Long Term Care Insurance

With modern medical science, the good news is that more people are living longer. The down side is that more people are requiring long-term care, such as nursing homes, for chronic illnesses. With the average nursing home cost in Northern Virginia at over $5,000 per month, those who find themselves in the need for long-term care are scrambling to find a way to pay for it.

One common solution is for the person to apply for Medicaid. This is a government-sponsored health insurance program for the needy. To qualify, a person’s medical expenses must be greater than his or her monthly income, and the person’s countable resources must be below $2,000 for a single person and $3,000 for a married couple.

However, the increased costs of medical services to the elderly has become a larger burden on the Government. The Government’s response has been to encourage more and more people to buy long-term care insurance. That is, an insurance policy to provide benefits when a person finds himself or herself in need of long-term care. Unfortunately, with some premiums reaching over $300 per month, people have been resistant to buy long-term care insurance.

In 2005, the Federal Government tried the “stick” approach to encouraging people to buy long-term care insurance. Congress passed the Deficit Reduction Act (“DRA”), which had a huge impact on Medicaid applicants. In order to qualify for Medicaid, a person cannot give resources away for nothing. The 2005 DRA changed the way that the period of ineligibility is calculated for those who do try to give assets away. It increased the look-back period to five years before the Medicaid application. Plus, the period of ineligibility ran from the date of the application, no matter when the uncompensated transfer took place in that five year look-back period.

In 2007, Virginia took a “carrot” approach, instituting the Long-Term Care Insurance Partnership. Now, in Virginia, if a person buys a qualified long-term care insurance policy, that person will be able to protect additional resources when qualifying for Medicaid. That is, for every dollar paid out under a qualifying insurance policy, the countable resource limit is increased by a dollar. For example, if a person receives $100,000 in insurance proceeds, then that person can protect an additional $100,000 as a non-countable resource when applying for Medicaid.

Purchasing long-term care insurance also has income tax advantages. If the policy is employer-provided, then any amount paid by the employer is not included in the employee’s income. Moreover, qualifying amounts paid by the employee will count toward the employee’s medical expense deduction. In 2009, for people under the age of 40, that amount was $320. For people between 41 and 50, the amount was $600. For people between the age of 51 and 60, the amount was $1190. For people between the age of 61 and 70, the amount was $3180. For people 71 and over, the amount was $3980.

Thus, there are advantages to purchasing long-term care insurance. You should discuss long-term care insurance as part of your estate plan, to protect your wealth from medical expenses. To find a plan that is right for you, talk with a qualified long-term insurance agent.