Long Term Care Planning

LTC FAQ's

Article 1: Understanding Long-Term Care InsuranceIt's a fact: People today are living longer. Although that's good news, the odds of requiring some sort of extended care increase as you get older. And as the costs of home care, nursing homes, and assisted living escalate, you probably wonder how you're ever going to be able to afford long-term care. One solution that is gaining in popularity is long-term care insurance (LTCI).What is long-term care?Most people associate long-term care with the elderly. But it applies to the ongoing care of individuals of all ages who can no longer independently perform the basic activities of daily living (ADLs)--such as bathing, dressing, or eating--due to an illness, injury, or cognitive disorder. This care can be provided in several settings, including private homes, assisted-living facilities, adult day-care centers, hospices, and nursing homes.Why you need long-term care insurance (LTCI)Even though you may never need long-term care, you'll want to be prepared in case you ever do, because long-term care is often very expensive. Although Medicaid does cover some of the costs of long-term care, it has strict financial eligibility requirements--you would have to exhaust a large portion of your life savings to become eligible for it. And since HMOs, Medicare, and Medigap don't pay for most long-term care expenses, you're going to need to find alternative ways to pay for long-term care. One option you have is to purchase an LTCI policy. However, LTCI is not for everyone. Whether or not you should buy it depends on several factors, such as your age and financial circumstances. Consider purchasing an LTCI policy if some or all the following apply:You are between the ages of 40 and 84You have significant assets that you would like to protectYou can afford to pay the premiums now and, in the futureYou are in good health and are insurableWhat's it going to cost?There's no doubt about it: LTCI is often expensive. Still, the cost of LTCI depends on many factors, including the type of policy that you purchase (e.g., size of benefit, length of benefit period, care options, optional riders). Premium cost is also based in large part on your age at the time you purchase the policy. The younger you are when you purchase a policy, the lower your premiums will be.

What determines if you're entitled to benefits?LTCI policies differ on how benefits are triggered, so it's crucial to examine your policy. Here are some typical ways you can become eligible for benefits:You're unable to perform a certain number of activities of daily living (ADLs) without assistance, such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed). Look in your policy to see what ADLs are included, the number you must be unable to perform, and how your policy defines "unable to perform" for each ADL, as criteria can vary from one company to another (e.g., does the definition require someone to physically assist with the activity or simply to supervise the activity?).Your doctor has ordered specific care.Your care is medically necessary.Your mental or cognitive function is impaired.You've had a prior hospitalization of at least three days (this is rare with newer policies).An LTCI policy may contain one or more of these provisions. The more specific the language in the provision, the less room for disagreements about coverage.Who determines if you're entitled to benefits?Just as important as what triggers benefits is the question of who decides if you've triggered them. These gatekeepers are an integral part of any LTCI policy--after all, they're the ones whom insurance companies rely on before paying out claims.The best policies let you qualify for benefits if your own doctor orders specific care, rather than require that you be examined by an insurance company physician. Similarly, it's insurance companies that define performance criteria for ADLs, as well as create and administer tests to see if you satisfy the mental impairment threshold. Make sure you know who the ultimate decision maker is under your policy.When will benefits start?Most LTCI policies have a waiting period, commonly known as an elimination period, before you can start receiving benefits after you're judged medically eligible. Common waiting periods are 20, 30, 60, 90, or 100 days. During any waiting period, you're responsible for paying for your care, whether it's in a nursing home, an assisted-living facility, or in your home.Keep in mind that the calculation of the waiting period can vary from company to company. Some companies may count the days cumulatively (e.g., adding up the total number of days you spend in a nursing home, even with gaps), while others may count the days consecutively (e.g., adding the total number of days you spend in a nursing home without interruption). Also, some companies require only one waiting period for the life of the policy, while others require a waiting period every time you apply for benefits (unless you become eligible for benefits again within a certain period of time, such as six months or a year, in which case only one waiting period will need to be satisfied).The mechanics of filing a claimIdeally, you should know how to file a claim before you actually need benefits--you don't want to lose coverage on a technicality. Typically, filing a claim means submitting a written notice to the insurance company, along with a proof-of-loss form (supplied by the insurance company) and relevant medical records.Most policies require you to give written notice of a claim within a specific time after needing care (e.g., 30 or 60 days). In addition, you may need to verify your condition in writing every 30 to 90 days. The company may also require you to submit to an independent medical evaluation by a physician of its choosing to verify your claim.

Section 1035 exchangeGenerally, withdrawals from a nonqualified deferred annuity are considered to come first from earnings, then from your investment in the contract. The earnings portion of the withdrawal is treated as income to the annuity owner, subject to ordinary income taxes. IRC Section 1035 allows you to exchange one annuity for another without any immediate tax consequences. However, prior to 2010, an annuity couldn't be exchanged for a long-term care insurance policy on a tax-free basis. But the Pension Protection Act changed that and, as of January 1, 2010, both life insurance and annuities may be exchanged, tax free, for qualified long-term care insurance.Conditions for tax-free exchangeIn order for the transfer of the annuity to the long-term care insurance policy to be treated as a tax-free exchange, certain conditions must be met:The annuity must be nonqualified, meaning it cannot be part of an employer-sponsored retirement plan. The long-term care insurance policy must meet the requirements of the Health Insurance Portability and Accountability Act (HIPAA) and IRS criteria.The exchange must be made directly from the annuity issuer to the long-term care insurance company. You will not receive tax-free treatment if you withdraw funds from the annuity directly, then use them to pay the long-term care insurance premium.Potential tax advantagesExchanging your nonqualified deferred annuity for a long-term care insurance policy may have several tax-related advantages. You can use annuity earnings to pay for long-term care insurance without paying income tax on those earnings. This allows you to use otherwise taxable annuity earnings in a more tax-efficient manner.Another advantage relates to the long-term care insurance policy. Generally, a qualified long-term care insurance policy is treated as an accident and health insurance contract, and the benefits are typically treated as tax free, subject to certain limits. In this way, you may be able to use tax-free annuity earnings to pay for tax-free long-term care benefits.Other possible benefitsAside from the favorable tax treatment, there may be other benefits as well.Using an annuity to pay for long-term care insurance may lessen the need to tap other savings or income to pay for premiums.You may still use any remaining cash surrender value of the annuity for other income needs or expenses.Some potential disadvantagesThere are also some potential disadvantages to exchanging an annuity for long-term care insurance.Reducing the annuity's value to pay for long-term care insurance premiums may reduce your ability to use the annuity to provide income needed in the future.If you exchange the annuity for a long-term care insurance policy, your survivors won't have the annuity's cash value for income or savings that otherwise would have been available at your death.

Types of long-term careBecause some LTCI policies subsidize only certain forms of care, it's important to understand the terms. Long-term care may be divided into three levels:Skilled care may be continuous round-the-clock care designed to treat a medical condition; it's ordered by a doctor and administered by skilled medical workers, such as registered nurses or professional therapists, as part of an established treatment planIntermediate care is intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse's aides under a doctor's supervisionCustodial care helps the patient perform daily living activities (e.g., bathing, eating, and dressing); it can be provided by someone without professional medical skills, but it's supervised by a doctorGenerally, LTCI policies will, for a specified period of time (called the benefit period), pay a selected dollar amount per day toward skilled, intermediate, or custodial care in nursing homes, assisted-living facilities, or the insured's home. Typical benefit periods run from two to five years, and most policies pay $40 to $150 per day or more in daily benefits.Where it's happeningLTCI policies sometimes limit the facilities where you can choose to receive such care. Generally, though, LTCI will pay for care in nursing homes, assisted-living facilities, and at home.Many nursing homes provide all three levels of long-term care. When a patient no longer needs skilled care, he or she can be transferred to an intermediate or custodial care section within the same facility, or perhaps released to an assisted-living facility or to home care. Assisted-living facilities generally provide rental rooms or apartments, housekeeping services, meals, social activities, and transportation; some, most notably continuing care retirement communities, also provide long-term nursing care and guaranteed lifetime services.Home health care makes sense when you're recovering from an injury or an illness and don't need 24-hour care. If you have a medical condition that requires nursing care, daily monitoring, or therapy, you can hire a nurse or an aide to help you. You may also need custodial care and perhaps household help with cleaning, laundry, or shopping. In some instances, you might live with a relative who works and cannot care for you all day. Home health care might then be coupled with adult day care in centers that provide social interaction, therapeutic activities, preventive health services, and nutritious meals.What long-term care insurance policies don't coverTo know what a particular LTCI policy covers, be sure to check the details of the policy.Do you have any medical conditions from which you experienced symptoms, or for which you sought medical advice or treatment, within one to five years before applying for LTCI? If so, check what the policy covers. Some ignore pre-existing conditions, while others refuse to pay for treatments related to them--it might all depend on how long ago the condition first appeared. Many companies impose a waiting period (up to six months) before coverage for pre-existing conditions goes into effect. In all cases, you should disclose your true medical history to the insurance company on your application. If you do not disclose a pre-existing condition and the company discovers this later on, it may not pay for treatment related to that condition or may even cancel your policy.Check to see what, if anything, isn't covered. Alzheimer's disease, senility, and Parkinson's disease are common reasons for needing long-term care; make sure your policy doesn't exclude paying for care associated with these conditions. Also, most policies won't pay benefits for a person with an alcohol or drug addiction, an injury caused by an act of war, or injuries that were self-inflicted or the result of an attempted suicide.

Who needs it?As we age, the odds increase that we'll need some form of long-term care at some point during our lives. And with life expectancies increasing at a steady rate, the likelihood of needing long-term care can be expected to grow in the years to come.But won't the government look out for me?Medicare pays nothing for nursing home care unless you've first been in the hospital for 3 consecutive days. After that, it will pay only if you enter a certified nursing home within 30 days of your discharge from the hospital. For the first 20 days, Medicare pays 100 percent of your nursing home care costs. After that, you'll pay $204.00 in 2024 per day for your care through day 100, and Medicare will pick up the balance. Beyond day 100 in a nursing home, you're on your own--Medicare doesn't pay anything.If you're at home, Medicare provides minimal short-term coverage for intermediate care, but only if you're confined to your home and the treatments are ordered by a doctor. Medicare provides nothing for custodial care, such as help with feeding, bathing, or preparing meals. Medicaid covers long-term nursing home costs (including both intermediate and custodial care costs) but only for individuals who have low income and few assets (eligibility guidelines vary from state to state). You will have to use up most of your savings before you qualify for Medicaid, and aside from a small personal needs allowance, you will have to use all of your retirement income, including Social Security and pension payments, to pay for your care before Medicaid pays anything. And once you qualify for Medicaid, you'll have little or no choice regarding where you receive care. Only facilities with Medicaid-approved beds can accept you, and your chances of staying in your own home are slimmer, because currently most states' Medicaid programs only cover limited home health care services.Looking out for yourselfIf you want to retain your independence, protect your assets, and maintain your standard of living while at the same time guaranteeing your access to a range of long-term care options, you may want to purchase LTCI. This insurance might be right for you if you meet the following criteria:You're between the ages of 40 and 84You have significant assets that you would want to preserve as an inheritance for others or gift to charityYou have an income from employment or investments in addition to Social SecurityYou can afford LTCI premiums (now and in the future) without changing your lifestyleOnce you purchase a LTCI policy, your premiums can go up over time, but the rates can only rise for an entire class of policyholders in your state (i.e., all policyholders who bought a particular policy series, or who were within certain age groups when they bought the policy). Any increase must be justified and approved by your state's insurance division.Several factors affect the cost of your long-term care policy. The most significant factors are your age, your health, the amount of benefit, and the benefit period. The younger and healthier you are when you buy LTCI, the less your premium rate will be each year. The greater your daily benefit (choices typically range from $50 to $350) and the longer the benefit period (generally 1 to 6 years, with some policies offering a lifetime benefit), the greater the premium.