has over a decade of experience in financial services and insurance. He can be reached at 570-585-6100 x 106 or by email at MDillon@1stFinancialInvestments.com.