Private Pay

You can decide to not insure against the risk of long-term care, and choose to pay out of your own pocket. Some people think they have enough in the bank to take care of any future needs. But before you decide on this strategy, it is important to consider the cost of care in the area in which you live (or the area in which you plan to retire). The average cost of care in the United States is $52,195 per year (for a semi-private room), $23,400 per year (for a Home Health Aide). (Mature Market Institute, “MetLife Market Survey on Nursing Home and Home Care Costs,” 2002) Limited care at home following a disability costs $36,000 or more annually. (American Council of Life Insurers March 2, 2001 news release referencing “Can Aging Baby Boomers Avoid the Nursing Home?” and “Who Will Pay for the Baby Boomers’ Long-Term Care Needs?”) In some regions, it can cost twice as much. But it’s not how much it costs today that is the problem. The scary part is what will the cost be ten or twenty years from now? The cost of care is rising 5% - 7% per year, so in 12 – 14 years, the cost will double. Do you really want to leave a legacy to your care provider rather than to your family or favorite charity?

Another consideration is that if you choose to pay privately for care, you will probably be subsidizing the cost of those who did not have a chance to plan ahead, or those who chose not to be proactive. Let me explain. In order for nursing homes to stay in business, they have to price their services to cover their overhead costs. When someone receives assistance from Medicaid, the amount of reimbursement received from the State is less than what the nursing home actually spends on the resident’s care. Depending on what state you live in, the nursing home may be losing $13 - $15 per day per person for those who receive Medicaid assistance. It then becomes a business decision to charge more for the person who is privately paying to make up for the loss in revenue.

Medicaid- you must be impoverished to qualify

Many people think they will simply transfer their assets to their children before they need long-term care, in order to immediately qualify for Medicaid. There are several reasons why this is not a reasonable action.

a. The look back period for Medicaid (in most states) is three years for most assets, and five years for Trusts. In other words, when an individual applies for Medicaid, the state will look back at all financial transactions for the last three years. If they see large amounts of money that have been gifted or transferred, the individual will be penalized for a certain number of months before they can actually use their Medicaid benefits.

Example: Mary transferred $258,400 to her son Joe last month. She is applying for Medicaid today. She will be penalized for $258,400/$2584 (the divestment penalty divisor), which equals: 100 months. Mary will have to pay for her own care for 100 months before she is eligible for Medicaid.

b. If you transfer assets to your children, there are other risks involved:

1) What happens if the children get divorced? One half of your estate may go down the road with the person who is no longer in your family.
2) What happens when the children apply for financial aid for their children’s college educations? If the money is sitting in your son or daughter’s account, that will create some ineligibility for needs-based scholarships.
3) What happens if your children get sued because of a car accident or other unforeseen circumstances? All of your assets could be at risk.
4) What happens if your children run into financial problems down the road, and use some of that money to pay off their debts?
5) What happens if your children pre-decease them, and the grandchildren suddenly inherit that money?

Planning ahead for Long Term Care is essentially one of the most important financial planning issues of our time. Long Term Care insurance can eliminate all of the concerns listed above.

Annuity + long-term care plan

Some people are philosophically opposed to buying any more insurance—they feel like they are already “insurance poor”. However, it is important to guard against the greatest risk you face. So for some people, it makes sense for them to use their assets to cover their risk. There are some creative alternatives available that combine your assets with an affordable long-term care insurance “umbrella policy”. I call it a partnership plan. If you don’t mind paying for some of your care, you just don’t want to risk all of your assets, then you may want to consider a combination of an annuity and a high deductible long-term care insurance plan. Ask today for details! info@arn-us.com

Asset-based plan

If you have “rainy day money” set aside that will not be used to produce income, you may be interested in a plan that allows you to transfer your funds to allow for you to have a long-term care plan.

Asset-Based LTC Plan (for couple age 60)

Traditional long-term care insurance

Long-term care insurance is the easiest and most reliable way to protect your independence and your economic security. Many people think that they will never need care, or feel that the long-term care insurance is too expensive. However, considering the future cost of care and the fact that we have a 50/50 chance of needing long-term care if we live past the age of 65, you may not be able to afford NOT to have a plan.