Planning for Long-Term Care (Part 3)

In Part 1 of this series I outlined the necessity to create a good Long Term Care Plan and in Part 2 I discussed the three most essential documents found in that plan.

The first essential document is a General Power of Attorney (POA) containing Asset Protection Powers. This document authorizes your “Agent” to act on your behalf and to sign your name to legal and financial documents. The Asset Protection powers contained therein enable your agent to do Medicaid Asset Protection if you have not already begun this process. The second essential document is an Advance Medical Directive (AMD) containing a Long-Term Care Directive. This document authorizes your “Medical Agent” to make decisions with respect to your medical care. Both the POA and AMD authorize your agents to intervene in the event that you are physically or mentally unable to do so. The third essential document is an Advance Care Plan that identifies and details your specific needs, desires and habits for your future caregiver so that you will receive long-term care uniquely tailored to you.

As explained in Part 2, a good Long-Term Care Plan will also typically a Living Trust – either a Revocable Living Trust (RLT) or an Irrevocable Income-Only Trust (IOT). If you become incapacitated, an RLT can provide management of your assets by your trustee similar to a POA. However, as was noted, an RLT does not protect your assets from the expenses of long-term care. An IOT, which will be discussed in detail in Part 4, is a tool that protects you not only from probate, as an RLT does, but also from the expenses of long-term care.

Part 3 will now discuss using long-term care insurance as part of a Long-Term Care Plan.

Virginia’s Qualified State Long-Term Care Insurance Partnership
Virginia’s Long-Term Care Insurance Partnership Program, which became effective on September 1, 2007, allows consumers to obtain Long-Term Care Insurance as part of a Long-Term Care Plan andas part of a Medicaid Asset Protection Plan. This program allows individuals obtaining Partnership-qualified policies to protect assets that otherwise might have to be paid to a nursing home prior to obtaining eligibility for Medicaid benefits. A Partnership-qualified policy enables policyholders to protect one dollar of personal assets for every dollar the policy pays out in benefits.

One of the main purposes of this Long-Term Care Insurance Partnership Program is to offer government-endorsed “Medicaid Asset Protection” to consumers who buy long-term care insurance, enabling these consumers to protect an additional dollar amount of personal assets while still remaining eligible to apply for Medicaid coverage of long-term care. The amount protected with a Partnership-qualified policy will be equal to the sum of all benefits paid under the Partnership-qualified policy when the applicant seeks to qualify for Medicaid. The total amount of assets that a policyholder may protect as a result of a Partnership-qualified policy is above and beyond the basic allowances that a client and a client’s spouse may keep under the basic rules of the Medicaid program.

Benefits of Partnership LTC Insurance
Long-term care insurance was, and is (especially in light of Virginia’s Long-Term Care Insurance Partnership Program), one of the best ways to provide for you future long-term care needs. With the baby boomers facing projected federal deficits, reductions in Medicaid spending, as well as rapidly rising health care costs, it is clear that alternative methods of financing long-term care support are critical. Long-term care insurance is preferred not just by consumers, but by the Commonwealth of Virginia and by the Federal Government because it is often the only option that can help keep clients out of the nursing home — by paying for home care. We’ve had many clients over the years who were forced to spend their final days in a facility simply because they ran out of money to pay for home health aides.

Elder Law Considerations
When shopping for a long-term care insurance policy, it is crucial to consider carefully the entire financial situation of both spouses and to consider the possible alternative of not purchasing long-term care insurance. Failure to consider these issues can result in purchasing too little coverage, which can actually be worse than purchasing no coverage at all.

For example, consider Joe and Linda, a married couple, facing Joe’s nursing home costs of $7,500 per month (a few hundred dollars lower than the average cost in Northern Virginia). Joe has $2,000 in monthly retirement income, as well as a long-term care insurance policy with a monthly benefit of $6,000 (based on a daily benefit of $200). Linda’s only income is Social Security of $700 per month. At first glance, the couple seems better off with the long-term care policy; they have an extra $6,000 per month, without which they could not afford the nursing home. They can pay for Joe’s nursing home and have an extra $500 per month to put towards Linda’s monthly expenses. Unfortunately, Linda’s regular expenses are approximately $2,400 per month, so with only $1,200 per month of income she is unable to make ends meet. Joe is not eligible for Medicaid assistance because his income (including the long-term care insurance benefit) is greater than the nursing home bill. In this example, Joe’s long-term care insurance policy does not provide enough of a benefit to allow Linda to have sufficient income to meet her needs. If Joe’s long-term care insurance policy provided a $7,500 monthly benefit ($250 per day instead of $150), all of Joe’s retirement income would be available for Linda’s monthly expenses, so Linda would still have enough income to live on.

If Joe and Linda had recognized this shortfall and decided to not purchase the long-term care insurance, or if they could not afford the increased premiums for the increased monthly benefit, they could instead use Medicaid assistance to help pay for Joe’s nursing home costs. Most of Joe’s $2,000 per month of income would normally be required to pay the nursing home expenses; Linda would keep her $700 per month. However, because Linda’s income is so low, the Medicaid rules would allow Linda to receive part of Joe’s income to help her with her monthly living expenses. Linda could receive a monthly maintenance needs allowance of up to $2,610, (including her income) which includes allowances for housing and utilities. Therefore, in this case, Joe and Linda would have the nursing home costs paid, and Linda would have $2,610 monthly for her support – more than enough for her regular needs.

The bottom line? Be sure to buy enough coverage, and be sure to buy it for the right spouse. It doesn’t make sense to pay insurance premiums and then be bankrupted by nursing home fees anyway because of insufficient coverage. As with other medical expenses, the inflation rate in nursing home fees is currently quite high. In 10 years, the cost of the nursing homes, at the current rate of inflation, will be about twice what it is today.

How Much Coverage Do You Need?
On average, someone age 65 today will need long-term care services for three years. Women need care for longer (on average 3.7 years) than do men (on average 2.2 years). Although twenty percent of today’s 65-year-olds will need care for more than five years, I don’t recommend anyone purchasing more than five years of long-term care insurance, because after moving to a nursing home, your family can commence the process of Medicaid Asset Protection so long as you have a good Long-Term Care Plan in place.

Purchasing Long-Term Care Insurance
Lifecare Financial Services, LLC is a Virginia insurance brokerage co-owned by Evan Farr and specializing in Medicaid-Friendly Long-Term Care Insurance (i.e., Partnership Qualified) and Medicaid-Friendly Annuities. Lifecare Financial is dedicated to assisting and supporting not just consumers, but also Elder Law and Trust & Estate attorneys with clients in Virginia who face the challenges of assisting their clients as they plan for long-term care.

Lifecare Financial offers a unique value proposition to referring attorneys and other professionals because it only works with the top financially rated companies for long-term care insurance and annuities. Referring professionals can be confident in knowing that the insurance products recommended by Lifecare Financial have been thoroughly vetted for financial strength, stability, and measurable experience in their relevant product line. For further information about Lifecare Financial, call 703-691-1888.

How Do I Know The LTC Insurance Company Won’t Go Bankrupt?
You don’t, and that’s why it’s important to deal only with top-rated companies. For your protection, it is the policy of Lifecare Financial Services, LLC to work only with insurance companies that have a Comdex Rating (a rating that combines the ratings from all of the top rating agencies) of at least 95%.

A good Long-Term Care Plan may or may not include long-term care insurance. As you make your decision, it is prudent to seek the advice of a Certified Elder Law Attorney. The Farr Law Firm can help guide you through the considerations of whether or not long-term care insurance makes sense for your Long-Term Care Plan.

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.