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Long-Term Care Insurance and Alternatives – The Role of Prudent Planning

A July 2, 2013 article on page one of the Wall Street Journal underscores the emerging problem with long-term care insurance. Many companies, such as MetLife Inc., Prudential, and Unum have either stopped offering long-term care insurance or have dramatically reduced efforts to maintain or grow their market shares. For those who have stayed in the market, the cost is soaring.

Indeed, annual premiums have doubled and even tripled in a few short years. Twenty percent annual increases are expected.

The real question focuses on, “What to do about the cost of long-term care?”

If you have sufficient resources, long-term care insurance is still an alternative to consider. Do not, however, do so blindly. You can calculate the cost over a twenty-year or thirty-year period. You could put those funds aside to pay for the cost of long-term care if you are very disciplined and have tenacity, patience, and fortitude.

This alternative, in other words, is to “self insure.” Rather than put $200,000 into the hands of a long-term care insurance company, set that money aside, ideally in a tax favored account, and use it when you need it.

The other alternative is Medicaid, known as Medi-Cal in California. Medi-Cal is a needs-based program. The Wall Street Journal indicates that it is “a government health program for poor people.” This is a gross misstatement.

For an individual to qualify for Medi-Cal, for example, she can have no more than $2,000 in countable assets. Federal law provides that a residence is an exempt resource, which means that its value is not counted when determining eligibility. There is a cap in most states of $750,000 on the value of an exempt residence if the individual is in a skilled nursing facility, but the point remains.

For a married couple, there is no cap on the value of an exempt residence when one spouse is in a nursing home. The spouse living at home can retain at least $115,000 in her name if her institutionalized spouse is in a nursing home and receiving Medi-Cal/Medicaid benefits.

Moreover, numerous planning steps can be taken to protect assets and qualify for Medicaid. While this is by no means an ideal outcome, it is the only alternative to losing all of your money in far too many cases.

The message is that you must think about this eventuality – the need for long-term care services at home or in a facility – and plan accordingly. If you do not have long-term care insurance, do not expect the government to come to your assistance unless you plan for Medicaid. Medicare does not pay the ongoing cost of nursing home care.

We understand these options and these rules intimately. We have been helping people plan for almost thirty years with consistent success. You must learn about your options.