insurance

LTC insurance prevents financial wipeout

Common features of partnership policies

  • Two types of policies are available: one that covers only benefits delivered in a nursing home or residential care facility, and one that covers a broader range of care, including home care, a community facility, residential care or a nursing home. The more flexible a policy is, the more expensive it is, although the option to have home care is increasingly a part of even the least-expensive policies.
  • Plans have a waiver of premiums, so you don't have to pay to keep the insurance in place while you are receiving benefits in a nursing home.
  • There's state reciprocity. If you buy a plan in one state, other states will honor it. But consumers will be subject to the different Medicaid eligibility rules and benefits if they purchase a policy in one state and apply for Medicaid in another.
  • If you currently have a long-term care plan that isn't a partnership plan, you can probably trade it for one that is.
  • The cost of long-term partnership plans is roughly the same as other sorts of plans. The time to buy them is when you are fairly young. A single, 55-year-old can expect to pay about $1,100 annually for a plan that offers $250,000 in benefits. The annual cost will stay the same unless the insurance company gets permission from your state insurance commission to raise the price for every policyholder in the same "class" -- generally age or locale. If you delay purchasing long-term care, the cost of the same policy will be significantly higher every year, plus, if you develop a medical problem, you may not be able to buy a policy at all.
  • These policies are designed to help middle-income people, and the most you can effectively shelter is about $350,000. While there are no limits on the amount of insurance you can buy, because of Medicaid rules in most states, buying more than $350,000 won't increase protection for your nest egg, according to Meiners and Shearer.

Shearer says he believes these policies cut down on insurance companies' tendencies to push for big sales, a hardcore approach that scared away some potential customers.

"I think insurance companies used to go the route of pushing very expensive lifetime coverage and that was off the mark. Now they can sell insurance that has appeal to a much broader range of people," Shearer says.

What if income is high?

Another issue that people with moderate incomes who contemplate buying these partnership policies face is the possibility that they will never qualify for Medicaid because they have too much retirement income. How much is too much? Each state sets a protected resource amount, or PRA, which in 2009 can range from $21,000 to $109,000.  Earning even a little more than the PRA can put moderate-income couples in a situation where much of the family income goes to pay the nursing home bills, leaving the spouse in the community without enough money to continue living comfortably.

Meiners of George Mason University points to the possibility of resolving that issue with a Qualified Income Trust, or QIT. This trust permits legally diverting income and assets into a trust, where the income is not counted toward the Medicaid eligibility income cap, although some of it may have to be paid back to Medicaid after the death of the Medicaid recipient. Setting up this kind of trust requires expert legal advice and anyone contemplating purchasing a partnership policy who might find themselves in this situation should get that kind of help.

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