Long Term Care Insurance Is A Financial Planning Tool
In addition to the obvious, long term care insurance is used by many Americans to accomplish specific financial planning goals - preserving their assets (usually their homes), while immediately qualifying for Medicaid when the need arises. It is used to help cover expenses for a five year period to avoid Medicaid's 'look-back' period for estate recovery.
Not surprisingly, according to US Government statistics on sales of these policies in 2007, the average long term care policy covered an "average of 4.8 years worth of benefits."
SAVING THE FAMILY HOME
We have a confusing, makeshift system of private insurance, out-of-pocket payments, Medicare, family and Medicaid, now recognized as the long-term care insurance of the middle class. This is an expensive program, and to try and achieve some type of balance, when a Medicaid recipient dies, the state attempts to recoup from his or her estate whatever benefits it paid for the recipient's care. This is called "estate recovery."
Many people view this differently - they see it as their life's savings going "to the nursing home", and consider it unfair. They seek to pass an inheritance along and increasingly use long term care insurance to do this.
Consider, for example, someone who is healthy and wishes to transfer their home now, but doesn't have enough funds to pay for five years of care if they had a stroke or other serious medical problem soon after the transfer. They could purchase long-term care insurance to cover the five-year period after the transfer, until the Medicaid "look back" period expires.
Take the following example: Mrs. Jones owns a home she wants to pass to her daughter, but has little else. She could transfer it to her directly, or into a trust, causing her to be ineligible for Medicaid for five years. She would purchase long-term care insurance and hold the policy for five years.
For the example, let's suppose the premium on the policy is $5,000 a year and the house worth $500,000. Mrs. Jones (or her daughter, for that matter) pays $25,000 ($5,000 per year for five years) to keep a $500,000 home - not a bad deal.
IS THIS ETHICAL?
Medicaid is the long-term care insurance of the middle class. Congress accepts and facilitates this through rules that protect spouses of nursing home residents and permit others to qualify after spending down and transferring some of their savings. To plan ahead and accelerate qualification for Medicaid is no more unethical than planning to avoid taxes.
LOOKING TOWARD THE FUTURE
Keep in mind that 'Obamacare' includes a little known, little understood program called the "Community Living Assistance Services and Supports", or "CLASS", Act, which establishes a government run long term care insurance program. Depending on how the rules are written for this program, it could disrupt or eliminate private insurance markets.
Private analysts predict the program will attract only the neediest, but cannot succeed unless it gains widespread acceptance - is this is starting to sound familiar? Advocates claim that it moves long term care insurance from an entitlement to an insurance product - very similar arguments could have been used for Social Security in the 1930's. Somehow things didn't turn out that way.
Obviously every individual situation is different, and strategies like this should be pursued with the advice and guidance of professionals - estate planners, elder law attorneys or tax attorneys.
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