Long-Term Care Insurance
With nursing home care in some parts of the country costing as much as $10,000 a month, a long-term need for care can deplete even the best-planned estate. As a result, many seniors purchase long-term care insurance to cover this risk. One great advantage of this insurance is that most policies now cover home care and assisted living care as well as nursing home care, causing some insurance agents to describe it as avoid nursing home insurance.
Long-Term Care Insurance and Medicaid Planning
While in large part people who purchase long-term care insurance and those who plan to qualify for Medicaid coverage of long-term care costs fall into separate groups, there are at least two situations where they overlap.
The first group is seniors who cannot afford to purchase lifetime long-term care insurance coverage. These individuals may want to purchase long-term care insurance coverage for five years. They may then transfer assets to family members or to a trust, keeping enough funds so that with the long-term care insurance benefit they can pay for their care for the subsequent five years. After five years have passed, the Medicaid penalty for transferring assets will have expired, permitting them to be eligible for Medicaid coverage if their other assets have been spent down to the appropriate limit.
The second group is seniors who are healthy and wish to transfer assets now, but who don’t have enough funds to cover five years of care if they had a stroke or other adverse medical event soon after the transfer. These seniors could purchase long-term care insurance to cover the five-year period after the transfer. They may not have enough funds or income to pay the premiums indefinitely, but are able to do so for five years, at the end of which they can decide whether to continue the policy, perhaps with the assistance of children.
Many middle-income people have too many assets to qualify for Medicaid but can’t afford a pricey long-term care insurance policy. In an effort to encourage more people to purchase long-term care insurance, the Deficit Reduction Act of 2005 (DRA) created the Qualified State Long Term Care Partnership program. The program expands to all states the partnership programs that were previously available only in four states: California, Connecticut, Indiana and New York.
The program offers special long-term care policies that allow buyers to protect assets and qualify for Medicaid when the long-term care policy runs out. Private companies sell long-term care insurance policies that have been approved by the state and meet certain standards, such as having inflation protection. The program is intended to provide incentives for people to purchase long-term care insurance policies that will cover at least some of their long-term care needs.
The Taxation of Benefits
Benefits from reimbursement policies, which pay for the actual services a beneficiary receives, are not included in income. Benefits from per diem or indemnity policies, which pay a predetermined amount each day, are not included in income except amounts that exceed the beneficiary’s total qualified long-term care expenses or $300 per day (in 2011), whichever is greater.