LTC insurance prevents financial wipeout

Highlights

• The chance of needing long-term care is higher than for other misfortunes.
• Many states participate in a plan that helps people qualify for Medicaid.
• The insurance program lets the insured keep some of their assets.

Long-term care insurance is a tough sell, yet it's something middle-income people with substantial nest eggs should consider since the need for personal care can quickly deplete financial reserves. A relatively new partnership program adopted by many states may make this insurance more palatable to more people.

Why consider it? The likelihood of filing a claim for long-term care is higher than for a home wrecked by fire. A 65-year-old man has a 27 percent chance of entering a nursing home at some point in his life; a 65-year-old woman faces a 44 percent probability of doing so, according to the Centers for Medicaid and Medicare Services. The cost of a private room in a nursing home averages more than $70,000 per year.

State governments on average spend 18 percent of their general fund budgets on Medicaid. But Medicaid doesn't pay the bill for those with financial resources. The jointly funded, federal-state health insurance program is designed for low-income, needy people. Medicare, the federal health care program for those over 65, doesn't cover routine nursing home care.

The case of Ethel and Jim Mann

Ethel had mild dementia, so Jim moved her into a nursing home. She didn't get any better, but she didn't get any worse either.

After more than two years of paying the increasingly large bills, Jim Mann simply ran out of money and was forced to shift the cost of his wife's care to Medicaid.

That decision cost Jim Mann plenty. The Medicaid rules are different depending on which state you live in -- and they are confusing in every state -- but in general, they divide the couple's assets in half and allow the spouse who remains in the community to keep household goods, the car, prepaid burial plots, the house (as long as the equity in it is less than $500,000 in most states; $750,000 is the cap in some states) and a very small amount of cash. The other half of the couple's assets must be spent until only $2,000 is left, and then Medicaid will begin paying the nursing home bills.

The problem for many couples is that the spouse living in the community hasn't enough money left to cover daily living, let alone emergency costs such as a car repair or a roofing job on the house -- and nothing to leave to heirs. It's a punishing kind of policy that only gets worse if the second spouse later needs medical care as well. If he or she must enter a nursing home then there's no money left for health care costs beyond the basics and no cash for any of the niceties of daily living: no favorite cosmetics or even robes and slippers.