How Will Mom Pay for Long-Term Care

 

Introduction

Children of aging parents need to be aware of the issues related to long-term care and its costs. Many of their aging parents are electing not to purchase Long-Term Care insurance (LTCi) because of the potential cost outlay having received advice from someone who is not an insurance or financial professional. There are some very expensive pitfalls in this area. Unless someone educates those that this will affect, some very drastic and unplanned for outcomes may take place. Not having LTCi can be much more costly to the family and the heirs than purchasing the needed coverage. Whether you are the child or the parent you need to be educated so as to make sure the right decisions are made, not just the easy ones.

It is no secret the population here in America is living longer and longer. Experts see individuals living past 120 in the very near future. There are a number of concerns that these experts have with this news. First of all, although people are living longer this does not mean they are in perfect health. Many will be alive having survived things that in years past would have killed them, such as heart disease or cancer. Many of these people will require having full or part-time caregivers helping them in one form or another.

A second concern experts have is the escalating costs of medical help and long-term care as the population ages. As the next generation of 50 to 70 million baby boomers begins to retire over the next 20 years these concerns are multiplied.

Methods for Paying for LTC

Who will take care of our elderly and how will that be paid for?

There are three ways to cover long-term care needs.

1. You can self-pay or retain the risk.

2. You can leverage your retention of this risk

3. You can fully or partially transfer the risk.

If I decide to self-pay I must have the assets to cover potentially the current average of 2 to 3 years in a nursing home at an average cost today of more than $45,000 a year across the nation. You can do this a few different ways.

First of all you can have the cash to pay for it which most people do not possess. Another simple more likely method is to position an asset into a fixed annuity with a LTC rider. With a fixed annuity such as this you have the principal protection that you cannot lose the money you placed into the annuity as you might in just about any other investment in today’s marketplace. This in essence guaranties a certain amount of retirement income at some point in the future. However, if you as policy owner enter a long-term care facility, you can also access that asset to cover the nursing home costs. This is a win/win situation. In most cases if there is sufficient assets available for this, one can avoid the costs of long-term care insurance and also avoid the potential of Medicaid recovery if they should end up instead having Medicaid pay for the LTC care.

Medicaid Recovery

If Medicaid provides for the long-term care costs, Medicaid will attempt to recover the amount used for the care from the estate once the covered individual passes away. Today there is a 5 year look-back period for recovery purposes. This means that Medicaid can go back as far as 5 years from the date the individual enters a long-term care facility and then undo any transfers that took place within that period and recover the money. If property was sold within that 5 year period Medicaid can place a penalty period in which they will not cover any LTC costs until an amount equal to the amount of the fair market value of the home in question has been accrued.

Many times people think all they need to do is transfer their property to their children and Medicaid cannot touch it, not so if it is in the 5 year look–back period. There are also ownership issues. If you one does not transfer complete ownership, Medicaid will consider it a current asset and there is no look-back period.

This is what is meant by leveraged long-term care. One is basically leveraging their estate against the risk of the need for long-term care. I know of one individual that both parents ended up needing long-term care. Their Medicaid care used up a $500,000 plus estate when it came time for Medicaid recovery and Medicaid does recover. With the high cost of care and millions of potential individuals needing this care at some point Medicaid has to recover all the assets it can. Clearly this can be an option for those that either have no recourse but to self-pay or do not care if their estate is liquidated to pay for their long-term care. For many, though, this is not what they had planned for their estate.

Today there are LTC insurance (LTCi) plans that allow one to design a long-term care plan that fits their lifestyle and budget. By transferring some or the entire risk to the LTC insurance company one can leverage a smaller premium against a potentially huge cost of care in a long-term care facility. Additionally, you can purchase a return of premium rider and your LTC plan becomes a forced savings plan should you never need LTC benefits and then a strong benefit if you should need the LTC benefits.

What will LTCi cost? This depends on the benefit amount and such things as elimination periods, (how long you will wait for the LTCi to kick in). The less the benefit you take and/or the longer the elimination period the less the LTCi will cost. One thing that many parents do think about when they consider the costs of LTCi is the potential for their children to pay some or all of the costs. If you are the individual going to need LTC who will the burden fall on to manage or perform the work for you? Your children! This is a decision that your children should possibly help you make. They may in fact want the best care for you and are willing to underwrite some or all of the costs.

When my mother passed away from cancer the children took turns taking care of her in her last years. We were willing to do it and it was hard stressful work. However, it damaged the sibling relationships so much that some are not repaired ten years later. I’m sure that had we been consulted in the decision early on to help them pay for LTCi, we would have all kicked in our share and the family would have been better off.

Long-term care insurance should be purchased as early on as possible. The typical minimum age is 40 to 45. With a return of premium rider you’ll get either all of your premium back or the benefit if you do have to use the LTC benefit, win/win!  ***