Let’s First Take A Look At Medicare.
Most people think that Medicare will pay for their Long-Term Care benefits. Medicare will pay for a select few, but here are the provisions. Medicare pays for only medically necessary skilled nursing facilities or home healthcare.
For skilled nursing you can receive a MAXIMUM of 100 days of care after a required 72 hour hospital stay. That’s roughly only about 3 months of care. Out of the 100 days that Medicare will pay, the first 20 days are paid by Medicare… but the next 80 days of care expenses are shared between you the patient and Medicare. Once you no longer need skilled nursing care, Medicare stops paying.
For home healthcare, if you’re homebound by an illness or injury, and it takes (what Medicare refers to as) “a taxing effort to leave your home,” and your doctors says that you need short term skilled care, Medicare will pay for skilled nursing care and therapist to provide services in your home.
Please note that this is not 24 hour, around the clock care. Care is limited to 21 days and is for no more than 35 hours per week and most people get a lot less than that, although, with your doctor’s recommendation or a doctors order you may qualify for possibly more. And as you may know, Medicare Supplement policies provide extremely low or NO LTC benefits at all.
So for Long-Term Care, as you can see, Medicare is really not a viable option.
What About Medicaid?
Medicaid or Medi-Cal in California is a joint Federal and state funded program. It’s administered nationally across the country by the Center for Medicare and Medicaid Services and on the state level it’s administered through the Department of Health & Human Services.
It is designed to help people, who are financially destitute. Medicaid / Medi-Cal will pay for LTC services but will only pay for care if you have very limited assets (spend-down your life saving to $2,000) and you meet the federal government’s poverty guidelines.
Medicaid / Medi-Cal also states that: “nursing home care MUST be provided in a Medicaid / Medi-Cal approved facility.”
Please consider this: Having Medicaid / Medi-Cal pay for YOUR care also means that you may not have much of a say in choosing and selecting the facility that will provide you with that care. And that my friend is a very scary thought.
The reality is that nobody wants to spend-down all of their life saving in order to qualify and be eligible for Medicaid / Medi-Cal… money that took you a lifetime to save, 20, 30, 40 or 50 years and spend it all on Nursing Home care – I don’t think anybody wants to do that.
The bottom line is that the Federal Government and congress have done everything within their power to back out of paying for your long term care needs or any catastrophic illness that you may have.
So what are the options to cover the potential cost of Long-Term Care due to catastrophic illness?
You can self-insure – and many people do, either because they’re fortunate to have the financial means to cover the costly expenses or by doing nothing or not planning. However, the major challenge with self-insuring is that you, personally, are taking 100% of all the RISK.
I happen to be a firm believer in OPM (Other People’s Money)… which is probably why I would carry (use it or lose it) car insurance even if it wasn’t a federal law.
An OPM option would be to purchase a stand-alone Long-Term Care insurance policy. For many people who look at this option, they find that their health isn’t good enough to qualify and approximately 20 percent of people who apply for a traditional Long-Term Care policy are declined due to poor health.
Along with the challenges of qualifying for LTC Insurance many people find that the premiums are very expensive, up 50% to 80% nationally over the last few years… and many can’t afford to pay for it… not to mention the fact that LTC insurance carriers can raise the premium (by double-digit rate hikes) on existing policy holders.
Darla Mercado a writer for Investment News, in her article entitled, “Genworth eyes new approach to long-term-care insurance rate hikes” (May 22, 2014) stated “Historically, long-term-care insurance is a product that’s brilliant in theory, but poorly executed by many carriers…the industry failed to anticipate that clients would live lengthy lives…and that long periods of plummeting interest rates would make it hard for carriers to profit from LTC insurance sales,” thus the increase in premiums on existing policies in-force.
The reality is that even if you can afford it… and you have the means to pay for it… it’s very hard for people to pay thousands of dollars (5 to 6 thousand dollars) per year on something that you hope you will never need. It’s like buying car insurance – “use it or lose it.”
Penelope Wang states that until more options develop – perhaps your best strategy is to stay healthy and save as much as you can… this obviously is sound advice. However, there are little-known tax-free government approved programs using financial strategies to help you cover the potential cost of Long-Term Care.
One alternative OPM solution you can now use is what I call “Dual Purpose Protection Planning (DPPP).” The industry referred to this type of planning as “Linked Benefit Strategies.”
DPPP is just what the name implies. The planning solution serves a dual purpose, and thus has a lot of appeal to many of my clients. It’s where we take an asset (money that you have in place) and we leverage those dollars or stretch those dollars to create a much larger pool of money for a possible long-term care need in the future… but also have that money serve its original purpose.
The original purpose of that money can be:
1. Grow Your Money with safety of principal
2. Tax deferral
3. A death benefit that can be passed on to your beneficiaries on a tax-free basis
4. Wealth Transfer
So, when YOU use this dual purpose protection planning strategy which also provides a long-term care benefit associated with it, YOU can now create a much larger pool of money available for long term care IF YOU happen to need it. The “use it or lose it” objective is totally eliminated.
If you’re like most people, you’re probably going to have more questions. Naturally this isn’t everything I can tell you about Dual Purpose Protection Planning (aka; Linked Benefit Strategies) or the handful of specialized companies with the best solutions. But, if you would like more information on this subject and how this type of planning can help you grow your money and at the same time cover the potential cost of a future long-term care need… you’re welcome to send me an email.
If you have any questions or you would like additional information please feel free to contact me. As always, I will do my best to help you in any way I can or lead you in the right direction.
