©2015, College for Financial Planning, all rights reserved. Session 13 Long-Term Care Insurance CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Financial Planning Process & Insurance

Session Details Module8 Chapter(s)6 LOs Identify the key considerations that must be taken into account in purchasing long-term care insurance. Explain the issues of long-term care as related to Medicare and Medicaid. Explain why the key provisions in a long-term care contract are important. 13-2

The Planner’s Role Raise the issue Calculate the gap between income stream and annual needed resources Identify consequences to family/dependents/caretakers/portfolio ability to support and potential of returning home after LTC stay Evaluate and provide options and costs 13-3

The Odds and Costs 60% of those over 65 will need some form of care 22% of men and 41% of women will have a skilled nursing facility stay 14% of men and 31% of women will need a stay longer than one year Average stay is a little more than 2.3 years Costs vary widely state to state Colorado averages: o skilled nursing facility – $79,205 o assisted living costs – $39,750 o home health aide services – $50,336 o It’s easy to see a client using combination of services over the years exceeding $400,

Levels of Health Care for Long-Term Care Skilled Care (SNC) 24-hour registered nurse available; supervision of a doctor Intermediate Care Less intensive nursing or rehabilitative care Custodial Care Assistance necessary for health and maintenance of individual Home Care Care in patient’s home; first level of care that is not institutional Respite Care Allows the primary caregiver a break from caregiving duties 13-5

Activities of Daily Living (ADLs) Dressing Transferring Toileting Eating Bathing Maintaining continence Cognitive impairment*/ dementia (e.g., Alzheimer’s) *Should cognitive impairment occur, it supersedes policy requirements for inability to perform two ADLs. 13-6

Important Long-Term Care Policy Provisions 1. Prior hospitalization requirement (such policies are to be avoided) 2. Level of care required for initial benefit payments to begin 3. Elimination period (waiting period from eligibility until payments begin) 4. Benefit period 5. Renewability and time of underwriting 13-7

Important Long-Term Care Policy Provisions continued 6.Pre-existing condition waiting period 7.Waiver of premium 8.Nursing facility requirements 9.Qualification for home health care benefits 10.Benefit amounts 11.Inflation rider availability 13-8

HIPAA Qualification Only two ADLs or cognitive impairment required as benefit triggers Nonforfeiture benefits (examples) o Reduced paid-up benefit o Specified pool of money o Shortened benefit period o May not include cash refund Guaranteed renewable Conforms with NAIC LTCI model regulation 13-9

LTCI Benefits Tax Issues Benefits Paid either as per diem or actual expenses Payments for qualified LTC expenses excludible from income Taxability (if any) calculated by formula using an annually indexed per diem amount ($330 in 2015) Reimbursement for actual expenses not normally taxable 13-10

Qualified or Nonqualified? Qualified policies have tax deductible premiums (HIPAA-qualified) However, LTC expenses now qualify as medical expense for income tax (Schedule A, in 2015, 7.5% floor applies for seniors) Choose the best policy: qualified or nonqualified to meet the client’s needs Tax issues should be a secondary consideration 13-11

Premium Deductibility Annual deductible amounts of premiums paid for qualified LTCI policies: AgeLimit Age 40 or under$380 Ages 41–50$710 Ages 51–60$1,430 Ages 61–70$3,800 Age 71+$4,

Medicare and Long-Term Care Limited (if any) LTC benefits from Medicare Requirements Must spend at least three days in a hospital as an admitted patient (not for observation) Must enter a Medicare-approved skilled nursing facility within 30 days of hospital release Benefits First 20 days paid in full Days paid with a daily deductible ($ in 2015) Days 100+ no benefit Limited home health care 13-13

Medicaid LTC benefits for the impoverished Rules vary by state General Requirements o Must be medically certified as needing care o Must “spend down” assets (be impoverished) o Specific asset/income requirements also vary by state Considerations o Quality of care o Impoverishment issues o Potential penalties for improper asset transfer o Availability of Medicaid patient beds 13-14

Partnership Plans State approved plans Allows the pool of money purchased to be excluded from Medicaid spend down requirements. Example: Lisa purchases a policy with a pool of $300,000. If her state requires a spend-down to $2,000 beyond the house and the car, she would qualify for Medicaid while retaining $302,000 in assets. If married, this would be in addition to the spouse’s available assets, thus, protecting the spouse to a higher level

Factors Influencing Amount Identified income gap Consequences to spouse/dependents and financial security of individual Size of portfolio and other assets that could be liquidated versus Medicaid planning Availability and willingness of family support Availability and willingness to pay premiums Desired goals of individual 13-16

The Options Self-pay (retain the risk) Reverse mortgage Spend down to Medicaid Traditional LTC policy/ joint policy Life insurance with LTC rider Annuity with LTC rider 13-17

Question 1 Which one of the following is considered to be the highest level of long-term care? a.custodial care b.respite care c.skilled nursing care d.intermediate care e.home care 13-18

Question 2 Which of the following stipulations must be met for Medicare to cover the cost of long-term care? a.The care can be needed either full- or part- time. b.The patient’s condition must be expected to improve. c.The need for care can be determined by the patient’s family. d.The care can be either skilled or unskilled

Question 3 HIPAA requires qualified long-term care policies to adhere to which of the following guidelines? I.They must recognize five or six ADLs. II.They must cover cognitive impairment. III.Reinstatement must be possible if a policy lapses due to cognitive impairment. a.I only b.II only c.I and III only d.I, II, and III 13-20

Question 4 When determining how much long-term care insurance to buy, all of the following should be considered except a.the cost of long-term care in the client’s area. b.marital status of the client. c.HIPAA qualification. d.daily benefit amount offered by the policy

©2015, College for Financial Planning, all rights reserved. Session 13 End of Slides CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Financial Planning Process & Insurance