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Long-term Care Insurance 2.0: the Hybrid Long-term Care Policy

Posted by Andrew Byers | Feb 25, 2020 | 0 Comments

In Michigan, the statewide average cost of a nursing home is $8,618.00 per month in 2020. Other long-term care facilities such as assisted living and memory care facilities are also expensive. Medicare only covers up to 20 days and part of an additional 80 days of "skilled nursing" care in a nursing home, so Medicare is not much help in paying for long-term care, especially for the elderly who primarily need assistance with the activities of daily living or who have dementia. Medicare does not pay for the room and board of assisted living or memory care facilities at all.

Most seniors do not have traditional long-term care insurance, perhaps in part, because over time the annual premiums would rise and be unaffordable and difficulties in even obtaining long-term care (LTC) insurance in the first place. Also, people do not want to pay for insurance that might help pay for a place they do not want to go to in the first place (the nursing home). Also, while many people will need some level of long-term care, for some, it may only be for a few weeks or months, so the money spent on traditional long-term care policies might have been better to save or invest, though at a minimum, having insurance provides for some peace of mind.

However, there are new types of LTC insurance policies that avoid the affordability and use it or lose it issues of traditional policies.  These are “hybrid” policies which combine life insurance or an annuity with LTC coverage. (The benefits can be known as “accelerated death benefits” or “living benefits,” or the coverage can be called “life/long term care,” “linked benefits,” or a “combo” policy.)

This type of policy will pay if you need nursing home or other care, but, if you never need that, then the policy functions like standard whole-life coverage. It's a win-win. Say, for example, you buy a hybrid policy with a $100,000 death benefit. You eventually need $50,000 of that coverage to pay for LTC. Then, when you pass, your beneficiary would receive a $50,000 payout from what's left of the original $100,000 coverage.

Some plans offer tax-free death benefits to your heirs if your LTC benefits are not fully used or needed. They may return your premiums if you change your mind or need the money for other needs in the future. Premiums can be locked in from the initial purchase date, with a guarantee that they will never increase. Those who already hold a legacy policy with a large cash value may be able to roll that value over, tax free, into a new hybrid policy.

For those who can afford to pay premiums in a lump sum in advance, LTC coverage could amount to as much as twice the face value of the policy. Compare that with simply setting money aside for LTC expenses at a rate of five percent interest. It could take as long as thirty years to save for what this policy offered on its face.

There is a wide range of coverage, depending on the policies. They may cover different services, delivered at-home, in a facility, or both. The monthly or daily benefits can vary. Some policies require an elimination period (a delay between the time a doctor qualifies you for coverage, and actual payment); some do not. Some provide inflation protection. Some provide adjustable rates, depending on how much the insured might need LTC as against the death benefit.

For the most part, in Michigan, Medicaid only pays for nursing home care, not assisted living or memory care. There is a Medicaid home program, the MI Choice waiver, but many people are automatically disqualified by that program's hard income cap of $2,313.00 per month. As such, another benefit of having a Hybrid LTC policy is a senior who needs care can use it for home care or assisted living or memory care facilities that do not participate in Medicaid, which is most facilities in Oakland County, Michigan. Also, seniors can opt out of the Medicaid system completely, and avoid having to either spenddown or restructure their assets to qualify for Medicaid, file the application and annual determinations, and hire me to help them with all of that (though I do enjoy helping my clients obtain Medicaid to help pay for long-term care when that is the right option for them).

Due to the age wave (the increasing number of seniors and elderly) as well as our country's large debt and annual deficits, I am not counting on Medicaid being a good option to pay for long-term care 15 years from now. While Medicaid is a good option for many in 2020, due to these long-term financial challenges, what Medicaid may pay for in 2035 or later may not be what you want. As such, people in their 50s and 60s today should consider hybrid LTC policies so they have more and better long-term care options when they are elderly.

We can create an estate and longevity plan that incorporates a hybrid LTC policy with a trust that provides for management of assets upon incapacity and asset protection. If you want to be proactive in providing for your own care, I would welcome the opportunity to discuss a plan that works for you.

About the Author

Andrew Byers

Andrew Byers' elder law practice focuses on the legal needs of older clients and their families, and works with a variety of legal tools and techniques to meet the goals and objectives of the older client. Under this holistic approach, I handle estate and longevity planning issues and counsel cli...

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