Long-Term Care Insurance: Only The Wealthy Need Apply?

No surprise here:  a new report released by the Urban Institute indicates that only 10.7 percent of all Americans over the age of 55 have purchased any type of long-term care insurance ("LTCI"), but that almost 20 percent of the 55-and-over set with incomes over $100,000 per year have purchased LTCI.  The vast middle class -- a group that suffers the greatest financial impact when facing the cost of long-term care (since the poor will qualify for Medicaid) -- find themselves frequently priced out of the LTCI market.

The full report can be read here.

Another Major Insurer To Stop Issuing Long-Term Care Policies

Following on the heels of MetLife's announcement last November that it was going out of the Long-Term Care Insurance business, Berkshire Life -- the subsidiary of Guardian Life that writes LTC policies -- has announced that it too will stop issuing LTC policies by the end of 2011.

As noted in this article, the LTC insurers have been plagued by a common problem:  too few policyholders have dropped the policies after issuance, and too many people (at least from the insurers' standpoint) are filing claims. Essentially, the actuaries improperly evaluated these policies, leaving them under priced and underfunded.

So, what does this mean to the consumer?  LTC policies will be harder to come by, and will surely be more expensive at any age range.

This unwelcome development makes proactive Elder Law planning, guided by an experienced Elder Law attorney, all the more important. Under current law, a well-drafted and appropriately funded Medicaid Asset Protection Trust is the premier long-term care planning tool in the Elder Law attorney's tool box.  A Medicaid Asset Protection Trust will render assets funded into the Trust as "exempt" for Medicaid spend-down purposes five years after the assets are funded into the trust.  The "Trustmaker" may retain all income derived from the trust assets, while they will not have access to the principal assets.  Principal assets, however, may be distributed to the Trustmaker's children or other designated beneficiaries during the Trustmaker's lifetime and after his or her death.

A primary residence is often an ideal asset for funding into a Medicaid Asset Protection Trust.  The Trustmaker may retain (a) lifetime occupancy rights, (b) property tax exemptions under New York State law (and likely in many other jurisdictions) and (c) the capital gains tax exemption (currently $250,000 for an individual and $500,000 for a married couple) if the residence is sold during the Trustmaker's lifetime.  While our clients often elect to fund liquid assets into a Medicaid Asset Protection Trust, it is especially helpful to fund real estate and other illiquid assets into these trusts, as it is much more difficult to engage in "crisis" Medicaid planning with illiquid assets than with liquid assets.

The New York Times Discusses Long-Term Care Insurance

The New York Times  recently reported that sales of long-term care ("LTC") insurance policies have stalled.  In fact 2009 was the first year the sale of LTC insurance policies did not increase since tracking of LTC insurance policies began in the late 90's.  The article cites a number of reasons why the sale of LTC insurance policies has lagged, including: 

• The widespread misconception that Medicare covers long-term care needs (in fact, Medicare provides very little in the way of long-term care coverage)
• The belief that they will likely not need long-term care (in fact, 45% of people 65 or older will file a claim on an LTC policy)
• The presumption that they will qualify for Medicaid (which, while available with planning, does typically result in the loss of at least some assets, and Medicaid home care coverage is spotty)

Another impediment to the sales of LTC insurance is that the costs for the policies is beginning to skyrocket, as more people begin to go on claim than the insurance companies anticipated.  In fact, just today I heard that MetLife is going to stop writing LTC insurance policies in New York State (and maybe throughout the United States).

For those who can afford it, LTC insurance can be a great safety net.  For those who elect not to purchase LTC insurance, however, meeting with an elder law attorney to review proactive planning strategies -- often including the use of Irrevocable Asset Protection Trusts -- is a wise move.

Here's a link to the NYT article.

Is Long-Term Care Insurance Too Expensive? Not Necessarily

A new survey shows that more than a third of recent purchasers of long-term care insurance are paying less than $1,500 per year for their policies. All things being equal, long-term care insurance is the best tool for protecting against the depletion of assets if you someday need long-term care.

The cost of a LTC policy will depend upon a myriad of factors, including your age, your health, the daily benefit you are seeking, and the term of years that you are hoping to ensure.

One caveat to the survey: since the cost of long-term care in New York is higher than the national average, the cost of an adequate long-term care insurance policy for a New York resident will typically be more costly as well.