©2015, College for Financial Planning, all rights reserved.

Session 13Long-Term Care Insurance

CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMFinancial Planning Process & Insurance

Session Details

Module 8

Chapter(s)

6

LOs 8-6

8-7

8-8

Identify the key considerations that must be taken into account in purchasing long-term care insurance.

Explain the issues of long-term care as related to Medicare and Medicaid.

Explain why the key provisions in a long-term care contract are important.

13-2

The Planner’s Role

Raise the issue • Calculate the gap between income

stream and annual needed resources

• Identify consequences to family/dependents/caretakers/portfolio ability to support and potential of returning home after LTC stay

• Evaluate and provide options and costs

13-3

The Odds and Costs

• 60% of those over 65 will need some form of care

• 22% of men and 41% of women will have a skilled nursing facility stay

• 14% of men and 31% of women will need a stay longer than one year

• Average stay is a little more than 2.3 years

• Costs vary widely state to state

• Colorado averages: o skilled nursing facility–$79,205o assisted living costs–$39,750o home health aide services–$50,336o It’s easy to see a client using combination of

services over the years exceeding $400,000

13-4

Levels of Health Care for Long-Term Care

13-5

Activities of Daily Living (ADLs)• Dressing

• Transferring

• Toileting

• Eating

• Bathing

• Maintaining continence

• Cognitive impairment*/dementia (e.g., Alzheimer’s)

*Should cognitive impairment occur, it supersedes policy requirements for

inability to perform two ADLs.

13-6

Important Long-Term Care Policy Provisions

1. Prior hospitalization requirement (such policies are to be avoided)

2. Level of care required for initial benefit payments to begin

3. Elimination period (waiting period from eligibility until payments begin)

4. Benefit period

5. Renewability and time of underwriting

13-7

Important Long-Term Care Policy Provisions continued

6. Pre-existing condition waiting period

7. Waiver of premium

8. Nursing facility requirements

9. Qualification for home health care benefits

10.Benefit amounts

11.Inflation rider availability

13-8

HIPAA Qualification

• Only two ADLs or cognitive impairment required as benefit triggers

• Nonforfeiture benefits (examples)o Reduced paid-up benefito Specified pool of moneyo Shortened benefit periodo May not include cash

refund• Guaranteed renewable

• Conforms with NAIC LTCI model regulation

13-9

LTCI Benefits Tax IssuesBenefits• Paid either as per diem or actual

expenses• Payments for qualified LTC expenses

excludible from income• Taxability (if any) calculated by formula

using an annually indexed per diem amount ($330 in 2015)

• Reimbursement for actual expenses not normally taxable

13-10

Qualified or Nonqualified?

• Qualified policies have tax deductible premiums (HIPAA-qualified)

• However, LTC expenses now qualify as medical expense for income tax (Schedule A, in 2015, 7.5% floor applies for seniors)

• Choose the best policy: qualified or nonqualified to meet the client’s needs

• Tax issues should be a secondary consideration

13-11

Premium Deductibility

Annual deductible amounts of premiums paid for qualified LTCI policies:

Age Limit

Age 40 or under $380

Ages 41–50 $710

Ages 51–60 $1,430

Ages 61–70 $3,800

Age 71+ $4,750

13-12

Medicare and Long-Term Care

Limited (if any) LTC benefits from MedicareRequirements• Must spend at least three days in a hospital as an admitted

patient (not for observation)• Must enter a Medicare-approved skilled nursing facility

within 30 days of hospital release

Benefits• First 20 days paid in full• Days 21-100 paid with a daily deductible ($157.50 in 2015)• Days 100+ no benefit• Limited home health care

13-13

Medicaid

• LTC benefits for the impoverished

• Rules vary by state

• General Requirementso Must be medically certified as needing careo Must “spend down” assets (be impoverished)o Specific asset/income requirements

also vary by state• Considerationso Quality of careo Impoverishment issueso Potential penalties for improper

asset transfero Availability of Medicaid

patient beds

13-14

Partnership Plans

State approved plans

Allows the pool of money purchased to be excluded from Medicaid spend down requirements.

Example: Lisa purchases a policy with a pool of $300,000. If her state requires a spend-down to $2,000 beyond the house and the car, she would qualify for Medicaid while retaining $302,000 in assets. If married, this would be in addition to the spouse’s available assets, thus, protecting the spouse to a higher level.

13-15

Factors Influencing Amount• Identified income gap

• Consequences to spouse/dependents and financial security of individual

• Size of portfolio and other assets that could be liquidated versus Medicaid planning

• Availability and willingness of family support

• Availability and willingness to pay premiums

• Desired goals of individual

13-16

The Options

• Self-pay (retain the risk)• Reverse mortgage• Spend down to Medicaid• Traditional LTC policy/

joint policy• Life insurance with

LTC rider• Annuity with LTC rider

13-17

Question 1

Which one of the following is considered to be the highest level of long-term care?a. custodial careb. respite carec. skilled nursing cared. intermediate caree. home care

13-18

Question 2

Which of the following stipulations must be met for Medicare to cover the cost of long-term care?a. The care can be needed either full- or

part-time.b. The patient’s condition must be

expected to improve.c. The need for care can be determined

by the patient’s family.d. The care can be either skilled or

unskilled.

13-19

Question 3

HIPAA requires qualified long-term care policies to adhere to which of the following guidelines?

I. They must recognize five or six ADLs.II. They must cover cognitive impairment.III. Reinstatement must be possible if a policy

lapses due to cognitive impairment.a. I onlyb. II onlyc. I and III onlyd. I, II, and III

13-20

Question 4

When determining how much long-term care insurance to buy, all of the following should be considered excepta. the cost of long-term care in the

client’s area.b. marital status of the client.c. HIPAA qualification.d. daily benefit amount offered by

the policy.13-21

©2015, College for Financial Planning, all rights reserved.

Session 13End of Slides

CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMFinancial Planning Process & Insurance