In the year 2000 there were approximately over 100 insurance carriers who offered long term care policies. That number has dwindled down to about 15 carriers today. This dramatic reduction in carriers has meant a corresponding large rise in premiums for such polices. The early insurance carriers dramatically underestimated costs and miscalculated time frames for long term care policy holders. Many carriers took losses even after raising premiums so dozens and dozens of carriers left the long term care insurance marketplace.
The largest provider of long term care insurance by default is Medicaid. Medicaid was originally designed to provide financial and other assistance to the poorest Americans. It really was never designed to provide long term care to a great number of people and for extended periods of time. However, that is what is taking place putting an incredible strain on the system.
Medicaid was designed for poor people so if the program is going to provide long term care it requires that people using benefits have little to no assets. If you are an average middle American family with $100,000 saved up for retirement you will be asked to "spend down" that $100,000 (or whatever the value of your assets are at the time) first for your long term care before Medicaid starts to pay out benefits on your behalf. In other words you must become a pauper before benefits from Medicaid will kick in for your care.
If you're married your spouse will be allowed to maintain some of your joint assets but the amount is very limited and if they need long term care as well that remaining amount must be spent first before they can be on benefit.
How many people work and save their entire lives just to see it all go to long term care costs in their later years? Millions have that fate befall them and for many it is because lack of an actual plan to deal with LTC costs. Americans who think they are leaving behind a nest egg for education of grand kids and other worthy causes are distraught when they realize that won't be happening due to LTC expenses.
When you go on Medicaid for LTC you are also at the mercy of the government for the kind and location of your care. There is an old saying that says "beggars can't be choosers" and that is certainly true of long term care. Medicaid will determine where and you live and what kind of care you receive. Based on their care of Veterans through the VA I am not hopeful that care will be outstanding or even average.
So what about taking everything out of my name and being a pauper on paper but keep my assets? Then I could qualify for Medicaid and not be a pauper. Well, above and beyond the moral deficiencies with that plan in which you are abdicating your financial responsibilities to the American tax payer there are legal hurdles as well. There is currently a 5 year look back so anything transferred 5 years prior to you needing care will be considered as still your assets and taken into account when figuring your benefit. There are also filial laws in 30 states currently and surely more to follow.
These laws basically say it is the children's responsibility to take care of their parents and demand that the kids sell off anything given to them by their parents to pay for care. This can be done after the death of the parent. With these kids of laws the kids are on the hook even after the death of the parent. As the costs of LTC continue to increase more states will implement these laws making hiding assets even more difficult.
Most Americans are just hoping they don't have to deal with these expenses and some who have a significant asset base are taking on the risk of self insuring and are willing to spend 7 figures for their care if need be rather than pay premiums on a LTC policy that only protects them for a short amount of time and small amount of money in the first place.
Now enter a new solution called "Asset based long term care" which is revolutionizing how people pay for LTC expenses and how their money is handled if they never need LTC. This is done by using a life insurance policy as the main chasse that also provides long term care payments if they are ever needed. The couple now reallocates existing assets into one of these properly designed structures for LTC. This reallocation of assets can be in the form of a single move of cash or this life policy can be funded over 10 or 20 years depending on the insured's cash flow and asset position.
Here is an example of how it might work with actual numbers. A 61 year old couple reallocates $125,000 out of their brokerage account, CD's, savings account, or many other accounts where they have assets. That $125,000 goes in as single premium into a LTC life insurance policy. To begin with the insured has bought a $250,000 death benefit. Much more importantly however, they have bought $7,200 per month for each husband and wife if they should ever need long term care.
The benefit will be paid up until the $250,000 is spent through. Also, there are programs that allow an insured to invest in an unlimited time frame rider. So for an additional $1,700 per year each insured is now covered for $7,200 per month for as long as either spouse lives. If either spouse lives on LTC benefit for 5, 10, or 15 years the benefit continues to be paid for each spouse.
The other end of the averaging is true as well. If neither spouse uses the LTC benefit and both pass away, their family will receive the $250,000 as a tax free death benefit. With this kind of design someone is getting paid out on this policy. Either the insured in the form of LTC coverage, or their family in the form of death benefit. The insured would also have cash value in the policy (equity) in the policy during their lifetime.
With the explosion of the senior age demographic it is critical that seniors and their families are aware of the options available to them to handle the long term care specter without running the risk of having to sell everything they own to pay for their LTC expenses. Asset based LTC might be a solution to this ever increasing problem.
