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by Noah Klug
The need for long-term care can devastate a person's retirement assets. However, many people focus on building retirement assets without considering the potential need for long-term care insurance (LTCI).
LTCI is designed to provide care over an extended period of time. It is not a replacement for health insurance, which is designed to restore, or at least minimize deterioration of, a patient's health over a relatively short period of time. The benefits provided by LTCI could include medical care, but more typically are provided by people who are not medical professionals. LTCI benefits may include assistance with household chores; providing transportation; shopping; managing finances; helping with bathing, dressing, eating, or using the bathroom; or supervising a person with dementia. They could include care at home or at a facility designed to provide appropriate care.
Many people erroneously believe Medicare will pay for any health needs in retirement, but Medicare is designed to provide rehabilitation from illness and does not cover long-term care. In the absence of LTCI, most people are forced pay for long-term care with Medicaid benefits, through their own funds, or by relying on friends and family members. Medicaid eligibility requires that a person have very limited income and assets, which means Medicaid is often a last resort after private funds have been depleted. A retired couple could conceivably deplete its assets to pay for long-term care of one spouse, leaving few assets available for a healthy spouse. Purchasing LTCI is a viable way to avoid this scenario.
LTCI policies are typically comprehensive, meaning they pay for a broad variety of potential care needs out of a single pool of funds. Most policies are triggered by either (1) the need for substantial supervision due to cognitive impairment (such as Alzheimer's); or (2) certification from a qualified health care professional that the insured requires assistance with certain “activities of daily living” such as bathing, dressing, eating, toileting, transportation, or continence. Once a policy is triggered, a care plan is written by a licensed health care practitioner.
LTCI policies differ greatly in terms of the benefit amount, the benefit period, inflation protection, the period of time a person must use private funds to pay for long-term care before LTCI benefits become available (known as the “elimination period”), and cost. Insurance companies usually offer substantial discounts for people in good health and for approved couples. LTCI policies can be combined with annuities or life insurance if desired to ensure there is a benefit from the policy even if long-term care benefits are never used. Couples can shop for “shared benefits,” which might, for example, provide a total of 10 years' coverage that can be allotted between them as needed. It is advisable to review the available options with an insurance professional experienced with LTCI policies.
Under a 2005 federal law known as “DRA,” a person's benefits under qualifying LTCI policies can be used to offset assets that would otherwise disqualify the person for Medicaid. For example, if the person has $300,000 in assets that would disqualify the person for Medicaid but also has $300,000 in LTCI benefits, the person could still qualify for Medicaid. States known as “DRA Partnership States,” which include Colorado, honor each other's Medicaid qualifications made under DRA if a beneficiary moves. The recent health care reform laws also affect LTCI by providing that insurance companies cannot deny coverage.
The best time to purchase any insurance is before it is needed. Most LTCI policies are purchased by people in their mid-to-late 50s as they contemplate retirement. If a person qualifies for coverage and can afford the premiums, LTCI can be a key part of an overall retirement plan.
Noah Klug is principal of The Klug Law Firm, LLC, a general law practice in Summit County emphasizing real estate, litigation and business law. He may be reached at (970)468-4953 or Noah@TheKlugLawFirm.com.
The need for long-term care can devastate a person's retirement assets. However, many people focus on building retirement assets without considering the potential need for long-term care insurance (LTCI).
LTCI is designed to provide care over an extended period of time. It is not a replacement for health insurance, which is designed to restore, or at least minimize deterioration of, a patient's health over a relatively short period of time. The benefits provided by LTCI could include medical care, but more typically are provided by people who are not medical professionals. LTCI benefits may include assistance with household chores; providing transportation; shopping; managing finances; helping with bathing, dressing, eating, or using the bathroom; or supervising a person with dementia. They could include care at home or at a facility designed to provide appropriate care.
Many people erroneously believe Medicare will pay for any health needs in retirement, but Medicare is designed to provide rehabilitation from illness and does not cover long-term care. In the absence of LTCI, most people are forced pay for long-term care with Medicaid benefits, through their own funds, or by relying on friends and family members. Medicaid eligibility requires that a person have very limited income and assets, which means Medicaid is often a last resort after private funds have been depleted. A retired couple could conceivably deplete its assets to pay for long-term care of one spouse, leaving few assets available for a healthy spouse. Purchasing LTCI is a viable way to avoid this scenario.
LTCI policies are typically comprehensive, meaning they pay for a broad variety of potential care needs out of a single pool of funds. Most policies are triggered by either (1) the need for substantial supervision due to cognitive impairment (such as Alzheimer's); or (2) certification from a qualified health care professional that the insured requires assistance with certain “activities of daily living” such as bathing, dressing, eating, toileting, transportation, or continence. Once a policy is triggered, a care plan is written by a licensed health care practitioner.
LTCI policies differ greatly in terms of the benefit amount, the benefit period, inflation protection, the period of time a person must use private funds to pay for long-term care before LTCI benefits become available (known as the “elimination period”), and cost. Insurance companies usually offer substantial discounts for people in good health and for approved couples. LTCI policies can be combined with annuities or life insurance if desired to ensure there is a benefit from the policy even if long-term care benefits are never used. Couples can shop for “shared benefits,” which might, for example, provide a total of 10 years' coverage that can be allotted between them as needed. It is advisable to review the available options with an insurance professional experienced with LTCI policies.
Under a 2005 federal law known as “DRA,” a person's benefits under qualifying LTCI policies can be used to offset assets that would otherwise disqualify the person for Medicaid. For example, if the person has $300,000 in assets that would disqualify the person for Medicaid but also has $300,000 in LTCI benefits, the person could still qualify for Medicaid. States known as “DRA Partnership States,” which include Colorado, honor each other's Medicaid qualifications made under DRA if a beneficiary moves. The recent health care reform laws also affect LTCI by providing that insurance companies cannot deny coverage.
The best time to purchase any insurance is before it is needed. Most LTCI policies are purchased by people in their mid-to-late 50s as they contemplate retirement. If a person qualifies for coverage and can afford the premiums, LTCI can be a key part of an overall retirement plan.
Noah Klug is principal of The Klug Law Firm, LLC, a general law practice in Summit County emphasizing real estate, litigation and business law. He may be reached at (970)468-4953 or Noah@TheKlugLawFirm.com.
