Tuesday, May 30, 2006

Long Term Healthcare Insurance

This past week I visited my mother in-law who is recovering from knee replacement surgery in a long term care facility. While she is doing well and will be home this week, some of the other residents of the facility aren't so lucky. Many will be confined to the facility for an extended period, and for some it is a permanent home.

According to research posted by the Agency for Healthcare Research and Quality, about 43% of people turning 65 will use a nursing home before they die, and about 20% of users will be confined for five or more years. With the average cost of nursing home care running $4,500 per month and the cost of in home care averaging $1,500 per month long-term care insurance will be needed by many to protect their assets and maintain the life-style of the healthy spouse.

Medicare coverage only begins after a hospital stay of at least three days, has substantial co-payments after the first 20 days, and can be used no more than 100 days. Medicare only covers homecare if the individual is homebound and needs therapy or skilled nursing care according to a physician's plan. The limitations of Medicare coverage can be understood by the fact that coverage is intended to help an individual recover from an illness or disability, and does not extend coverage to persons with chronic needs such as Alzheimer's.

Medicaid is the single largest payer of nursing home expenses. However to qualify for coverage families must spend down their assets to a level determined by their state of residence. These levels are purposely low. In South Carolina income cannot exceed $13,200 for a married couple, and resources for a married couple (excluding home) cannot exceed $66,480. The Deficit Reduction Act of 2005 made it harder to qualify for Medicaid nursing home benefits by increasing penalties on individuals who have transferred assets below market value in the past five years and making individuals with home equity greater than $500,000 ineligible for nursing home benefits.

With the potentially high cost of nursing home care many families should consider private long-term care insurance, to protect their spouse, their assets, and their heirs. While LTC insurance is not cheap, it is more affordable if purchased at a younger age, so even individuals in their 50s should consider this option. Premiums for LTC insurance can be deductible on your federal income tax return if as a part of other medical expenses they exceed the 7.5% of adjusted gross income floor as an itemized deduction. Some states, North Carolina for one, offer state tax incentives for LTC policies as well.

All LTC policies must meet the minimum requirements set by the state in which they are issued. To qualify as deductible at the federal level they must also meet some federal minimum requirements such as:
  • May not limit or exclude coverage by type of illness - ie Alzheimer's
  • Cannot increase premiums due to age
  • Cannot cancel because of age or deterioration in health
  • Must offer a nonforfeiture benefit which guarantees that if you cancel your policy or let it lapse, some portion of your benefits will be available to you for some period of time.
  • Must offer an inflation protection benefit.
LTC insurance can be a wise choice, but like all other insurance, you hope you will never need it. It is protection you should consider. Below are some links to useful information, carefully consider if LTC insurance should be a part of your financial plan.

US Administration on Aging LTC insurance toolkit

States with tax incentive for LTC insurance

State contacts for Medicaid information

Consumer brochure from American council of Life Insurers


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