Consumers

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 the policy’s pool of money entirely, you’ll need to pay for your care yourself.  That may mean spending down your assets if your income isn’t sufficient to make up the difference or to fully pay for your care.
 
If it appears that Medicaid qualification will be your only option, and if your LTC policy was qualified as a Partnership policy, you can 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 a Partnership qualified policy.  It won’t’ add to your premium, 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.
 

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.  P.O.

Are There Other Options?

Yes, There Are Still Other Options!

If you need additional life insurance, but are also concerned about the possibility of long-term care expenses, you should consider a hybrid or  asset-based policy.

These products provide answers to the two most common objections to stand-alone or traditional long term care policies . . . the risk of future increases in premiums, and the "use it or lose it" complaint (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.

A "hybrid" policy 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 $250,000 death benefit with a 2% withdrawal rate for long term care can provide a $5,000 monthly LTC benefit for 50 months.

Be sure that a hybrid universal life policy under your consideration 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.  At least one carrier does currently offer a hybrid policy with a lifetime premium payment option. 

If you are at least 59 1/2 at the time of purchase, you may, depending on the carrier and product, be able to utilize retirement funds without an IRS 10% penalty tax.

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

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.

 

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 accountant and attorney.  Creative solutions to long term care planning  involve insurance, financial, and legal considerations.  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 (our $5,000 a month example x 12) for 3 years on claim without reducing your principal.  That number’s $4,500,000 assuming a 4% after tax withdrawal rate ($180,000/4%).

The cost of a 3 year benefit period policy (a $180,000 pool of money)  could be about $2,500 a year (we assume 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 that you earn 4% net on the invested sum, you would need to set aside $62,500. 

Which is the better use of your money?

What About Cost?

Premiums

Here we focus on traditional LTC policies . . . those that provide only long term care benefits and that are not associated with life or annuity products.  To make it a little personal, my wife and I have carried such coverage since 1999.

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.  Only one company still offers a rate guarantee, but the guarantee is just for 3 years, and it is contingent on the insured not electing a deferred inflation option during that time.

Please do be sure to read our comments on the Home page of this website.

What If My Premiums Increase Down the Road?

Many of the major LTC insurers have, in recent years, raised the premiums charged to existing policyholders.  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 percentage based on your age when you bought your policy.  Those options, which we are not going to discuss here, are fixed and final.

But it is important to know that policyholders hit with an unacceptable rate increase (some have been as low as 8% and as high as 90%) may have other more flexible options to lessen and even negate the impact of such an increase.

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 benefit in about 14 years), you could drop that rider from your policy and likely cut your premium in half.  Or, depending on your policy, you could reduce it to, for example, a 3% rider and significantly reduce your premium.

That might make sense if your financial obligations (mortgage, children’s education) have lessened while your retirement savings have grown. Your LTC benefit wouldn’t grow anymore, but consider whether your benefit may be adequate going forward, especially in the light of other assets that may be available to offset a shortfall should a long term care need develop.

Another option is to consider reducing your pool of LTC money—your benefit period—particularly if you are significantly further along in years.

If that’s  your only option, and taking it will enable you financially to keep, let’s say a 3 year benefit period instead of 6 years or longer, you should do so.  You’ll have 3 years of protection against some or all of the cost of your care and you’ll preserve the powerful ability to choose your caregiver because payment will be guaranteed to the extent of your policy’s benefits.

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.

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 avoid.

What About Discounts?

Discounts can range from 10 to 50% depending on the company and depending on your health, whether or not you are married or in a committed relationship, and whether or not you and your spouse or partner are applying for coverage in good faith.  An application by each of you when one is clearly not insurable will typically result in a reduction from what is called a “spousal” to a “marital” 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, some at an additional cost, provision for dual waiver of premium—while you’re on claim with your premium waived so also is your spouse or partner’s premium. 

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, with no premiums due after that.  The period could be for 10 or 20 years. 

Note that other and increasingly popular product structures (so called "hybrid" and "asset-based" policies) do provide single and limited premium payment periods.  We will discuss those alternatives in the Are There Other Options? node of this website.

A “10 Pay” approach can more than double the premium compared to a lifetime payment period, but it buys you protection after those 10 years from future premium increases.

If you can afford the cost of a limited payment period, and you are comfortable with the benefit structure available from that insurer,  you should consider it.  The likelihood of future premium increases only grows as the “baby boomers” age and LTC claims multiply. 

A limited pay period may be particularly worthwhile for younger LTC applicants because your premiums will be lower by virtue of your age, and, should the premium increase before the limited payment period ends, you may better be able to afford the increase than if, for example, you are in your late 60’s or 70's when an increase occurs.

As in any major financial decision, you should competitively consider the costs of limited premium payment periods.  Be careful, because you likely won’t have the option of changing your mind several years into such an arrangement and getting credit toward a lifetime payment plan for the “excess” premium you paid during those first few years.

If you have a need for additional life insurance, you should also consider a hybrid or an asset-based policy  discussed in  Are There Other Options?

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 could be at a fixed rate of 3, 4, or 5%, and they could be compound or simple, or be based on some factor such as the Consumer Price Index. 

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 is actually tied to the increase (or, dream on, decrease) in the rate of health care cost inflation.  And a 5% compound inflation rider typically more than doubles the cost of a policy.

What to do?  Once again, tailor your policy to your needs and budget.  Check out the current costs of at least three major, well rated LTC carriers with, and this is important, with the same underwriting class for which you have been pre-qualified by the individual company, and with the same policy specifications with each company.  Require a policy and premium side-by-side comparison showing each company.

Also, consider buying a very large benefit (for example, $10,000 or $12,000 a month with a 3, 4, or 5 year benefit period) but with no inflation rider.  Your premium will be less than the cost of the same policy with a 3 or 5% compound rider, and you will immediately have at least twice the benefit that it would take over 14 years to have with a 5% compound automatic annual benefit increase or 24 years with a 3% compound annual increase 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 LTC 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 are admitted to the nursing home within 30 days following at least a 3 day hospitalization, 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 $164.50 a day for 2017.  That's an out-of-pocket cost to you of about $4,935 a month.

After day 100, you’re on your own.

Bottom line:  Medicare simply does not pay for long term care.

What About A Deductible?

Is There a Deductible Before I Get Benefits?

Yes.  LTC benefits are payable after a deductible (an “elimination period”).  You are responsible for your expenses during that period.  In virtually all 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.  Some policies offer a zero day deductible.  The shorter the deductible, the more expensive the policy, but the sooner your benefits will be available to you on claim.

You should do the math when selecting an elimination period.  Think about the value over, say 20 years, of the premium you’ll save with a 90 day deductible compared to the cost of the same policy with just a 30 day up front wait.  Compare your possible savings against the out-of-pocket cost you’ll incur paying for care yourself during the 31st through the 90th day.  Remember that the cost of care will also increase over those 20 years.

If you don’t actually save the difference, having to pay out of pocket for care for two months at an otherwise already difficult time could be a significant burden.

Many insurers, however, offer a provision that waives the deductible for home health care.  That financial relief valve is important both because most long term care claims begin with home care and it makes the premium savings achieved with a 90 day elimination period much more attractive. 

Be sure that the days you receive home health care count toward satisfying the 90 day deductible that will apply should you later require care in an assisted living facility or skilled nursing home.

Occasionally we are asked about using a 180 day or a 365 day elimination period.  If you compare the premium savings for such a long deductible to the out-of-pocket cost you would have on claim before becoming eligible for benefits to be paid, you'll inevitably find that the premium "savings" pale in comparison to the cost of your care during that long period of out-of-pocket expense.

Calendar versus Service Days

Be sure to also consider whether your deductible is satisfied by calendar or service days.  Calendar days are preferable because you know that you will be eligible for policy benefits in 30, 60, or 90 actual days from the day 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?

Shared care is a very economical and tactically useful benefit.  It should be included in every couple's limited benefit period policies. 

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.

Consider, for example,  the $300,000 pool of money described  earlier.  If you and your partner individually apply for such a benefit and you each include shared care on your applications, one of you could have access 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. 

Note, however, that there are differences between companies in how they structure their shared care benefit. 

One may require that, for example, a year's worth of a spouse's benefit be left for the healthy spouse.  Consequently, if each of you have a basic 3 year maximum benefit with a $180,000 pool of money, with shared care the spouse on claim may only have a $300,000 pool (3 x 12 x $5,000 + 2 x 12 x $5,000), not $360,000.

Another company may provide for full access to the healthy spouse's available benefit, thus creating the possibility of a 6 year benefit period ($360,000) for one person. 

And another company may structure its shared care benefit as a separate benefit pool accessible by either spouse on claim, after exhausting their own benefit pool, until the separate pool is itself exhausted.

Shared care is not available with hybrid nor with linked benefit policies.

What Do I Get When I Need It?

How Much Do I Get?

When you apply for your policy, you select the benefit amount that fits your likely need.  Think of the benefit amount as the rate at which you can access your pool of money.  In the example we just discussed, the benefit amount is $5,000 a month. 

Please understand that $5,000 is just a number—the cost of long-term care, depending on your need, where you live, and the 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 that’s 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 their lifestyle if you are receiving long-term care benefits--for example, your Social Security benefit.  That income could be used to reduce the net benefit for which you should apply, and thus reduce the cost of your LTC policy.

You should discuss this decision carefully with your family and your financial advisor.  For reasons we’ll comment on later, once purchased, LTCI policies are rarely replaced or dropped, so it’s important to get it as right as reasonable at the outset.

What Am I Buying?

What’s My Benefit?

Think of long-term care benefits as flowing from a pool of money.  You determine when and how fast benefits will flow at the time you apply for your policy. 

You may include provisions that speed up the flow under certain conditions, that periodically increase the size of the pool, that refill the pool after some benefits have been taken from it.

For example, if you select a five year benefit period, and a monthly benefit of $5,000, your pool of money will be $5,000 x 12 x 5 or $300,000.

If, on claim, you access your pool at the rate of $5,000 a month continuously for 5 years, the pool will be emptied and your policy benefits will cease.  If your care requires less than $5,000 a month, your pool will last longer than 5 years.

Endless pools are neat in architectural designs.  In the past, LTC insurers offered policies with "lifetime" or "unlimited" benefits.  No more.  The maximum benefit period available as of June, 2015 is 10 years, and, in our opinion, is at least statistically a waste of money.

Be sure to consider various benefit periods in structuring your policy.  You may be more comfortable with a 5 year benefit period, recognizing that you've substantially hedged the statistical bet.  That bet, as we noted earlier in the Probabilities, is that about two-thirds of us who reach age 65 will thereafter need some long-term care, and that we'll need such care for an average of 3 years. Consider also a 3 year benefit period.  Once again, the point is to secure a level of coverage with which you, given your health history and reasonably foreseeable financial circumstances, are comfortable.

If you’re applying with your spouse or partner, the inclusion of a provision for “shared care” (which we’ll discuss a little later) could provide a very economical way of more generously hedging that bet for one of you compared to each of you buying a very large pool of money.

Alzheimer's and other forms of dementia are a concern most of us share, certainly in part because of the longer term of care they may require.  We believe, however, that, if you approach your long term care planning personally, considering your health history and that of your family, the foreseeable resources available to you, and the many options available from those major LTC insurers likely to look favorably on an application from you, you will be able to develop a reasonable plan for your future care.

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