Top 5 Solutions to Long-Term Care
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As the Baby Boomer population ages, the need for long-term care increases. No matter where you come from, receiving accessible daily-living assistance is essential to maintaining your quality of life.
What is long term care and who are the people that typically need it? This article discusses the different solutions available for long-term care such as Medicare and Medicaid. The requirements to utilize life insurance for assistance are also covered. Read on to discover the top five solutions to long-term care.
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What is Long-Term Care (LTC)?
As the population ages, the need for long-term care is increasing, while the only available solution for some people is Medicare, Medicaid, and long-term care insurance. Individuals that require LTC are generally the people that are not able to perform basic activities involved in daily living. Conditions including Alzheimer's disease and emphysema may be associated with the need for LTC. LTC costs between $30,000 and $100,000 per year, depending on region and level of care.
Many of the individuals that need LTC are surviving for longer periods due to medical advances. Group and individual hospitalization plans and Medicare are not fully equipped to provide custodial care coverage for individuals that need LTC. Women have longer life expectancies than men, and therefore typically, the wife is left without a caregiver.
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Solutions to Long-Term Care Problems
Traditionally, families had to take care of their older relatives when they could no longer take care of themselves. In the early stages of LTC, family help can be an option because it will only require minimal assistance such as shopping and cooking. Alternatively, families may also opt to have an older family member move in with them to make providing assistance more convenient. However, many older individuals are uncomfortable relying on their children for support and will decide to use their own assets to pay for their long-term care.
Unfortunately, assets may not be not liquid enough to provide for immediate long-term needs in some cases. Many individuals end up selling their assets below the fair market value because they need it, thus significantly reducing the legacy that was intended to be left for their children.
Even though this is unavoidable at times, there are four more solutions to long-term care problems that you should be familiar with.
Medicare also provides benefits for LTC. However, it is typically restrictive and limited. Medicare covers nursing home and home health care, but it is limited to nursing care that is rehabilitative in nature. In many circumstances, the individual may not be sufficiently ill to require skilled nursing care. If the individual is only receiving assistance in daily activities, the aid will not be covered under Medicare. Medicare only covers a maximum of 100 days of skilled nursing care, and only the first 20 days are covered at 100%.
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Medicaid is another solution to long-term care issues that is designed to provide benefits for the middle-class. However, it was previously used to help individuals become artificially impoverished by transferring assets so that they became eligible. This is considered a misdemeanor and should never be utilized as a legitimate option.
Typically, individuals are not comfortable in transferring their assets due to the fear that they will be forced to live below their standard of living if the Medicaid benefits should not be sufficient. The look-back period for assets transferred for less than fair value is 60 months. If the transfer was made during the look-back period, the individual will not be eligible for Medicaid for the length of time equal to the amount transferred divided by the average monthly cost of the nursing home.
For example, if the asset that is transferred is worth $20,000 and the monthly regional cost of a nursing home is $2,000, then the individual will be ineligible for 10 months.
Lifetime Care Facilities
Lifetime care facilities can also provide LTC for an entrance fee and monthly fee. These types of facilities will move residents from independent living to assisted living with nursing care facilities. The fee will depend on how much the entrance fee is. It can increase monthly with a low entrance fee or have consistent monthly fees with a larger entrance fee. However, for many people, this option is too expensive.
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Life Insurance Accelerated Benefits
Lastly, individuals may be able to use life insurance accelerated benefits. Some life insurance policies may have a source of cash in the event that a person needs LTC. However, this is generally a rider where only part of the policy can be used to pay for nursing home costs.
Long-Term Care Insurance and NAIC Model Legislation
Long-Term Care Insurance
LTC policies are not standardized but contain a minimum of the standards that are set out by the NAIC model. Eligibility can be at any age, but typically it is from age 50 to 85. Coverage for LTC policies will include custodial care, intermediate care, skilled nursing home care, home health care, assisted living, adult day care, and hospice. There are two approaches that LTC insurance has.
The defined period approach. This approach covers a defined period following an elimination period of 30,60,90 or 180 days. The maximum benefit period is usually two to five years, but many policies have a feature that can provide benefits for life.
The pool of money concept. In this approach, the individual is entitled to coverage equal to a specific amount of money. The payments will last as long as there is still money in the policy, regardless of the period.
Generally, policies have two criteria to determine eligibility. The insured has to meet either of the following:
The insured is chronically ill. Chronically ill is defined as being unable to perform two of six activities of daily living for at least 90 days. The activities of daily living include eating, bathing, dressing, transferring from bed to chair, using the toilet, and continence.
Substantial assistance is required to protect the individual because of a cognitive impairment.
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National Association of Insurance Commissioners (NAIC) Model Legislation
In the NAIC model legislation, there are certain factors that need to be included in the policy provisions. The words must be defined, and the contract has to be guaranteed renewable or noncancelable. Limitations and exclusions are not permissable except for preexisting conditions, mental and nervous disorders (except Alzheimer’s disease), alcohol and drug addiction, war, a felony, attempted suicide, and aviation.
If the person is non-fare paying, the contract cannot provide skilled nursing care coverage only, or require a prior hospital stay for benefits, and has to be a two-year incontestable clause for misrepresentation.
The NAIC also has marketing requirements that need to be followed. It has to provide applicants with an outline of coverage and shoppers guide. It also has to have a 30-day free look period and policy comparison that is fair and accurate, as well as an expected loss ratio that is at least 60%. The insurer is required to waive the period regarding pre-existing condition if the policy is merely a replacement.
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Federal Income Tax Advantages of Qualified Long-Term Care Insurance
In order for LTC insurance to be eligible for tax advantages, it must meet all the federal standards outlined in the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The contract has to be limited to qualified LTC services only, cannot pay for expenses that are reimbursable under Medicare, and has to be guaranteed to be renewable. It also cannot provide any surrender value or other money to be borrowed, paid, assigned, or pledged. All refunds of premiums or dividends must reduce future premiums or increase future benefits, and the contract has to meet consumer protection provisions.
A qualified long-term care service is one that is prescribed by a licensed health practitioner for a chronically ill person, and is necessary for diagnostic, preventive, therapeutic, caring, treating, and rehabilitative services and maintenance or personal care services. It requires that the coverage is triggered using methods such as being chronically ill or having severe cognitive impairment.
For tax purposes, premiums paid by the individual are deductible as medical expenses for itemized deductions on their taxes, but there is a limit on the basis of the individual's age. Premiums paid by a self-employed individual qualify for a deduction for adjusted gross income (AGI) and is still limited based on age. Payments by the employer for group premiums are tax deductible to the employer and not taxable income for the employee. LTC care benefits cannot be included in a cafeteria plan or flexible spending account for a tax-advantaged basis. Benefits that are paid from the plan are typically excluded from gross income up to a maximum of $370 per day for 2019.
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Group Long-Term Care Insurance
Group LTC insurance can be comparable to high-end individual policies. The eligibility requires the insured to be full-time and active at work. The cost of group coverage can be slightly lower than individual coverage. However, there may be a restricted benefits level and duration. Typically, group coverage can be continued even if the employee is terminated on a direct-pay basis. The coverage is usually also offered to extended family members.
Partnership Long-Term Care Insurance
Partnership long-term care is a program that brings state government and private insurance companies together to sell long-term care insurance. The goal of the program is to help citizens purchase a less lengthy and more complete LTC insurance option. The partnership aligns the unique policies of long-term care with Medicaid. Eligibility for these policies depends upon special requirements that may vary from state to state.
Basic provisions that these policies need to include are:
Comprehensive LTC benefits at the client’s home or facility
A normal consumer protection that clients would receive purchasing a regular LTC policy
This type of long-term care insurance is typically used because it provides a specific dollar amount of assets that are protected if the client uses up all of the long-term care benefit and has to apply for Medicaid. In Medicaid, clients are only allowed to have $2,000 in countable assets to qualify for it, and in most cases they would have to spend down their assets before qualifying. The partnership long-term care program gives the client a credit for the amount of money provided in their insurance policy.
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Plan Out Your Long-Term Care Solutions
There are many ways that you can satisfy your long-term care needs - from family member assistance, Medicare and Medicaid, life insurance, and more. However, you’ll need to determine which options you are eligible for depending on your unique situation. Planning ahead is a great first step. You can reach out to your financial planner for assistance with making sure that you are taken care of when the time comes.