Planning for long-term care (LTC) is about dealing with the reality of needing assistance as we age. We’ll be the first to acknowledge this is not a fun conversation. But ignoring information to avoid the reality of needing long-term care is not a solution.
Risk, cost, funding
It’s hard to know if or when you’ll need long-term care, but the statistics that follow may be helpful:
- The longer we live, the greater the chance that we’ll need assistance. This is due to chronic medical conditions. Today, at age 65 life expectancy for females is 85.7 years and for males 83.1 years.
- By the time we reach age 65, about 70% of us will need some level of long-term care in our remaining years.
- For most Americans there are just three ways to fund long-term care: self-fund using income and assets, private long-term care insurance or government assistance through Medicaid.
- If you have assets and income to protect and you can afford the insurance premiums, you may want to consider buying long-term care insurance. (Our clients always define their affordable premium budget.)
- There are two long-term care insurance (LTCI) product designs. One is a standalone product much like auto or homeowners insurance. You figure out the coverage you need and the deductible that makes sense and pay your premiums monthly, quarterly, semi-annually or annually.
- This standalone product is a pay-as-you-go design and does not require a large single premium. It is also the tax-qualified and partnership product.
- Tax-qualified means that benefits paid are not taxable as income and premiums may be deductible depending how policyholders file taxes. (If a non-tax-qualified policy, premiums cannot be deducted and benefits received generally are counted as income.)
- Partnership policies protect assets from Medicaid resource reduction requirements (spend-down requirements) on a dollar-for-dollar basis. The amount of benefits paid for LTC care are disregarded from spend-down to qualify for government assistance.
- The other product is commonly referred to as a hybrid or asset-based design. Hybrid meaning that the product is designed with two components such as permanent life insurance or an annuity with a long-term care rider. Asset-based refers to the cash value of these products. Permanent life insurance and annuities have cash value and are more expensive in design.
Comprehensive coverage and benefit eligibility
- Almost all product designs on the market today are comprehensive. This means that they cover multiple types of care services and many care venues. Services may include respite care for family caregivers, homemaker services such as meal preparation and light housekeeping in addition to assistance with activities of daily living (ADLs) and/or supervision due to cognitive impairment.
- Most policies in the market today define six ADLs as bathing, dressing, eating, toileting, continence and transferring.
- Today, care venues may include home, adult day care centers, assisted living communities, nursing homes and hospice care facilities.
- Cognitive impairment is the number one cause of LTCI claims today. It is the sixth leading cause of death in the U.S.
- “Triggers” is the term used to describe how a policyholder becomes eligible for benefits. The HIPAA legislation of 1997 defined tax-qualified plans and the two triggers to eligibility. These include needing assistance with two ADLs or supervision due to cognitive impairment. (Non-tax-qualified plans have a third trigger which is defined as medically necessary.)
- LTCI is medically underwritten. Your health history will determine if you are insurable. Some carriers also want to understand family history of cardiovascular disease, diabetes and dementia. Generally, carriers want applicants to have had a head-to-toe physical exam including a complete blood workup within the past 24 months. Underwriters want to be sure that applicants are managing their health.