By Roger J Macaione Jr. CFP, CLU
The possibility of a long term care need is much too great to ignore in assembling the pieces of a sound financial plan today.
The stark statistics speak for themselves:¹
- About 70% of individuals over age 65 will need at least some type of long term care services in their lifetime
- Over 40% will need care in a nursing home. Women are at higher risk than men (primarily due to longevity)
- Women will need care for a longer period (3.7 years vs 2.2 years)
Nationwide average costs in 2008 were:
- $187/day -for semi-private room in a nursing home
- $209/day -for a private room in a nursing home
- $3,008/month in an assisted living facility
- $29/hour for a home health care aide
- $18/hour for homeaker services
These may vary from state to state, and city to city, to a large degree
The role of the long term care insurance policy has now often become a means of enabling wealth transfer to family rather than simply a means of transferring risk to the insurance company. Shrinking investment portfolios, reduced rental income, higher health care costs, as well as job and pension uncertainty have created a stage for alternative wealth protection and transfer techniques using insurance products.
Many states have now enacted partnership programs which allow an insured to retain and transfer assets to family in an amount equal to the benefits paid out for long term care services, and yet still qualify for Medicaid to pay for any remaining long term care needs after policy benefits are exhausted. This is a win-win situation. The state has given strong incentive for a private payor solution to a very probable risk, while the individual sees a solid reward for his or her expenditures. This is a level of protection for the modest estate of many who wish to pass some sort of inheritance to spouse, children, or even charity.
2.
It is important to realize that there is no government program in place to pay for long term care needs. Medicare is designed for acute medical expenses. Some benefits are available for nursing home stays and home care, but only for services that are therapeutic, and not for chronic conditions. In addition, certain requirements must be met for Medicare to cover these needs. Medicaid requires certain modest levels of income as one limiting factor for eligibility. The other is a limited asset base. The qualifying family must “spend down” to a certain state mandated level of wealth before Medicaid will cover a nursing home stay. This form of voluntary impovershment leads to a family’s lack of control, choice, and dignity during the ordeal.² Most costs are paid out of pocket from income and savings. Unpaid family caregivers provide almost 3/4 of long term care needed at great expense to those who also work to support their own families.² The patchwork of payors for long term care services includes Medicaid (48.9%), Medicare (20.4%)-for therapeutic care, out of pocket (18.1%), private insurance (7.2%), and other sources (5.3%).¹ It is clear that unless the family spends down to Medicaid qualifying levels, the choice is between paying out of pocket, or purchasing insurance to cover the costs.
There are tax breaks for purchasing insurance. At this time, the break given to an individual on his or her personal tax return is nominal. The cost is deductible only as an itemized deduction and is lumped into medical expenses which must exceed 7.5% of the individual’s adjusted gross income before any deduction is allowed. The amount allowed as a medical expense is also limited by the insured’s age. For the business owner, a deduction is allowed for the owner’s coverage and their spouse. The deduction depends on the type of business entity paying the cost, and the insured’s age, as well as other factors. Taking this deduction is generally an easy thing to do if certain conditions are met. The additional benefit to having insurance in place is that the benefits paid by any company policy which is a ”qualified” policy are income tax free. Eventually, long term care insurance premiums may be fully deductible on an individual’s tax return. This issue has been discussed in the Congress and is being fostered by the industry. There is no real alternative at this time to encourage the private payor population. The additional impetus to provide protection for the family’s wealth, as well as flexibility and control in the midst of a sad and trying family event is the current impact of recent financial events. The family’s ability to avoid spending down assets intended for the next generation has been greatly curtailed. For this reason, long term care insurance has earned a much more prominent place in a well constructed financial plan.
By Roger J Macaione Jr. CFP, CLU
¹ U.S. Department of Health and Human services. National Clearinghouse
for Long Term Care Information
² “Financing Long term Care, A Resource Center for Families”, University of Minnesota, 2003, Marlene Stum PhD
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Long Term Care Insurance and Financial Planning
By Roger J Macaione Jr. CFP, CLU
The possibility of a long term care need is much too great to ignore in assembling the pieces of a sound financial plan today.
The stark statistics speak for themselves:¹
Nationwide average costs in 2008 were:
These may vary from state to state, and city to city, to a large degree
The role of the long term care insurance policy has now often become a means of enabling wealth transfer to family rather than simply a means of transferring risk to the insurance company. Shrinking investment portfolios, reduced rental income, higher health care costs, as well as job and pension uncertainty have created a stage for alternative wealth protection and transfer techniques using insurance products.
Many states have now enacted partnership programs which allow an insured to retain and transfer assets to family in an amount equal to the benefits paid out for long term care services, and yet still qualify for Medicaid to pay for any remaining long term care needs after policy benefits are exhausted. This is a win-win situation. The state has given strong incentive for a private payor solution to a very probable risk, while the individual sees a solid reward for his or her expenditures. This is a level of protection for the modest estate of many who wish to pass some sort of inheritance to spouse, children, or even charity.
2.
It is important to realize that there is no government program in place to pay for long term care needs. Medicare is designed for acute medical expenses. Some benefits are available for nursing home stays and home care, but only for services that are therapeutic, and not for chronic conditions. In addition, certain requirements must be met for Medicare to cover these needs. Medicaid requires certain modest levels of income as one limiting factor for eligibility. The other is a limited asset base. The qualifying family must “spend down” to a certain state mandated level of wealth before Medicaid will cover a nursing home stay. This form of voluntary impovershment leads to a family’s lack of control, choice, and dignity during the ordeal.² Most costs are paid out of pocket from income and savings. Unpaid family caregivers provide almost 3/4 of long term care needed at great expense to those who also work to support their own families.² The patchwork of payors for long term care services includes Medicaid (48.9%), Medicare (20.4%)-for therapeutic care, out of pocket (18.1%), private insurance (7.2%), and other sources (5.3%).¹ It is clear that unless the family spends down to Medicaid qualifying levels, the choice is between paying out of pocket, or purchasing insurance to cover the costs.
There are tax breaks for purchasing insurance. At this time, the break given to an individual on his or her personal tax return is nominal. The cost is deductible only as an itemized deduction and is lumped into medical expenses which must exceed 7.5% of the individual’s adjusted gross income before any deduction is allowed. The amount allowed as a medical expense is also limited by the insured’s age. For the business owner, a deduction is allowed for the owner’s coverage and their spouse. The deduction depends on the type of business entity paying the cost, and the insured’s age, as well as other factors. Taking this deduction is generally an easy thing to do if certain conditions are met. The additional benefit to having insurance in place is that the benefits paid by any company policy which is a ”qualified” policy are income tax free. Eventually, long term care insurance premiums may be fully deductible on an individual’s tax return. This issue has been discussed in the Congress and is being fostered by the industry. There is no real alternative at this time to encourage the private payor population. The additional impetus to provide protection for the family’s wealth, as well as flexibility and control in the midst of a sad and trying family event is the current impact of recent financial events. The family’s ability to avoid spending down assets intended for the next generation has been greatly curtailed. For this reason, long term care insurance has earned a much more prominent place in a well constructed financial plan.
By Roger J Macaione Jr. CFP, CLU
¹ U.S. Department of Health and Human services. National Clearinghouse
for Long Term Care Information
² “Financing Long term Care, A Resource Center for Families”, University of Minnesota, 2003, Marlene Stum PhD
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