Planning for Long-Term Care: Affordability Options and Alternatives
Article by R. Joseph Ritter, Jr. CFP® EA
his article discusses options for paying for long-term care, including available alternatives to Medicaid and expensive long-term care insurance premiums for older adults who want to plan ahead for the possibility of needing long-term care assistance.
A major issue looming large before many older adults is how to pay for long-term care. In times past, retirees often had pensions, real estate holdings and significant retirement savings, health insurance, and other assets or benefits which they either accumulated or were receiving in retirement from long-term employment.
The 2008 stock market crash, real estate boom and bust, bankruptcy of corporate employers, and other economic factors have weighed heavily on the asset portfolios of the majority of older adults. There are also a large number of older adults who never had an opportunity to save large sums of money, did not earn enough to have large Social Security or pension checks in retirement, or are not retiring with continuing employer benefits. In sum, today’s older adult is facing retirement with far fewer assets than the generation preceding them.
The statistics on long-term care are staggering. The expense of long-term care is staggering too. No doubt the majority of older adults would consider themselves to be “priced out of the market” and are either ignoring the possibility that they may one day need long-term care or simply have no idea what will happen if that day arrives. Some may not realize that Medicare covers only a limited amount of long-term care under certain situations. Thus, Medicare is not a permanent solution.
Medicaid is often an unwelcome option, particularly for those who have some assets but not enough to afford either long-term care insurance or out-of-pocket long-term care expenses. To qualify for Medicaid, all but about $2,000 in many states must be spent toward care before the state will contribute, and there are income limits imposed as well. Medicaid can even require that your home be sold if you are no longer able to live there and the proceeds applied to your care. Some people think they have “gotten wise” to Medicaid and attempted to transfer their assets to preserve the assets from Medicaid’s requirements. However, Medicaid has a 5 year look-back period in which they can either invalidate transfers (gifts) or refuse to pay for your care in the amount of the gifts, leaving you to fund the difference. Trying to gamble on the odds of beating the 5 year look-back period is not necessarily a good idea.
The Deficit Reduction Act of 2006 authorized a program now known as “Partnership for Long-Term Care” which is offered on the state level as an alternative to becoming destitute under Medicaid and expensive long-term care premiums. An example will help to illustrate how the Partnership program works.
Jane Jones is 67 years old and has assets of $250,000 and lives on Social Security Income. She cannot afford standard long-term care insurance, and wants to retain as much of her assets as possible. The Partnership for long-term care insurance is administered by her state and offered through eligible long-term care insurers. She purchases a long-term care insurance policy to cover the first $250,000 of her long-term care expenses. At age 75, Jane suffers a debilitating stroke and requires long-term care. The insurance policy pays its limits. Subsequent care expenses are paid by Medicaid. Because the Partnership program coordinates insurance coverage with Medicaid, the insurance premiums are more affordable than standard long-term care insurance premiums. Medicaid will not require the $250,000 to be spent toward care, and these assets can be used by Jane or her family in whatever way she pleases.
For the older adult with fewer resources, the Partnership for Long-Term Care program administered by your state of residence is definitely worth considering as an alternative to spending down all of your assets under Medicaid or paying for expensive long-term care insurance premiums.
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