Did you know that one of the biggest risks to your future estate plan in Florida is long term medical care costs? This is also the planning concern that is most often missed or ignored by planners. There are only a few ways to plan for these costs and one way that can be effective concerns using long term care insurance for Florida Medicaid planning by helping to bridge the gap in the Medicaid lookback period. This approach can allow families to regroup and preserve valuable assets during the years prior to filing a Medicaid application.
Here are a few perhaps alarming Long Term Care statistics:
- Over 50% of people over the age of 65 will need nursing home care at some point.
- The average cost of a private room in a nursing home is over $90,000 a year.
- The average income of people over the age of 65 is approximately $38,000 a year.
- The average costs of care for the last 5 years of life is over $200,000 for those without dementia and over $350,000 for those with this diagnosis.
- Alzheimer’s diagnosis has increased 110% in the past 20 years.
So, if you’re not convinced there is a problem, you might also consider the following.
The national inflation rate for long term care medical services is approximately 3.5%, which is outpacing the national inflation rate for other goods and services. Even the insurance industry was caught off guard and as a result, pure long term care insurance policies have earned a national black eye due to increasing premiums.
Why Long Term Care Insurance?
There are a few ways to pay for long term medical care a/k/a “chronic care” as distinguished from “critical care”. It is important to understand this difference because traditional health insurance and other state programs like Medicare do not provide coverage for long term “chronic” conditions that extend over long periods, usually 90 days.
When conditions turn chronic, it is usually up to families to decide how to pay for care and options are limited to:
- Private payment through family assets; or
- State welfare programs like Medicaid; or
- Private long term care insurance programs.
For most people, the idea of self funding is more often a prescription for chaos than a feasible plan. The dollars for this kind of care don’t just appear when available for the majority of the population. State welfare programs, such as Florida Medicaid can work; however, these are essentially welfare programs that require a massive “spend down” of the estate in order to qualify. For these reasons, private long term care insurance becomes an important consideration.
Types of Long Term Care Insurance
In the world of private long term care insurance, there are a few different types of policies as follows:
- Pure (stand alone) long term care insurance
- Life Insurance Riders
- Hybrid Life Insurance Policies
Pure (stand alone) long term care insurance has earned some fair scrutiny in recent years due to rising healthcare costs and the companies’ need to increase premiums. So, increasing premiums remains a concern for these kinds of policies along with the risk of “not using” the benefits if they are never needed.
Life insurance policy riders are another option and may be either a long term care or chronic care rider to a permanent life insurance policy. These riders typically allow the policy owner to take a portion of the death benefit annually (usually 2-4%) until the death benefit is exhausted.
Hybrid life insurance policy riders are also available from a few companies and the main difference from life insurance policy riders is a lesser emphasis on death benefit and functioning more like a pure long term care policy.
Long Term Care Considerations
Some things to look out for with any long term care insurance policy are:
- Elimination or waiting periods
- Reimbursement vs. indemnity formula
- Non-cancelability vs. renewability
- Daily and maximum coverage limits
- Coverage for home, assisted living and full skilled nursing
Using Long Term Care Insurance for Florida Medicaid Planning
We’ve often discussed the perils of Medicaid planning in Florida and the possibility of penalties for any assets transferred to third parties (often family members) for less than full fair market value. The reason for this is the 60 month look back period for asset transfers in the state of Florida, and most areas of the United States. With this in mind, when considering long term care insurance for estate planning in Florida, it should be considered a tool to add flexibility for those seeking to ultimately utilize Florida Medicaid for skilled nursing care.
Long term care insurance generally covers at least a couple of years, and can be designed to coverage longer timeframes. Thus, using long term care insurance to cover the Medicaid look back period can be ideal to bridge the gap between transferring assets to loved ones and applying for Medicaid benefits.
The strategy goes something like this:
Elderly adult is diagnosed with a debilitating condition that will involve stead decline and increasing long term care needs.
Elderly adult meets with family and estate planning attorney and decides to initiate some transfers to various people, trusts, business entities, etc.
As medical care needs heighten, long term care insurance steps in and provides coverage for costs of care, during which time the look back period tolls. Under this scenario, maximum measures would have been taken to preserve assets while allowing for eventual Medicaid qualification.
Without any source of funding to bridge the lookback period, trying to fund long term medical costs may at best be daunting and at worst be impossible, requiring a total spend down of available assets before allowing for Medicaid qualification.
Long Term Care State Partnership Programs
It is also worth mentioning that, state long term care partnership programs provide yet another way to obtain long term care insurance AND protect assets. The way these programs work is as follows:
Long term care insurance that “qualifies” for the state’s partnership program works in conjunction with the state Medicaid program so that the amount of benefits paid for eligible long term care expenses will offset the Medicaid “spend down” requirements. The amount of offset, or asset disregard, for the policy holder is based on the how much that policy holder received in policy benefits.
For example, if you received $100,000 in partnership qualified long term care insurance policy benefits, you could keep that amount as a non-countable asset and still qualify for Medicaid.
This approach can be used in combination with using long term care insurance to cover the Medicaid look back period. Partnership programs vary state by state and it is important to determine if “reciprocity” is available in your home state as well as potential relocation states so a policy could be transferred there if you move.
For more information about Florida Medicaid, or pre-Medicaid estate planning in Florida, connect with us today.
Steve Gibbs, Esq.