As boomers get older, we’re faced with the realization that we’ll need some sort of health care.   This care can be in a health care facility or in the convenience of your home.   By the time you reach 65, you have a 12% chance that you’ll need some of this care.   That percentage skyrockets to 70% by the time you reach 85.   This is a clear example of why it’s important to understand the options you have with long term care insurance.

photo credit: simaje

It is estimated that nearly 50% of Americans will need LTC at some point in their lifetime; of this group, approximately 15% will end up in a nursing home and the remaining 85% will need some other form of long term care insurance. When thinking about these numbers, also keep in mind the following:

• The average stay in a nursing home is 2.5 years
• The average annual cost of nursing-home care in 2004 is61,000 for a semi-private room
• The average annual cost for an assisted living facility is  currently $30,000 or higher
• The average home health-care system typically goes for over $55,000 a year

The conversation of how one should pay for future LTC assistance is probably one that you and your spouse have had in the past. In fact, 65% of Americans are aware of the high demand and cost of LTC assistance. However, at the end of 2002 – the peak in purchases for long term care insurance – only 5.6% of Americans over the age of 45 had purchased long term care insurance. Since then, the long term care insurance industry has seen sales decline sharply, from $1 billion to only $661 million in 20052. With numerous stories circulating of money-savvy adults who were forced to deplete their savings and retirement funds to pay for nursing homes or home health care, why have purchases for Long term care insurance not adapted to a growing consumer awareness and need?

What Does Long Term Care Insurance Cover?

To address the long-term care dilemma, we must first understand what it is and what it covers. Long term care is a type of care for chronic conditions not covered by health insurance; it is meant to support an individual who requires assistance with activities of daily living over an extended period of time. Medicare will provide only a maximum benefit of 100 days’ nursing home care, for which the recipient is only eligible after three days of hospital consecutive stay; the first 20 days are covered by Medicare, with a co-pay ($119/day in 2006) required for the remaining 80 days. All Medicare benefits end after 100 days. A patient with chronic long-term care needs will probably require some form of LTC beyond the 100-day period, which for most is where the predicament begins.

According to the American Council of Life Insurers, 48% of Americans pay out-of-pocket, 41% rely on Medicaid, and 8% receive temporary coverage provided by Medicare, but only 3% of LTC recipients pay with private long term care insurance. Once again, this poses the question: Why does traditional long term care insurance have low consumer acceptance in spite of a clear consumer need?

One of the main reasons that consumers have shied away from long term care insurance is the price tag. Long term care insurance  can be costly; in fact, a 2007 Life Insurance and Market Research Association (LIMRA) survey concluded that consumers were indeed “put off by the cost of stand-alone LTC products.” Furthermore, rates on new products are 25% to 40% higher than they were just five years ago. Another reason that consumers have not accepted long term care insurance is due to the limited choice and complexity of the products. Most consumers don’t understand how the products work, and many traditional long term carriers have left the market, further narrowing consumer choice.

Changes in Legislation for Long Term Care Insurance Products

The good news is that breakthroughs in legislation have made it possible to introduce new long term care insurance options into the marketplace, and such products are quickly gaining consumer acceptance. The Pension Protection Act (PPA) of 2006 amended some key rules for LTC / life insurance combination products.

Under the PPA of 2006, LTC-accelerated benefits may be deemed to be tax-free death benefits per Code Section 101(g) if payable for an event deemed LTC under the law. Another important benefit under the PPA of 2006 is the allowance for 1035 exchanges.

These new “Long term care insurance combination products” work as a rider attached to a traditional life insurance policy, providing a tax-free accelerated death benefit that becomes available to the insured when a long term care event is triggered. This benefit offers a single strategy that addresses the three most critical financial risks for boomers: premature death, inadequate retirement income, and the need to pay for long term case expenses.

In addition to the core protection of pairing life insurance with an LTC rider, another factor is the opportunity to enhance the income value of an Insurance Based Retirement Plan (IBRP), which itself provides supplemental retirement income to clients. Because the LTC rider is less expensive to add to an over-funded life insurance policy (due to a smaller financial risk), it has a lesser effect on the income stream available in retirement years. However, should the insured need long term care, having an LTC rider could allow for a significant additional amount of money to be pulled from the contract.

In conclusion, long term care insurance combination products offer a simple, cost-effective solution for boomers who need protection in place should the need for LTC arise.  Be sure to seek the advice of a professional to see if this type product makes sense for you and your situation.

Ahelping hand for a pressing need. With the baby boom generation maturing, numerous studies and articles have pointed out the rising need for long term care. Some state governments have directly responded to it.

photo credit: simaje

Now, many states have created partnership programs to encourage their residents to purchase LTC insurance coverage. It only makes sense: if more people opt to privately insure themselves, a state will face less of a burden and less liability when it comes to its own eldercare programs and eldercare costs.

How the partnership plans work.

Essentially, these plans provide dollar-for-dollar asset protection when you buy an LTC policy. So for every dollar the policy pays out in benefits, you get an equal dollar amount in asset protection under a state’s Medicaid spend-down regulations.

What does this mean for you? It means that you are able to retain assets you would otherwise have to spend down before you could qualify for state Medicaid benefits.

These partnership plans let you protect an amount of funds equal to the amount the policy pays out in benefits and still qualify for state Medicaid assistance (as long as you have used up all policy benefits and still require long term care).

Typically, Medicaid kicks in only when you are destitute. But with these partnership programs, you don’t have to be destitute to receive state assistance, even if your need for care outlasts your LTC policy benefits.

With these programs in place, LTC insurance seems more and more attractive. That’s important, because it has never seemed as essential as it does today.

Does your LTC policy qualify for a partnership plan?

You should find out if it does. Most LTC policies sold today do qualify for these partnership plans. A key factor is whether a policy has an age-related inflation protection benefit. In these policies, your daily or monthly LTC benefit amount is adjusted upward in response to inflation and increased cost of expenses. With these inflation-adjusted policies, your benefits typically go up each year, but your premiums may not.

There’s really not much incentive for state governments to partner with LTC policyholders whose policies aren’t inflation-adjusted. What would happen is that with each passing year, the odds would rise of the policyholder using up the whole LTC benefit and leaning on a state Medicaid program, so the state would be poised to pick up more and more of the cost of eldercare with the passage of time.

Partnership for Long-Term Care Insurance Example

Consider the State of Ohio’s Partnership for Long-Term Care Insurance, and the need it meets. In 2007, the average annual cost of a private or semi-private room in a nursing home exceeded $60,000 in Ohio, and the cost for a licensed, Medicare-certified home health aide was nearly $52,000 per year (for 50 hours of care per week).

Here’s the kind of difference the Ohio partnership plan could make for an Ohio resident. As an hypothetical example, let’s say Mr. and Mrs. Jones in Toledo have a $100,000 LTC policy. Once they use up their $100,000 policy benefit, they have to spend down their assets to $2,250 before they can get state Medicaid benefits. But if they exhaust a $100,000 partnership policy, they can potentially qualify for Medicaid coverage and still hang on to $101,500 of their assets.

In Ohio, if you bought your current LTC policy after August 12, 2002, your insurer must offer you the choice of exchanging it for a partnership-compatible policy. You have 90 days to decide if you want to do that. Ohio also offers state residents free, in-home long term care consultations.

What kind of long term care coverage do you have?

Do you have a policy that is eligible for a partnership plan? Do you have any LTC policy at all? It is wise to look into this. It may be essential for your long-range financial well-being. I urge you to speak with a qualified insurance advisor or financial professional today about long term care coverage, and these remarkably useful partnership plans.