Protecting
Assets Through Long Term Care Insurance
B.
Douglas Hayes
For individuals who turned age 65 in 1990, 43% will enter
a nursing home at some point during the remainder of their lives. Of
those who enter a nursing home, 55% will need care for at least one
year, and 20% will need care for five or more years. The average cost
of nursing home care in Indiana in 1998 was $40,515 per year. As a result,
many seniors are at risk of spending down all of their assets on nursing
home or other long term care costs.
One excellent method of protecting a senior's assets
from being used entirely for nursing home costs is through long term
care insurance. Long term care insurance may be designed to pay for
nursing home costs, in-home care, and adult day care. Long term care
insurance usually pays a maximum per diem dollar amount for a period
of years or until a maximum dollar amount is reached.
Indiana has provided a particularly interesting incentive
for the purchase of long term care insurance through a partnership between
the Medicaid program and private insurance companies. Policies approved
under the program are known as "Partnership Policies."
Partnership Policies offer Medicaid asset protection.
This allows an individual to protect one dollar of assets for every
dollar of benefits paid out by an individual's Partnership Policy. For
example, if a Partnership Policy pays out $100,000 in benefits, an additional
$100,000 of the insured's assets are protected, rather than just the
$1,500 otherwise allowed by Medicaid law. In that example, when the
individual's countable assets are reduced to $101,500 ($100,000 plus
$1,500), Medicaid will begin paying for nursing home costs. Upon the
individual's death, the protected assets can be distributed to beneficiaries
and the State will not assert a lien against the assets for Medicaid
benefits paid.
Indiana also has a state-set dollar amount that allows
an individual to protect all of his or her assets. The state-set minimum
in 2001 is $162,068. If an individual purchases an Indiana Partnership
Policy that pays this state-set minimum, the individual will be able
to have Medicaid pay for all of his nursing home care after payment
of the Partnership Policy benefits. Indiana's program is one of only
four such programs in the country, the others being in California, Connecticut,
and New York.
Long term care insurance is not for everyone. For people
who have little or no assets, there is not much point in long term care
insurance. Further, individuals who have a limited ability to pay premiums
should not spend money on premiums that they may need for the essentials
of daily living. Individuals who already have serious health problems
will not likely be able to qualify for long term care insurance. Finally,
individuals who have enough income through investments, retirement plans,
and Social Security to fully pay for nursing home care through income
alone may not need long term care insurance.
Whether a long term care insurance policy qualifies as
a Partnership Policy can be determined by looking at the front page
of the policy, the outline of coverage, or the application. A Partnership
Policy will have the following statement:
This policy qualifies under the Indiana Long Term
Care Insurance Program for Medicaid Asset Protection. This policy
may provide benefits in excess of the asset protection provided in
the Indiana Long Term Care Program.
Long term care policies that do not qualify as a Partnership
Policy will not have this language. Non-qualifying policies may still
be beneficial, but they will not have the asset protection feature of
a Partnership Policy.
Owners of long term care policies issued after January
1, 1997 that meet certain federal tax guidelines may be able to deduct
the premiums as part of their medical expense deductions on the federal
returns. All long term care policies issued before January 1, 1997 are
automatically grandfathered into the deductions. Policies issued after
January 1, 1997 that qualify for this federal tax break will have language
similar to the following on the policy and outline of coverage:
This policy is intended to be a Qualified Long Term
Care Insurance Contract under Section 7702B(b) of the Internal Revenue
Code of 1986, as amended.
Only Indiana Partnership Policies qualify for an Indiana
tax deduction. If an individual has a federally tax qualified Indiana
Partnership Policy, he can take both the federal medical expense deduction
and the Indiana tax deduction.
Indiana Partnership Policies are not purchased through
the state but are purchased through private insurance companies. A number
of local agents sell Indiana Partnership Policies and are well qualified
to further explain benefits of such policies. A listing of agents who
have completed special classes on long term care policies and met other
criteria to be classified as Indiana Partnership Select Agents can be
found on the internet at www.state.in.us/
fssa/iltcp/index.html.
While information in this article is believed to be
accurate, it is educational and general in nature, and should not be
construed as legal advice. Please consult your attorney for specific
legal advice. Yoder, Ainlay, Ulmer & Buckingham, LLP © 2001
Yoder,
Ainlay, Ulmer & Buckingham, LLP