I often advise clients that there are a only a few major risks to consider in your retirement years. The top of the short list is rising healthcare costs, followed by the the arguably lower likelihood of random law suits warranting Florida asset protection and estate tax exposure. Rising healthcare costs bear a direct relationship with long term care planning and long term care insurance in Florida, as these concern the ability to preserve your estate while paying for full skilled nursing care.
Long Term Care Insurance Florida
[Estate Planning Considerations for Long-Term Care Planning]
Part of having a coherent and complete estate plan in Florida, or any state, is considering how to pay for rising long term healthcare costs. Such a plan may include pre-Medicaid planning in Florida. An effective plan may also include Medicare, Medicare supplements, life insurance with a chronic care rider or long term care rider OR what I call a stand alone long term care insurance policy.
The Downside of Relying on Medicaid in Florida
It is no secret that we’re in the midst of a healthcare crisis. Fidelity Investments suggests that the average couple can plan to pay approximately $250,000 in medical expenses during retirement. However, the majority of people have less than that saved for retirement. If you think this sounds serious, you’re correct. This scenario WILL lead to Medicaid for many people.
However, the fact is that Medicaid is an overburdened welfare program, as is social security, and this problem may only get worse.
Medicaid Planning to Reduce Estate Assets
The gist of Medicaid planning in Florida is to reduce the size of the estate in order to fall within the asset limits of Medicaid. Some of the tools to reduce estate sizes are irrevocable income only trusts or personal care agreements, although the strategy will depend upon numerous factors. In addition, there are income limits to meet and this is sometimes handled by creating a qualified income trust or QIT in Florida.
Medicaid is a joint state and federal government program that is designed to help low income elderly people pay for long term custodial care, a/k/a full skilled nursing care. In reality, Medicaid is an overburdened welfare based system.
If you’re relying on a Medicaid plan, you should be prepared to have limited options. According to the National Care Planning Counsel, Medicaid only pays for a semi-private room in a full skilled nursing facility (nursing home). Worse yet, not all nursing homes take Medicaid patients, so options can become more limited.
Home Health Care vs. Nursing Home Care
Most people given the choice would prefer to spend their waning years at home as opposed to a nursing home. Yet, I can personally attest that it can be difficult in Florida, as in many states, to get Medicaid to pay for home care, despite the facts that there are “Managed Care Programs in Florida” that have been created for this purpose.
For many, a long term stay in a nursing home is an extremely undesirable option, yet under a Medicaid planning approach it may be the only viable alternative.
Avoiding Strain Upon Loved Ones
Spouses and adult children are often forced to pay out of pocket for outside care givers. If those resources are not available, they may be forced or opt to “tough it out” by providing critical care themselves. For an aging spouse, toughing it out by providing the care themselves can be a huge burden and lead to additional debilitating health declines. For adult children with busy lives, the time investment is often too much. However the good news is that proper planning can provided needed resources to hire professionals to help shoulder this burden.
Medicare Misunderstandings and Long Term Custodial Care
Medicare is a type of insurance that is attached to social security and is available to U.S. citizens over the age of 65. Medicare is available regardless of income and includes 4 areas of coverage as follows:
- Part A: Hospitalization Coverage
- Part B: Medical Insurance
- Part C: Privately Placed Supplemental Insurance
- Part D: Prescription Drug Coverage
Theoretically, Medicaid and Medicare are supposed to work together to help the elderly with long term care costs. However, in practice, Medicare is helpful for “critical care” such as short term hospitalizing and trauma care AND DOES NOT PAY FOR “long term custodial care” for chronic conditions such as Alzheimer.
Non Medicaid Planning Approaches to Pay For Healthcare Costs
- Planning to Self Fund
- Private Long Term Care Insurance
The Perils of Self Funding for Long Term Care
As you’re researching options for long term medical care planning, you may come across some who suggest “self funding”. What this really means is that you continue to invest your money in various ways proposed by the financial community such your IRA, 401(k), stocks bonds, commodities, etc., or possibly by purchasing assets such as real estate. This planning approach depends upon a belief that your investments will bear enough fruit to supply you with the needed resources to pay for you own long term care.
In my humble opinion, self funding is always problematic. This is an idea that is also touted to replace life insurance by those who promote market based investments. The fact is, when you opt to self fund, you are simply rolling the dice with your financial future. Yet, this isn’t the worst part of self funding. The worst part is that you’re taking assets out of your income producing, wealth building bucket and essentially liquidating them to pay for long term care.
Long Term Care Planning with Private Long Term Care Insurance
Long term care is defined “legally” based upon the following 6 most common activities of daily living which are:
- Walking (Transferring)
The inability to perform 2 of the above tasks, due to a chronic physical condition lasting a minimum of 90 days, is a standard test to qualify for long term care. As you may know, or imagine, hiring skilled nursing professionals or even unskilled health works to assist with the above is expensive because it requires around the clock care.
For this reason, private long-term care insurance from a top rated insurance company has been gaining momentum in recent years to address the risk of these enormous care costs. Many people are in the dark concerning the options available for long term care coverage and many become overwhelmed with deciding on the right long term care insurance solution. So, it is helpful to summarize and compare the available policies which are:
- Life Insurance with a Chronic Illness Rider
- Life Insurance with a Long Term Care Rider
- Fixed Annuity with LTC Benefits
- Stand-Alone Long Term Care Insurance
A rider to a life insurance policy is an additional benefit to the standard policy that is offered for an additional cost. The first 2 products are offered in this format, whereas the third is an additional benefit to an annuity and the forth is packaged independently more like health insurance.
A chronic illness rider to a life insurance policy is the most common verses the long term care rider. The two riders are similar in that they offer an accelerated death benefit that is paid to the policy holder who meets the criteria for requiring long term care assistance.
A long term care rider is similar concerning the accelerated death benefit and criteria for qualifying, yet may offer some additional benefits such as an “extension of benefits rider” and “reimbursement” verses only “indemnity”.
A fixed annuity with LTC benefits is similar to the life insurance riders but distinct in that the additional benefits are attached to a “fixed annuity” which is set up similar to a CD, providing a fixed income stream. Some who favor this approach contend that a marginal additional cost for the rider can provide significant funds for long term care in addition to the balance in the annuity account.
Stand-alone long term care insurance may offer more comprehensive coverage than the other options discussed above because the focus is comprehensive long term care coverage It is not attached to a life insurance or annuity product and therefore may be more expensive AND there are ongoing issues with unpredictable premium cost hikes. Two other down sides are no cash value and time consuming underwriting.
Florida Long-Term Care Partnership
Florida’s Long-term Care Partnership Program provides an incentive for Floridians to purchase private long-term care insurance for Medicaid planning. The main point of the LTC Partnership Program is to encourage people in Florida to use their LTCI before using Medicaid. In return, if you still need help with LTC costs after your insurance has been fully used, you will receive certain benefits that allow you to keep assets you would normally not be allowed to keep under Medicare rules.
To dig further into the various aspects of long term care is fodder for a number of future articles. For now, suffice to say, without diving further into questions such as whether a chronic illness or long term care rider is best OR which company offers the best long term care insurance, that it is extremely important to do your proper due diligence. Ask questions about the various policy options, companies, and coverage and make sure that you understand what you’re purchasing. The future of your estate and welfare of you and your loved ones depends on it.
Steve Gibbs, Esq.