Is planning for Long Term Care something that you have been putting off? Maybe never crossed your mind? Take a few minutes to look at "Long Term Care Planning 101" and learn about the three and only three ways to pay for care.
2. Introduction
The reality is, there are consequences to living a long life.
Your family’s financial, emotional and physical well-being
will be severely altered should you become frail and need
care. Nothing will pay for the plan of care other than your
retirement portfolio or savings, which were never allocated
to do so. Being proactive, no matter your financial situation,
is key to minimizing any collateral damage that would occur
by not having a plan.
3. The Facts
• If you are 65 or older, you have a 70% chance of requiring some type
of long term care.
• The 55-65 population accounts for the fastest growing segment of
newly diagnosed Alzheimer’s patients in the U.S.
• The average cost of home health care in Ohio is $20/hour. An
assisted living facility, on average, costs $45,000 per year and a
private room in a nursing home currently averages $79,000 per year
in Ohio. Nationally, costs range from a high of $232,000 in Alaska to
$56,000 in Louisiana.
• Longevity has been increasing - this means we are living longer
(and has nothing to do with our quality of life!)
4. The Financial Cost of Care
•
In 2012, the average cost of care in a Nursing Home was $79,000 (for those
that received care in their homes, around the clock care averaged
$12,000/month). Using a 3.5% medical inflation rate, in 10 years, the cost of
care will have grown to $111,000/year and in 20 years it will have grown to
$157,000/year.
Men
Avg. Length of
Care=2.2 years
Women
Avg. Length of
Care=3.7 years
Alzheimer’s
Disease
Cost in 10
years
Cost in 20
years
$245,000
$345,000
Cost in 10
years
Cost in 20
years
$410,000
$580,000
• Average length of care: 8 years
• In 20 years, the total cost will be $1.25 million.
• Alzheimer’s Disease does not discriminate
• between the sexes!
5. TWO SIMPLE QUESTIONS YOU NEED TO ASK YOURSELF…
First, “You may never need care, but, what if you did? How would that
affect your family?”
Spouses – Many times caring for the chronically ill loved one can make the caregiver
chronically ill as well.
Children – When a spouse isn’t involved, other loved ones carry the burden. Often,
the eldest daughter quits her job, moves in with her parents (or moves her parents to
her home) and gives up her career – as any child would probably feel obligated to do.
Family dynamics – When informal care is needed, it may not be shared equally
amongst the adult children. Often one sibling bears the burden and it can affect the
relationship with the others.
Unnecessary losses – You can never avoid all losses; however, the unnecessary
spiritual, emotional, financial and familial losses could be mitigated when you are
prepared.
Second, “And if you do need care, how will you pay for it?”
6. YOU HAVE ONLY THREE CHOICES WHEN IT COMES
TO PAYING FOR CARE:
Government
(Medicaid)
Your Pockets
(Your Assets)
Long Term Care
Insurance
Traditional
Asset Based
7. Option #1:
Government (Medicaid)
Eligibility restrictions:
•
•
•
•
Spend Down Rules ($1,500)
Look Back Period (60 Months)
Period of Restricted Coverage
Limited Home Health Care Benefits (PASSPORT Program)
You MUST plan ahead in order to qualify for Medicaid!
8. What is Medicaid and What Does it Cover
•
Medicaid is a federal, state and locally funded program and varies from
state to state. Medicaid provides benefits for those needing long-term
custodial care, who are permanently ill, injured or disabled, and financially
eligible.
•
Medicaid will assist people with nursing home care (including custodial
care) that are having difficulties with the "activities of daily living," such as
bathing, dressing, feeding and going to the bathroom, as well as those who
need skilled nursing care. There is no maximum limit on the period of time
that care can be provided. Once qualified, the cost of a Medicaid-approved
nursing facility would be covered. However, whatever income one receives
would automatically go first to cover the cost of the nursing home.
9. Option #2:
Self-Funding for Long-Term Care
(Paying dollar for dollar for care!)
•
•
•
•
Home/Real Estate/Property - Who knows what the value will be when you need
it. Will you have to sell and settle?
Retirement Assets - Already allocated for retirement income?
Investment Assets - Are they guaranteed to continue to grow and outpace
inflation? Taxation issues?
Income - Already allocated for daily living expenses?
Long-term care can not only threaten your assets but also your income!
10. Option #3:
Traditional Long Term Care Insurance “A Use It Or Lose It Proposition”
Long Term Care Insurance seems to be a logical solution, yet only 5-6% of
adults have coverage. Why so few?
1.
Traditional Long Term Care Insurance is expensive. A couple, both 60, could
spend $6,000 a year in premium for a 5 year, $5,000 a month LTC benefit with a
90 day waiting period. Add on a 5% inflation rider and the premium is over
$10,000!
2.
Existing LTC plans have recently experienced significant rate increases as these
premiums are not guaranteed. John Hancock recently raised their premiums in
some states as high as 90%!
3.
Between 2004 and 2009, new LTC insurance policy sales have declined by 51%.
11. The New Asset Based Care Solutions
In the late 1980’s, a few top rated insurance companies created financial vehicles now
known as Asset Based Care (ABC) Plans. ABC Plans are the perfect mix of self funding and
LTC coverage. In short, they guarantee that an expanded pool of money, significantly
greater than your deposit, will be available to pay your long term medical expenses should
the need arise, thus preserving your family’s inheritance. Should you dodge the “LTC
Bullet,” a “death benefit” is passed down to your beneficiaries.
These plans can be funded with: Cash, CDs, Life Insurance, Annuities, Stocks and Mutual
Funds as well as IRAs and other Qualified assets (401k, 403b and Deferred Compensation
Plans).
Single premiums as well as GUARANTEED annual premiums are available.
Joint Contracts - Another HUGE benefit of these policies, is that two people (including
same sex couples or a parent and child) can be covered by one plan. The benefits include:
Sharing the underwriting risk and having access to the same pool of money for care. This
can be very attractive when one spouse may not have the strongest health history.
Best of all, If you decide the policy no longer meets your needs, your premium will be
refunded to you. You can’t lose!
12. The Life /LTC Strategy in a Nutshell
(available for those between the ages of 40 and 80)
LIVE
LTC benefit:
$5,000 for 50 months
QUIT
Cash surrender value:
Decide to quit or surrender the
policy
End of year 10: $56,814
End of year 20: $127,330
DIE
Death benefit:
At death
Bill and Hillary
Live a long life and need longterm care
$250,000
(both 60 years old)
Funding the
policy with a
guaranteed
annual
premium of:
$7,255*
*Based upon joint male and female, both age 60 preferred underwriting class,
minimum 4% cash value accumulation, minus cost of insurance.
Numeric examples are hypothetical and were used for educational purposes only.
Optional pool of lifetime
LTC benefits - $1,894
guaranteed annual
premium (includes 5%
compound inflation
protection)
13. The Life /LTC Strategy in a Nutshell
(available for those between the ages of 40 and 80)
LIVE
LTC benefit:
$5,000 for 50 months
QUIT
Cash surrender value:
Decide to quit or surrender
the policy
End of year 10: $123,701
DIE
Death benefit:
At death
Bill and Hillary
Live a long life and need
long-term care
$250,000
(both 60 years old)
Funding the
policy with a
single premium
of:
End of year 20: $170,328
$108,110*
*Based upon joint male and female, both age 60 preferred underwriting class,
minimum 4% cash value accumulation, minus cost of insurance.
Numeric examples are hypothetical and were used for educational purposes only.
Optional pool of
lifetime LTC benefits $44,609 single
premium (includes 5%
compound inflation
protection)
14. When are LTC benefits paid and where can the care be received?
Long Term Care insurance policies have benefit “triggers” that
need to be satisfied before benefits are paid for care. These
triggers are:
The inability to perform 2 of 6 ADLs (Activities of Daily Living):
Bathing, Continence, Dressing, Feeding, Toileting and Transferring
OR
The diagnosis of a Cognitive Impairment, such as:
Alzheimer's, Dementia or Parkinson's
Care can be received in a Nursing Home, Assisted Living Facility,
Adult Day Care, Hospice or at Home (Home Health Care).
15. The Deficit Reduction Act and The Pension Protection Act:
Recent Legislation impacting Long Term Care
1. Encourages preparation for personal needs
2. Reduces reliance on government programs
3. Provides tax advantages to those that prepare
16. The Deficit Reduction Act
•
Signed into law February 8th, 2006
Three major sets of provisions related to Long-Term Care (LTC):
• Changed Medicaid eligibility for LTC
(From 3 years to 5 years)
• Home equity exemption
(Limit of $536,000 of home equity)
• Annuity treatment
(The state must be listed as the beneficiary of the annuity)
17. The Pension Protection Act
•
Signed into law August 17th, 2006
Section 844 of the act allows for certain annuities to be treated as tax-qualified LongTerm Care insurance:
• Annuities must only be funded with after-tax premium sources
• Must meet the guidelines set forth in the Health Insurance Portability and
Accountability Act of 1996 (HIPAA)
(HIPAA is the law that set standards for long-term care insurance benefits to be
considered income tax-free)
18. Existing Non-Qualified Annuity
(funded with after-tax dollars)
$50,000 basis
+
$250,000 gain
=
$300,000 cash value
1035 Exchange
$300,000
HIPAA qualified PPA
eligible annuity
Do you currently own an
Annuity? Call your insurance
company and ask if you will
receive a 1099-R or 1099-LTC
when you start drawing down
your annuity for LTC expenses.
Long-term care
benefits received
TAX-FREE
19. The Annuity/LTC Strategy in a Nutshell
(available for those between the age of 40 and 85)
LIVE
LTC benefit:
Funding the
policy with an
existing
annuity valued
at:
$300,000
Live a long life and need
long-term care
$8,697 for 36 months
QUIT
Cash surrender value:
Decide to quit or
surrender the policy
End of year 5: $298,146
End of year 10: $333,355
DIE
Death benefit:
At death
George and
Barbara (both
84 years old)
$300,000
Numeric examples are hypothetical and were used for educational purposes only.
Optional 36 month
pool of LTC benefits $15,809 guaranteed
annual premium
20. How will you protect your assets from a Long Term Care
disability?
•Cash
• Brokerage Accounts
• Retirement Assets
• Home Equity
• Investment Property
• Insurance
21. Since 1996, Eisenberg Insurance has been customizing
forward thinking solutions for wealth transfer planning and
asset protection.
Adam Eisenberg, CLTC (Certified in Long-Term Care)
adam@eisenberginsurance.com
2699 East Main Street
Bexley, OH 43209
614-528-0011
888-739-4281 Toll-Free
abltc.eisenberginsurance.com
Licensed Nationwide