Long term care insurance was sold aggressively in the 1980s, 90s and thereafter to offset the costs of seniors needing to live in a nursing home, assisted living or needing at home health care. Now, however, the business of long term care insurance has dramatically changed. What was once over 100 insurers providing LTC policy for sale has shrunk to a pool of less than twenty insurers who continue to sell the health care product. The big financial problem was that the majority of insurers had badly underestimated the longevity of these long term care policy holders and how many claims would be filed during their lifetime. The model became unsustainable from a business perspective.
As reported by the Wall Street Journal (https://www.wsj.com/articles/millions-bought-insurance-to-cover-retirement-health-costs-now-they-face-an-awful-choice-1516206708) the industry is now in financial turmoil and has turned to the old adage of privatize the gains and socialize the losses; the translation being that millions of people age sixty-five or older with long term care policies are facing steep rate increases. It is not uncommon for a policy holder to face a fifty percent increase in their premium while some of the worst cases are upwards of ninety percent. Because the industry itself used such poor benchmarks and miscalculated projections, policy holders are seemingly left with two choices: Pay the money or leave your coverage after paying into it for years, and sometimes decades.
What if you want a different choice? Everyone would agree that being stuck with higher premiums as you age is certainly uncomfortable but if the policy is discontinued what then will happen to the peace of mind long term care brings? What was once the safety net of senior aging care (without becoming a burden to family members) is rapidly disappearing.
CNBC has recently reported about this very issue and suggests getting financially creative for long term care. (https://www.cnbc.com/2018/02/27/heres-a-surprise-source-you-can-tap-for-long-term-care-services.html) There is a surprising source that you can tap in order to maintain protection for yourself but it requires planning, professional help and time. Do not delay.
The financially creative premise is to become asset poor, impoverished, and qualify for Medicaid which pays for nursing home care and services. This does not mean the legacy you built during your lifetime will not go to your selected inheritors. On the contrary, the assets you own must move out of your name to qualify for Medicaid. The assets will then shift to your designated beneficiary since to qualify you as an individual cannot have over $2,000 in assets.
To begin you will need to retain the services of a qualified elder law attorney, who may also bring in an accountant, a financial advisor, and your long term care insurance agent. Ideally, you will be able to wait five years before needing long term care and the help of Medicaid. If there are assets transferred during the “five year lookback” it may be subject to penalties or make the applicant ineligible for some period of time requiring them to pay out of pocket.
Now, with time on your side, it becomes critical to select the right vehicle for transfer. These can be annuities, but more often tend to be irrevocable trusts. The assets in the irrevocable trust are no longer under the control of the older person and can provide protection from certain creditors. The vehicle chosen for transfer of assets is very important not only for the older individual but the recipient as well. In the case of an outright gift of appreciated assets (i.e. stocks or real property) there would be no stepped up cost basis which could lead to crushing capital gains taxes when it is time to sell. An elder law attorney, with input from your accountant and financial planner, can help you choose the right transfer of wealth plan.
Elder law attorneys are closely watching changes in Medicaid, as Congress is often proposing legislation to change the program. Be certain your elder law attorney is up to speed on the current requirements, as the eligibility requirements can change very quickly in each state, and sometimes each county.
Though you may never have thought you would find yourself creatively trying to qualify for Medicaid while protecting assets, the current long term care premium prices preclude a large portion of seniors from being able to pay the cost of the policy. Genworth Financial reports the national median cost of a private nursing home room to be $97,455 a year. It doesn't take long to be wiped out at that cost without long term care. Medicaid may be your solution and time is of the essence for planning.
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