Financial Fitness Ohio news

Long-term care insurance

May 30, 2012
With 70 million baby boomers hitting retirement age, there has been a surge in sales of long-term care insurance. Long-term care insurance pays for your care in many settings, such as at home, a nursing home, assisted living facility, or adult day care should you suffer from an illness or injury.

Sounds like something only older people need to worry about, right?  Wrong.

According to insurance industry sources, about 40 percent of long-term care recipients are between the ages of 18 and 64. So if you’ve heard about long-term care insurance and thought, “I don’t need that because I’m still young,” there are other considerations.

A debilitating injury could affect you at any age. With health care costs predicted to continue to increase rapidly in the foreseeable future, you may want to investigate long-term care insurance to protect your assets and help pay for your care without depleting your – or your loved ones’ – life savings.

What is long-term care insurance?

Long-term care insurance covers care that isn’t typically covered by your traditional health insurance, Medicare or Medicaid. Long-term care insurance kicks in when you are beyond being “sick” in the traditional sense and can no longer perform at least two of the six “activities of daily living” (ADLs): bathing, dressing, eating, transferring, toileting and continence.

Long-term care insurance isn’t the same thing as nursing home care. While care may be received at a nursing home, it can also be used at an assisted living facility, adult day care, or even in your own home.

It may sound like long-term care insurance is the same as Medicaid, but the two are very different. Long-term care insurance is a policy you purchase to be sure that your needs are met in the way you would like them to be while Medicaid provides medically necessary services for people with limited resources. Medicaid typically doesn’t cover long-term care in your home or a private room in a facility. It’s important for you to consider how you would like to have your needs addressed should you need long-term care.

What should you purchase?

Policies, benefits and premiums vary. Determine your wants and needs first and then look for a policy that fits your situation. Purchasing sooner rather than later will likely be less expensive. Currently, the most popular type of long-term care insurance is a tax qualified policy, which requires that a person 1) be expected to require care for at least 90 days, and be unable to perform two or more ADLs; or 2) for at least 90 days, need substantial assistance due to a severe cognitive impairment. Benefits from a tax qualified policy are non-taxable.

Non-tax qualified plans used to be the traditional long-term care insurance. It often includes a “trigger” called a “medical necessity” trigger. This means that the patient's own doctor, or that doctor in conjunction with someone from the insurance company, can state that the patient needs care for any medical reason and the policy will pay. The Treasury Department has not clarified the status of benefits received under a non-qualified long-term care insurance plan. This means that it is possible that individuals who receive benefits under a non-qualified long-term care insurance policy risk facing a large tax bill for these benefits.

Long-term care insurance rates are determined by six main factors: the person's age, the daily (or monthly) benefit, how long the benefits pay, the elimination period, inflation protection, and the health rating (preferred, standard, sub-standard).

The National Association of Insurance Commissioners advises against purchasing long-term care insurance if you currently receive or may soon receive Medicaid benefits.

Long-term care insurance can be expensive. Shop around, find a policy that suits your needs, check the company’s reputation, and don’t be rushed into purchasing something that isn’t right for you.

Your local CPA can help. As a trusted, independent financial advisor, a CPA can understand different options available to you.