Number One Provider of Medicaid Compliant Annuities

Financial Product Sales in 2008 - Long Term Care Insurance - Medicaid

In 2008, according to a recent poll conducted by the NAIFA's advisorToday.com, annuity sales topped the financial product sales marketplace at 34 %.  Next, whole life sales followed at 25%, term life sales at 16%, disability income sales at 14%, universal life sales at 9%, and long term care insurance sales at 2%.  Did the last statistic surprise you?  

In an article entitled, "Discussing Life Expectancy", which appeared in the March of 2009 edition of NAIFA's advisorToday magazine,  I learned that a married couple has a higher exposure to the risk of living too long than does a single person.  What is the premise behind the argument?  According to the article, the argument is premised on the principle that the life expectancy of two people is greater than the life expectancy of one person.  The article goes on to say if a husband and wife are age 66, there is a 50-percent probability that one of them will live 25.3 years, which is about seven years more than the life expectancy of either the the husband or the wife as a single person.

In light of the above, it is my opinion that if the aforementioned result were to occur, the surviving party will certainly have a higher need for long term care.  Additionally, if the surviving party wants to avoid losing more than half of his or her assets to a long term stay in a nursing home in order to qualify for Medicaid benefits, he or she will need to purchase a long term care insurance policy. In order to get the best deal on a long term care insurance policy, an individual must be less than 80 years of age, and be in good health. 

Finally, in those cases were a couple has explored the opportunity to purchase long term care insurance and one of them is declared uninsurable, based on the aforementioned statistics, the insurable spouse still needs to purchase the long term care insurance coverage. 

The 2009 Financial Markets And Community Spouse Cases

Lately, with a plummeting financial market and shrinking investment portfolios, a new trend has emerged.  Community spouses are reluctant to qualify their institutionalized spouses for Medicaid benefits for the fact that their investment portfolios will need to be liquidated.  Is that so bad?  What if the market recovers?  What if it does not?  Is there enough time for a recovery?

In the case of a healthy community spouse, where a substantial amount of the wealth remains, the answer is "absolutely not!"  In such a case, the Medicaid plan will provide an immediate benefit.

Assume for the moment that the husband has gone into the nursing home, and the couple's investment portfolio has lost 30% of its value, or $300,000.00.  The wife would like to wait for the market to recover, but during the wait, she understands that the nursing home will be charging $7,500.00 per month.  Instead, following my plan, the wife opts to retain $100,000.00 of countable resources ("CSRA"), and invests the $600,000.00 spend-down amount into a Medicaid Compliant Annuity ("MCA").

As a result of the plan, the wife retains the family home, automobile, household furniture and personal property, the prepaid funeral arrangements, $100,000.00 of cash, and $7,200.00 of monthly income - most of which came from the MCA.  The plan allows the husband to immediately qualify for Medicaid benefits, with a monthly co-pay of $1,100.00, allowing the couple to save $6,400.00 per month.

Additionally, in order to recover the investment loss, the wife purchases a $300,000 face value life insurance policy, insuring her life.  The primary beneficiary of the life insurance policy is the couple's three adult children.  Further, in order to protect her assets from possible future long term care costs, the wife purchases a long term care insurance policy (LTCIP"), including a return of premium rider, which includes coverage for home healthcare, assisted living, and nursing home care.   As a result of the LTCIP purchase, the wife is certain that she will never have to rely on Medicaid.  Finally, after deducting the life insurance and long term care insurance policy monthly costs, the wife is confident that she has sufficient monthly income to meet her needs.

This is a win, win, and win situation for everyone involved.

Wisconsin Residents Have Incentive To Buy Long-Term Care Insurance

In 1965, President Lyndon Johnson, as part of the Great Society legislation, initiated universal healthcare coverage for citizens ages 65 and older.  Today, we know this program as Medicare.  Simultaneously, healthcare and long-term care for the indigent were created and funded with federal and state tax dollars.  Today, we know this program as Medicaid.

As we all know, Medicare and the Medicaid programs are seriously under funded and will need major overhauls very soon to continue the promises that have been made.  One of the issues that has exacerbated the under-funding problem of Medicaid has been the use of funds by the middle class to help pay for long-term care costs.

In 1994, four states - New York, California, Indiana and Connecticut - in cooperation with the federal government, initiated the long-term care insurance partnership program as a way to provide a financial incentive for individuals who purchase long-term care insurance as a means of solving the long-term care financing crisis that is looming.

As of December 25, 2008, Wisconsin is now the 20th state to enact this program.  The Wisconsin Partnership Long Term Care Insurance Program is a cooperative effort between private insurance and the state by giving Wisconsin residents a financial incentive for buying long-term care insurance.  When care is needed, the private insurance plan pays first.  Later, if an individual become eligible, Medicaid pays.  But if they have a partnership policy, the amount of the money the insurance company paid for care is not counted as an asset when eligibility for Medicaid is determined.  By encouraging the purchase of long-term care insurance, Medicaid is returned to its original role as the payer of last resort.  As a result, individuals and their families have more access to facilities as a private pay resident and the state saves tax dollars to be used for the care of the truly needy.

If a Wisconsin resident purchases a partnership qualified long-term care policy, the individual can preserve assets equal to the amount of benefits paid out by the policy.  Medicaid income and asset tests would apply but a portion of assets under the spousal impoverishment rules in 2009 would be "disregarded" at application.  Furthermore, the state of Wisconsin may also excludethe qualified policy benefits paid and verified by the insurer on the behalf of the insured from the Medicaid estate recovery rules upon the death of the individual on a dollar for dollar basis.

Long-term care needs include the need for help in the following activities of daily living: eating, bathing, dressing, the ability to walk (transferring), toileting, continence and cognitive impairment (dementia or Alzheimer's disease).  Private insurance pays for help when needed when at least two of the six basic activities of daily living are judged to be impaired or if diagnosed with a cognitive impairment condition.  Such care can be provided in a person's home, community based or assisted living facility, or in a nursing home.  The costs for assisted-living facilities in Wisconsin average $3,170 a month; the cost of nursing home care in Wisconsin averages $66,726 per year, according to the 2008 Financial Cost of Care Survey by Genworth Insurance.  As the boomers age, these costs will surely rise as demand for services increase exponentially.  The aging resource centers of each county have staff who are trained to help seniors understand the issues involved and to help provide the ideas and choices in dealing with the problems of old age.  Insurance agents in Wisconsin now have eight hours of mandatory training regarding Medicaid eligibility and the Partnership LTC Insurance Program and how it applies to an individual's specific situation.

 

This article was taken from The Green Bay Press-Gazette, published on Wednesday, December 31, 2008.

Long Term Care Insurance - Is it a Necessary Evil?

According to statistics reported by the American Association for Long-Term Care Insurance, only 400,000 long term care polices were  sold in 2007.  Does this surprise you?  It surprised me! With long term care situations occurring at a greater frequency than a house fire or an automobile accident, it is hard to believe that more people are not insuring against the risk and the potential for a total financial loss.  Is it because long term care is so cheap, and individuals feel they are well situated to pay for the care? Hardly!  Long term care, whether it occurs in the home, an assisted living facility, or nursing home is very expensive  The cost for one year's worth of part-time home health care can exceed the cost of a new car, and the cost of two year's worth of care in a nursing home can exceed the price of a new home.

So why do people insure their homes and cars against such a small risk, and leave themselves totally naked against a long term care risk - that is likely to happen?  The answer lies in education. People need to be educated on the need for long term care insurance, and the opportunities that a good policy can provide them.

So what is in a good policy?  A good long term care insurance policy will provide all levels of care, including: home health, assisted living, and nursing home care. The policy should also include an inflation rider - so that the future benefits stay current with future costs, a return of premium rider - which states that the insured's beneficiary(ies), following the insured's death, will get a full refund of the premiums that the insured paid to get the coverage, and a quick pay option - which eliminates the need to pay for the coverage for the rest of the insured's life (single pay, 3 annual  payments, 5 annual payments, or 10 annual payments). 

Long-Term Care Insurance - How Much Is Enough?

According to the American Association for Long-Term Care Insurance ("LTCI"), 20% of the elderly require more than five years of long-term care, another 20% require two to five years and 30% require two years or less. Only 31% require no long-term care at all. But discussing this issue with clients can be difficult it is a grim topic, and the problems it addresses aren’t usually an immediate concern. Clients may also have preconceived notions and not realize that current LTCI options include comprehensive coverage. Nor are they likely aware that LTCI can be a valuable estate planning tool for high-net-worth clients if estate preservation and bequests are a goal.

 

Based on the aforementioned statistics, it is my opinion that as long as a client purchases a LTCI plan which covers current costs, and the plan has an inflation rider to keep up with future costs, the average client should purchase at least 2 years worth of coverage.  For those clients with a higher net worth, I would recommend 5 years worth of coverage. Krause Financial Services offers LTCI plans to clients throughout the United States. 

DRA - Expansion of Long-Term Care Partnership Programs

Prior to the Deficit Reduction Act of 2005 ("DRA '05), only four states, including: California, Connecticut, Indiana, and New York, had Long-Term Care Partnership Programs ("LTC Partnership Programs).  As a result of DRA '05, the Long-Term Care Partnership Programs were expanded to the remaining states.  

The purpose of the LTC Partnership Programs is to develop creative solutions for long-term care financing.  The LTC Partnership Programs combine the use of approved private LTC insurance plans with access to Medicaid benefits.  In other words, once the insured has exhausted the benefits of his or her Partnership LTC Policy, Medicaid benefits become available to the insured.  Two Partnership LTC Policy models were initially developed, including a total asset protection model, and a dollar-for-dollar asset protection model.

New York was the first to adopt the total asset model, while the other three states implemented the dollar-for-dollar model.  The difference between the two models is how countable resources are protected from a Medicaid spend-down.  With the total asset model, all countable resources are protected from a Medicaid spend-down, while in the dollar-for-dollar model, only the value of countable resources equal to the Partnership LTC benefit pool are protected from a Medicaid spend-down.  In other words, if the Partnership LTC policy created a benefit pool of $400,000.00, then countable resources of $400,000.00 are protected from a Medicaid spend-down.   

In both models, the individual must still pass the Medicaid income eligibility test, after exhausting his or her Partnership LTC policy benefits.  In other words, if an individual's monthly income from all sources exceeds the private pay rate for the nursing home facility in which he or she resides, Medicaid benefits will not be available to the individual.  Additionally, any monthly income in the individual's name must be contributed toward his or her care, less a small amount for his or her personal needs.

Of the four original partnership states, only New York and Indiana still offer a total asset model.  Additionally, as of this writing, the following states offer the dollar-for-dollar LTC Partnership Program: Colorado, Florida, Georgia, Idaho, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, and Virginia.  It is expected that none of the aforementioned states will offer a total asset protection LTC Partnership Plan.  

Agents are required to discuss the Partnership Plans, where available, and must complete special training requirements as dictated by their state.  Krause Financial Services offers Partnership LTC Plans, as well as traditional Long-Term Care Insurance Plans throughout the United States. 

Long-Term Care Insurance Audit

For those of your clients who have purchased a Long-Term Care Insurance Plan ("LTCI") which is more than 5 years old, a LTCI audit is now a necessity.  The purpose of the LTCI audit is to address the following issues:

1. Is the current coverage sufficient to meet today's Long-Term Care costs?
2. Does the LTCI policy cover all levels of LTC care, including home health care, assisted living care, and nursing home care?
3. What must happen in order to trigger the payment of LTCI benefits? 
4. Is there a limitation on the amount of LTCI benefits? 
5. Should the LTCI policy be supplemented by a second LTCI policy?

With respect to Question 1, above, I have found that with many of my clients the current coverage available to them under their existing LTCI policy is insufficient in light of today's costs.  For 2008, the national average hourly rate for home health aids ranges from $14.00 to $35.00, and each visit lasts 1.5 hours.  For 2008, the per month cost for assisted living ranges from $625.00 in Detroit, MI to $8,610.00 in New York, NY.  For 2008, nationally, the average daily rate for a semi-private room is $213.00. 

With respect to Question 3, above, in light of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), HIPAA established 6 core activities of daily living ("ADL's"), and requires that a tax qualified LTCI policy must include at least 5 of the 6 ADL's.  The 6 ADL's are: bathing, dressing, toileting, transferring, eating, and continence.  Additionally, in order for a tax qualified LTCI policy to pay benefits, the individual must be unable to perform at least 2 of the ADL's. 

With respect to Question 4, above, it has been my general experience that most LTCI policies were sold on the basis of limited benefits - 2 to 3 years worth of coverage.  With DRA '05 having a 60 month look back period for all gifts made after February 8, 2006, in high net worth cases, an individual may want to secure LTCI coverage for a minimum of 5 years.

With respect to Question 5, above, if a review of the policy indicates that the per diem rate is so low in light of today's costs, it will become a necessity to obtain a second LTCI policy. 

Traditional Long-Term Care Insurance - Is it Ready for a Major Come Back?

Prior to the Deficit Reduction Act of 2005 ("DRA"), in many states, Crisis Medicaid Planning allowed individuals to plan their affairs on a last minute basis.  As such, most individuals chose to plan their affairs when they were faced with an actual nursing home stay.  Now, with DRA in place, some of the generally accepted and widely used Medicaid planning techniques, including monthly gifting plans, have been eliminated.  With the new 60 month look-back for all transfers, and with the divestment penalty period associated with an uncompensated transfer, not commencing to run until the individual is deemed "otherwise eligible", Traditional Long-Term Care Insurance Plans will make a major come back.

One of the primary advantages of using a Traditional Long-Term Care Insurance Plan is that you can limit the scope of benefits to a period of no more than 5 years - which allows a gifting plan to be bullet proof, and the Traditional Long-Term Care Insurance Plan can include a single pay option - which eliminates future inflationary premium increases which are common in the long-term care industry, and the Traditional Long-Term Care Insurance plan can include a full return of premium rider - which allows the insured's family to recover all of the premiums paid by the insured - assuming the Traditional Long-Term Care Insurance Plan has not paid any benefits.