Consumers

A Perspective

THE MIGHTY BASICS...That is what I called the presentation I made in the early 2000’s to elder law attorneys, financial planners, and health care professionals about long-term care (LTC) insurance. There were many major companies competing in the market, virtually all of them offering products with the same benefit triggers so that they would be compliant with the Health Insurance Portability andAccountability Act (HIPAA) and thus provide certain valuable guarantees to their insureds. They varied in the optional benefits they offered, but many were similar in their pricing and health underwriting practices.

THEN SOMETHING HAPPENED...Not suddenly, but gradually, companies began to raise their rates for new policies, and, inevitably, for existing policies. And over time many insurers withdrew from the marketplace. They were, and are, still responsible for the policies they had sold (thanks to HIPAA), but the number of companies selling traditional LTC policies has dropped dramatically.

A RESOURCE EVOLUTION...Resources for an insured cushion against the cost of long term care have evolved from stand-alone or traditional policies to choices between so-called hybrid products combining life and LTC benefits to asset based LTC contracts (e.g., annuities).

Very limited benefit period (e.g., 360 days) policies are now also available, clearly not providing long term care coverage, but which do offer care at home, in assisted living, or in skilled nursing facilities.

Many life policies now offer riders that also provide options for care at home, in assisted living, or in skilled nursing facilities. Some provide LTC riders while others offer chronic illness riders. The difference between them can be critical in the event of a claim. While benefits for both must meet the same triggers as in a traditional LTC policy, one requires that the condition be likely to last 90 days or longer while the other requires certification that the condition is permanent.

THE POINT...Some financial protection against the expense of long term care is now available through a variety of insurance products. Which, if any, may be appropriate for you depends, as always, on your reasonably foreseeable needs and economic circumstances. But you should be aware that this market has evolved and offers a much wider range of benefit and cost alternatives than in its early years.

Please allow me to note that, in October of 2016, Governor Wolf appointed me to the Pennsylvania Long-Term Care Council. Serving on the Access Committee of the Council has given me a perspective on the challenges, needs, and commitment of the professional caregivers working in the long-term care industry that I would never have had looking at long-term care benefits from only a product perspective.

What's a Partnership Plan?

Partnership Plans and Medicaid

Most of us don’t plan on being on public assistance (Medicaid). But, if you have a long-term care policy that is either inadequate in its benefit payments to meet the cost of your care, or you exhaust your policy’s pool of money entirely, you’ll need to pay for your care out-of-pocket. That may mean spending down your assets if your income isn’t sufficient to make up the difference or to fully pay for your needs.

If it appears that Medicaid financial qualification will be your only option, you should meet with an elder law attorney. If your LTCI policy was qualified as a Partnership policy, you will be able to shelter dollar for dollar assets that you would otherwise have to spend down to financially qualify for Medicaid long-term care benefits.

We suggest that, once you’ve decided on the policy structure that makes the most sense for you and your budget, you should consider selecting a company that offers such a policy as Partnership qualified in your state. Partnership qualification doesn’t add to the cost of a policy, and it could help protect at least some of your assets in the future.

If you plan on retiring to a state other than that in which your policy will be issued, check that the retirement state has reciprocity with your policy issue state for Partnership purposes.

Hybrid policies cannot be Partnership qualified under current regulations.

Note—Partnership qualification in Pennsylvania requires that the policy includes provision for compound or simple inflation protection, depending on the issue age of the applicant, equal to the Consumer Price Index (CPI) or at a fixed rate of not less than 1%. For applicants age 76 or older, inflation protection is not required.

LTC Pre-Qualifiction Health Form

If you would like us to do this preliminary review on your behalf, with absolutely no cost or obligation on your part, please either fill out the form below and click on Submit, or print it here.  If you choose to print out the form, you may scan and email it to us (tom@futurecareassociates.com), fax it [1-412-774-1980], or snail mail it (Futurecare Associates, Inc.

Are There Other Options?

Yes, and They Are Very Different Alternatives

Hybrid products provide answers to the two most common objections to stand-alone or traditional long-term care insurance . . . the risk of future increases in premiums, and the “use it or lose it” concern (pay premiums over the years and pass away without needing long-term care.)

Hybrid policy premiums are fixed, and the provision for a death benefit means that someone will be paid, the insured on a long-term care claim, or the insured’s beneficiary in the event of death.

“Hybrid” typically refers to a universal life or a whole life product with a long-term care rider that allows the insured to accelerate a percentage of the death benefit to pay for long-term care needs. For example, a hybrid policy may provide for a $250,000 death benefit with a 2% withdrawal rate against that death benefit for long-term care at $5,000 a month for 50 months. The policy will likely have a minimal “residual” death benefit (e.g., $10,000) payable at death should the insured have exhausted the basic death benefit on a long-term care claim.

If you are considering a hybrid universal life policy, be sure that it includes a no-lapse premium guarantee for a substantial or lifetime period. Such a guarantee is not available in stand-alone traditional LTC policies.

An “asset-based” product usually refers to a single premium life policy with an LTC benefit, or to a non-qualified tax deferred single premium annuity with an LTC rider. Such policies may also provide for premium payments over a limited number of years.

If you are at least 59 ½ at the time of purchase, you may, depending on the carrier and product, be able to utilize retirement funds without an IRS 10% penalty.

Cash value from an existing universal life or whole life policy may be used in a tax-free Section 1035 Exchange to fully or partially fund a single premium hybrid policy.

If you have a non-qualified annuity (one that isn’t part of your IRA or pension plan) with a lot of cash build up beyond what you have paid into the annuity, you might consider a single premium LTC policy using the value of the annuity on a tax-free exchange basis. That’s a new option available since 2010. It’s worth looking into if you need LTCI and don’t foresee a need for the annuity in retirement. You’ll avoid federal income tax on the value of the annuity that’s in excess of the cash you put into it.

The additional cost of an LTC benefit in hybrid and asset-based contracts is typically much less than would be the average premium for a stand-alone traditional LTC policy. However, there are trade-offs. Hybrid and asset-based policies do not offer the optional benefits available with traditional LTC policies such as shared care, inflation riders, restoration of benefits, dual waiver of premium, a survivorship benefit, or waiver of the elimination period for home health care.

As always, it comes down to carefully considering your needs, resources, and future concerns. And we recommend that you do so in conjunction with your financial advisor, accountant, and an elder law attorney. Creative solutions to long-term care planning involve financial, insurance, tax and legal considerations. You need to get it right. Be sure to touch all the bases!

Self Insuring

Wealthy individuals can absorb an error in projecting the future cost of care, how long the need for care might last, or the need for long-term care arising sooner rather than later.

However, consider how much money you’d need to have to pay out just $60,000 annually (the $5,000 a month example we’ve used in our discussions x12) for 3 years without reducing your principal. That number is $4,500,000 assuming a 4% after-tax withdrawal rate ($180,000/4%).

The cost of a 3 year benefit period traditional LTC policy (a $180,000 pool of money) could be about $2,500 a year, assuming you’re 60, in good health, have a 3% compound inflation rider, shared care, a 90 day deductible, and spousal waiver of premium.

And remember that, with shared care, your benefit pool could be $360,000 over 6 years on claim. To self-insure for that amount, you would need $9,000,000 earning 4% net per year.

To pay out a premium of $2,500 annually, assuming you earn 4% net on the invested sum, you would need to set aside $62,500.

Which is the better use of your money?

We invite you to allow us to discuss these very different alternatives with you, as well as to consider whether, in your circumstances, you may be better advised not to purchase insurance, or to self-insure against the risk of needing long-term care.

Our interest is in serving your best interest, not in simply selling a product. Please call or text us at 412-977-0601 or email your contact information to tom@futurecareassociates.com.

What About Cost?

Premiums

There is a substantial difference between the cost of traditional and hybrid LTC policies.

Let’s focus first on traditional policies...those that provide only long-term care benefits, and that are not associated with life or annuity products. Premiums for traditional individual LTC policies are not guaranteed. An insurer can, with the permission of the state insurance department, raise rates on a class of in-force policies. A company cannot, however, single out an individual insured for a rate increase.

Please be sure to read A Perspective at the beginning of this website.

What If My Premiums Increase Down the Road?

HIPAA Qualified policies have a built in “contingent non-forfeiture benefit” that provides several options if cumulative increases in your original premium exceed that premium by a fixed percentage based on your age at the time you bought your policy. Those options, which we are not going to discuss here, are fixed and final. You should, however, know that they are included in every qualified LTC policy without additional cost.

It is also, and we think realistically more important to know, that policyholders hit with an unacceptable rate increase...one you simply cannot afford to pay . . . (some have been as low as 8% and as high as 94%) may have other more flexible options to lessen and even avoid such increases.

For example, if your benefit has grown substantially over the years by virtue of an inflation rider (a 5% compound automatic annual benefit increase will have doubled your initial benefit in about 14 years,) you could drop that rider from your policy, likely cut your premium in half, and, under the terms of many proposed premium increases, avoid any increase in your premium. Or, depending on the terms of your policy, you may be able to reduce the percentage of your inflation provision from, for example, 5% to 3% and significantly reduce your premium while also avoiding any premium increase.

Another option to consider, by itself or in combination with what we’ve just discussed, is reducing your pool of LTC money—your maximum benefit period—particularly if you are significantly further along in years. Please note that, if you and your partner have Shared Care, you will each need to make identical changes in order to maintain that benefit. I realize that we’re in the weeds a little here, but the point is that you need to very carefully read the terms of any premium increase notice you may receive for options that might make sense for you if your financial obligations have lessened while your retirement savings have grown.

If you haven’t already done so, you should consider visiting with your financial advisor and an elder law attorney to assess the most sensible way to deal with a substantial increase in your premium. Reducing your benefits may have unintended consequences that they can foresee and help you to avoid.

What About Discounts?

Discounts can range from 10 to 40% depending on the company and depending on your health, whether or not you’re married or in a committed relationship, and whether or not you and your spouse or partner are applying together and in good faith. An application by each of you when one is clearly not insurable will typically result in a reduction for the insurable applicant from what is called a “spousal” to a “marital” discount or to no discount.

Discounts can add up so it is worthwhile to explore the cost of coverage for you together, even if one policy is structured differently than the other. But remember, if you want Shared Care, you both need to be insurable and your policy benefits need to be the same.

Do I Still Have to Pay My Premium When I’m on Claim?

Virtually all policies on the market today provide for waiver of your next premium due once you are eligible for benefits. Waiver means waiver, not a loan. Should you recover, you’ll simply start paying your normal premium.

Some policies offer a rider at additional cost (which you must select at the time you and your spouse or partner apply for coverage) which provides for dual waiver of premium—while one of you is on claim with your premium waived, so also is your partner’s premium waived.

In any event, do be certain that the policy you are considering provides for waiver of your premium.

Can I Buy a Paid-Up Policy?

Only one company still offers the option of paying a traditional LTC policy premium over a limited period of time, 10 years, with no premiums due after that. If having a paid-up policy is important to you, you should consider hybrid policies, which we will discuss under the Are There Other Options? section of this website.

Can My Benefit Increase?

Yes, if you have an “inflation rider”. That’s the term often used to describe optional provisions offered by insurers which automatically increase your policy benefits each year. The increases are typically at a fixed rate of 3, 4, or 5%, they could be simple or compound, and the rate is specified by you at the time you apply for your policy.

A compound rate means that the increase is based on the prior year’s benefit amount. Simple means that the increase is based on the original benefit amount. A 5% compound rate will double your benefit in 14.4 years. A 3% compound rate will take 24 years to double your benefit. At a 5% simple rate, it will take 20 years for your original benefit to double.

Here’s the problem. None of those numbers are actually tied to the increase (or, dream on, the decrease) in the rate of health care cost inflation. And a 5% compound inflation rate typically more than doubles the cost of a traditional long-term care policy. Varying the inflation factor from zero to 5% in hybrid policy quotes similarly has a substantial impact on the cost and benefits of such products.

What to do? Once again, tailor your policy to your needs and budget. Examine alternatives, and this is important, make sure that they are based on the same health underwriting class for which you have been pre-qualified by each company providing the alternative quotes. Be sure to establish basic benefit specifications so that you are getting fair competitive comparisons.

If you are considering buying a traditional long-term care policy, make one of the alternatives you examine a very large monthly benefit (e.g., $10,000) with a 3, 4, or 5 year benefit period but with no inflation rider. Your annual premium will likely be less than the cost of the same policy with a $5,000 monthly benefit and a 3% or 5% compound inflation rider, and you will immediately have twice the benefit that it would take over 14 years to reach with a 5% compound provision or 24 years with a 3% compound rider.

True, your benefit won’t increase, but your financial vulnerability to the cost of long-term care should also diminish as your obligations (mortgage, education of children) lessen in retirement. And you will still have the up-front protection of a very large monthly benefit to off-set long- term care costs should you need care sooner rather than later.

The take away point here is that there are many different ways to structure LTCI benefits. Take the time to work out comparatively and competitively what makes the most sense for you.

Doesn't Medicare Cover Me Anyway?

A Note on Medicare

Don’t be confused by Medicare. Medicare pays for skilled nursing facility care (not for assisted living or custodial care) for just 20 days, and then only if you have been admitted to the facility within d0 days following at least a 3 day inpatient hospitalization (that means under a doctor’s order, not simply for observation), not counting the day you are discharged from the hospital.

Medicare will continue to pay for your skilled nursing facility stay for days 21 through 100, but subject to a co-pay by you of $167.50 (for 2018). That’s an out-of-pocket expense to you of about $5,025 a month.

After day 100, you’re on your own.

Bottom Line: Medicare simply doesn’t pay for long-term care.

What About A Deductible?

Is There a Deductible Before I Get Benefits?

Yes. Whether you’re insured on a traditional or a hybrid policy, LTC benefits are payable after a deductible (an “elimination period”). You are responsible for your expenses during that period. In virtually all of the policies on the market today, you only need to meet your deductible once in your lifetime.

You select your deductible at the time you apply for your policy. 30, 60, or 90 days are typical choices, although some hybrid policies fix the number at 90 or 100 days. At least one hybrid policy offers a zero day deductible for home care benefits with a 90 day deductible for facility care benefits.

Occasionally we are asked about using a 180 or 365 day elimination period with traditional LTC policies. If you compare the premium savings for such a long deductible compared to a 90 day waiting period to the out-of-pocket cost you would have on claim between the 91st and 180th, let alone the 365th, day before becoming eligible for benefits, you’ll inevitably find that the “savings” pale in comparison to the cost of your care during the extended out-of-pocket expense period.

Forgive me for getting into the weeds a little here, but let’s consider the numbers for a traditional policy from a well established insurer.

Consider the value of the premiums you’ll save over, say 20 years, with a 90 day compared to a 30 day deductible. Assume a traditional policy issued for a male, single, issue age 55, preferred health, with $5,000 monthly benefit, a $300,000 benefit pool, and a 3% compound benefit increase rider.

The annual premium with a 90 day deductible: $2,247. With a 30 day deductible: $3,035. Savings: $778 a year. $778 actually saved at, e.g., 3% after taxes every year for 20 years, grows to $20,906. $5,000 benefit grows at 3% compounded annually over 20 years to $9,031 a month. You go on claim after 20 years with a benefit of $9,031 monthly. During days 31 to 90 on claim, the policy with a 30 day elimination period would pay a maximum of $18,062. The policy with a 90 day deductible wouldn’t pay until after 90 days, but the savings fund would provide $20,906 to cover expenses during the 31st to the 90th day. You’d be nearly $3,000 ahead with the 90 day deductible assuming that you saved the difference at just 3% net.

Some traditional LTC policies offer a provision that waives the deductible for home health care. That financial relief valve can be important both because most long-term care claims begin with home health care and it makes the premium savings achieved with a 90 day elimination period all the more attractive.

Be sure that the days you receive home care count toward satisfying the deductible that will apply should you later require care in an assisted living or skilled nursing facility. Also be sure to consider whether your deductible is satisfied by calendar or service days. Calendar days are preferable because you have the certainty that you will be eligible for policy benefits in 30, 60, or 90 actual days from the day on which you would be eligible for benefits but for the deductible. Service days could stretch out the point at which you actually become eligible to receive benefits to longer than your nominal (e.g.,90 day) elimination period.

What About My Spouse?

Can I Get More Than My Benefit?

If you are married or in a “committed relationship” (defined in different terms by different insurers, e.g., a “certified domestic partnership”), you may receive a discount on your premium if only you apply for coverage, or a larger discount if you both apply at the same time. The availability of such discounts vary depending on whether you are applying for a traditional or for a hybrid policy, or for a life policy with a critical illness rider.

If you are considering a traditional long-term care policy, be sure to consider the availability of a Shared Care rider. Shared Care is a very economical and tactically useful benefit. Shared Care is not available with hybrid products. You must both apply for your policies at the same time and have identical basic benefits in order to be able to include a provision for Shared Care in your policies.

With this benefit option, you could indeed get more than your basic benefit on claim. Consider, for example, the $300,000 pool of money described in What Am I Buying? If you and your partner individually applied for such a benefit, and you each included Shared Care on your applications, one of you could have access to up to $600,000 in the event of a claim.

Shared Care, in its most basic form, allows one insured, should he or she exhaust their own policy’s benefits, to access the unused benefits of their partner. Upon the death of one partner with unused benefit remaining, that benefit may transfer to the survivor without added cost.

Note, however, that there are differences between companies in how they structure their Shared Care benefit provisions. One may require, for example, that a year’s worth of a spouse’s benefit be left for the healthy spouse. For example, if each of you have a basic 5 year maximum benefit period with a $300,000 pool of money, and you exhausted your $300,000 pool on claim, you could access up to $240,000 (at $5,000 a month for 48 additional months) of your spouse’s unused benefit pool.

A different company may structure its Shared Care benefit to allow full access to the healthy spouse’s available benefit pool.

Joint Waiver of Premium and Survivorship benefits are two other options available with traditional long-term care policies that you may want to consider. The first waives the premiums for both of you if one of you is on claim, and the other, typically after the policies have been in force for a number of years without a claim, waives the premium of the survivor for life should one of you pass away.

What Do I Get When I Need It?

How Much Do I Need?

Our focus is on long-term care benefits and the products available today to deliver them to you. Whether you decide to use a traditional or a hybrid policy, one providing a pure monthly benefit for such care or the other providing a monthly long-term care benefit and some level of a life insurance benefit, when you apply for your policy you’ll select a long-term care benefit amount that fits your anticipated future need.

Think of the benefit amount as the rate at which you can access your pool of money. In the example we discussed in What Am I Buying?, the benefit was $5,000 a month. Please understand that $5,000 is just a number—the cost of long-term care, depending on your needs, where you live, and the care provider you select may well, and in the future certainly will, exceed that amount.

If you needed long-term care today, would $5,000 a month be sufficient? Figuring out that need and cost requires a working crystal ball—how can you know now what the cost of care will be in the future or what sort of care you may need or for how long? You can’t.

What you can do, and what we’re all about here, is to consider what you do know—your current financial circumstances, your conservatively projected future financial resources and obligations, and the simple facts that neither your health care insurance nor Medicare covers chronic long-term care needs, nor does Medicaid (without reducing your assets to a poverty level and then controlling the delivery of care to you.)

Considering what you do know, your analysis of your needs and resources may show, for example, that you have income that your partner will not need to maintain her or his lifestyle if you are receiving long-term care benefits—for example, your Social Security benefit. That amount could be used to reduce the net monthly LTC benefit for which you should apply, and thus reduce the current cost of your LTC policy. The same concept applies whether you’re considering a traditional or hybrid product.

You should discuss this decision carefully with your family and financial advisor. Once purchased, LTCI policies are rarely replaced or dropped, so it’s important to get it as right as reasonable at the outset.

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