70% of people currently over age 65 will require some long term care
someday. That is the estimate of the U.S. Administration on Aging, a
division of the U.S. Department of Health & Human Services.1 Will Medicare or
private health insurance pay for it? The short answer is “no”.
In the decades ahead, baby boomers will reach their seventies, eighties and
nineties. With aging parents of their own, some are learning how much long term
care really costs. Some are still unaware.
How many of us are financially prepared for the possibility? Here are a
couple of “averages” to consider from MetLife’s 2009 survey of LTC costs. The
average annual cost of nursing home care is now $79,935 or $219 per day. That’s
up 3.3% from 2008. The average nursing home stay is about 2.5 years, which means
you would need roughly $200,000 to pay those bills.2
Can you imagine paying it out of pocket? Taking out a reverse mortgage to do it?
Using Medicaid because you have nothing left? No one wants these financial
circumstances. The clear answer is long term care insurance coverage.
How expensive is LTC coverage? Annually, it typically costs about as much
as a cheap used car. MarketWatch cited an example from the MetLife survey: in
2009, a 52-year-old federal employee could pay $1,524 annually for an LTC policy
with a $200-per-day benefit for three years and a maximum lifetime benefit of
Does $1,500 or $1,800 or $2,100 annually (just to throw out a few numbers) sound
expensive? These premiums are certainly inexpensive compared to the staggering
bills you may face if the need for LTC enters your life. Yes, there is a chance
that you may never need LTC coverage. However, with advances in medicine and
healthcare, we may live much longer than we anticipate before we leave this
world. Factor in diseases such as Alzheimer’s and Parkinson’s and other
gradually disabling disorders, consider the population wave of baby boomers
maturing, and you see why this coverage makes so much sense for so many.
Partnerships to make paying for it easier. Many states have created
partnership programs to encourage people to buy LTC coverage. Essentially, these
plans provide dollar-for-dollar asset protection when you buy an LTC policy. So
for every dollar the policy pays out in benefits, you get an equal dollar amount
in asset protection under a state’s Medicaid spend-down regulations.
For example, let’s look at Ohio. Let’s presume a couple have a $100,000 LTC
policy. If they use up the whole $100,000 to pay for LTC, they would have to
spend down their assets to $2,250 to qualify for state Medicaid benefits. But …
if they exhaust a $100,000 partnership policy, they can potentially qualify for
Medicaid coverage and still retain $101,500 of their assets.3 State governments
are increasingly offering to partner with LTC policyholders with
A new option (and a nice tax break). There are now whole life insurance
policies and annuities structured to provide either a long-term care benefit or
a death benefit – and thanks to the Pension Protection Act, starting on 1/1/10
the interest deducted to pay premiums and benefits from tax-qualified LTC
coverage will no longer be taxed. (This applies to combination whole life/LTC
policy plans and combination annuity/LTC policy plans; premiums for traditional
LTC insurance policies will still be paid with after-tax dollars. So with these
new combination whole life/LTC and annuity/LTC policies, you will now have
tax-free premiums and tax-free
59% of Americans are wrong when it comes to long term care. AARP
conducted a survey in 2006 and found that 59% of respondents believed Medicare
would pay for extended nursing home care. Another 52% incorrectly thought that
Medicare would cover assisted living costs. In 2009, AARP found that 44% of
Americans were “not very prepared” or “not at all prepared” to bear sudden long
term care expenses.
I urge you to join the ranks of the prepared. November is Long Term Care
Awareness Month – a good time to look at ways to plan for long term care needs.
Now is the time to confer with an insurance advisor or financial advisor to
learn more about your options..
These are the views of Peter Montoya Inc., not the named
Representative nor Broker/Dealer, and should not be construed as investment
advice. Neither the named Representative nor Broker/Dealer gives tax or legal
advice. All information is believed to be from reliable sources; however, we
make no representation as to its completeness or accuracy. The publisher is not
engaged in rendering legal, accounting or other professional services. If other
expert assistance is needed, the reader is advised to engage the services of a
competent professional. Please consult your Financial Advisor for further
3 ltc4me.ohio.gov/faq.aspx [8/08]
6 assets.aarp.org/rgcenter/il/bulletin_ltc_09.pdf [4/09]