Here are some questions we get on a regular basis from people who are considering long-term care planning: Why do I need to get long-term care insurance today if I’m healthy? Why can’t I just wait so I don’t have to start paying premiums today? Won’t I save me money in the long run if I wait?
This is a common train of thought for people and a valid line of questioning. However, the reality of long-term care planning is there is no advantage to waiting. In fact, long-term care insurance is designed to reward you for putting a plan in place at an earlier age. To demonstrate this, look at the chart below that shows the cost and benefit for a plan that pays each person $3,000 a month for a married couple with an initial benefit of $100,000 per person and a compound inflation growth rate of 3%. The premium is for both insured but the monthly benefit and total benefit is per person.
Age Started Annual Payment Total Paid at Age 85 Total Benefit Monthly Benefit
55 $2,158 $64,740 $242,000 $7,278
60 $2,493 $62,325 $209,000 $6,281
65 $3,081 $61,620 $180,000 $5,416
Assuming they all go on claim at age 85, you will notice the younger couple not only had more total benefit, they also have a higher monthly amount to use for long-term care each month. Now consider the total in premiums paid and you will notice the numbers are pretty close. The 55 year old couple paid only a little more in total premium but they have a significantly higher total benefit.
This is also assuming they are all considered for the same health rating. Often as we age, we develop conditions or require medications that may downgrade our underwriting level which would drive the premiums up from what is shown. Meaning the younger client could pay less over the years than the older clients who waited and still have much more in total benefit.
Keep in mind, age determines the premium and health determines the eligibility for long-term care plans. We are all one doctor visit away from being turned down for long-term care and there is no advantage to waiting.
The Robert Wood Johnson Foundation (RWJF) is the nation’s largest public health philanthropy and was commissioned by congress in the 1980’s to study the best way to handle the growing need for long-term care services. Medicaid was, and still is the largest payer of nursing home cost in our country and it was becoming apparent back in the 80’s that the current system of paying for long-term care through Medicaid was unsustainable. After researching the problem, RWJF proposed a plan that would make private insurers the first payer for long-term care and Medicaid the back up or secondary payer. This would be accomplished by allowing individuals who purchased long-term care insurance the ability to protect assets from the Medicaid spend-down rules and allow them to qualify for Medicaid without being broke. Congress took this a step further by allowing deduction for premiums while allowing benefits to come back tax-free.
The plans have proven quite successful as less than 5% of individuals who have a qualifying State Partnership plan end up requiring any assistance from Medicaid. It has proven so successful, that 43 states now offer the program and the remaining states are working on their own version so hopefully they will be available everywhere soon.
For those who purchase a qualifying insurance program, they have the extra advantage of knowing if they use up all of their long-term care insurance, they can now protect assets equal to what the insurance has paid out on their behalf and still qualify for Medicaid. No more going broke to become a ward of the state!
To find out more about the State Partnership programs and see examples, visit our web site at www.123LongTermCare.com or call us with your questions at 425-748-8188.
