Long-term Care Insurance

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willthrill81
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Re: Long-term Care Insurance

Post by willthrill81 »

WoW2012 wrote: Mon Oct 15, 2018 11:24 pm
willthrill81 wrote: Mon Oct 15, 2018 11:00 pm
WoW2012 wrote: Mon Oct 15, 2018 10:47 pm Obviously you guys had never priced a "Medicaid-compliant" annuity. I have.
Obviously, you're jumping to conclusions.

Here's a quote from www.immediateannuities.com. It is for a 70 year old female.

For a $1 million premium, the payout is $6,075 monthly, which is $72,900 annually. At that rate, it will take 13.72 years to recover the nominal premium paid. According to the Social Security Administration, a 70 year old female has a life expectancy of 17.4 years. That comes out to a 2.72% interest rate. And that's a positive rate. It's not high, but that's largely a function of current bond yields.

That's not a Medicaid compliant annuity.
Care to explain why you think that?

Again,
In order to qualify as a Medicaid-compliant annuity under federal law, the terms of the annuity contract must satisfy certain criteria. The income from the annuity contract must be payable only to the community spouse, the contract must be irrevocable and non-assignable, and the payment term must be based on the life expectancy of the community spouse. Payments must be made in equal installments (i.e., there can be no balloon-type payment) and the annuity cannot be a deferred annuity.
https://www.thinkadvisor.com/2017/05/17 ... 0915233135

The annuity I examined would meet all of these requirements.
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Northern Flicker
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Re: Long-term Care Insurance

Post by Northern Flicker »

Yes, a good elder care attorney is a must for anyone doing serious LTC planning.

If you don't have a desire for a legacy, the issue is much simpler. You can just wait until one spouse needs LTC, then annuitize 'countable' assets for the benefit of the other spouse. If both spouses need LTC simultaneously, then whatever assets/income are available will fund the LTC, with Medicaid stepping in to pay any difference.
States have started challenging the strategy and what works today may not work when the first spouse requires LTC. This makes using this strategy for planning purposes a bit tenuous.

It is reasonable that a healthy spouse should benefit from the combined assets at the same level he or she would have benefited if both spouses remained healthy, but not reasonable that one spouse benefit from most or all of the combined assets while the other spouse is supported with LTC and living expenses on the public dime.

States are likely to continue to push back on arrangements that are more like the latter situation above than the former situation, and there are likely to be changes in what is allowed between now and when someone might need LTC.
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ResearchMed
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Re: Long-term Care Insurance

Post by ResearchMed »

jalbert wrote: Tue Oct 16, 2018 2:12 pm
Yes, a good elder care attorney is a must for anyone doing serious LTC planning.

If you don't have a desire for a legacy, the issue is much simpler. You can just wait until one spouse needs LTC, then annuitize 'countable' assets for the benefit of the other spouse. If both spouses need LTC simultaneously, then whatever assets/income are available will fund the LTC, with Medicaid stepping in to pay any difference.
States have started challenging the strategy and what works today may not work when the first spouse requires LTC. This makes using this strategy for planning purposes a bit tenuous.

It is reasonable that a healthy spouse should benefit from the combined assets at the same level he or she would have benefited if both spouses remained healthy, but not reasonable that one spouse benefit from most or all of the combined assets while the other spouse is supported with LTC and living expenses on the public dime.

States are likely to continue to push back on arrangements that are more like the latter situation above than the former situation, and there are likely to be changes in what is allowed between now and when one might need LTC.
This ("sharing" the annuitized resources) makes a lot more sense from a basic fairness perspective.
It doesn't shield "everything", but it allows the healthy spouse - who, after all, might later need LTC him/herself - to have access to half of the shared/accumulated pot.

We'd be quite satisfied with that.
What we really need to look into is what happens if there have been payments to a LTC facility, as is often required, but based upon a "couple" entering and planning to spend their remaining lives there. And especially if the facility has the type of upfront charge where some portion is returned at the end.

Separately, has anyone had any experience with these partially refundable large-ish deposits, but negotiated to have a smaller deposit, with a smaller percentage (or zero) refund?

SO many questions... whew...
And as mentioned above, a possibly changing target.
:confused

RM
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WoW2012
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Re: Long-term Care Insurance

Post by WoW2012 »

willthrill81 wrote: Mon Oct 15, 2018 11:54 pm
WoW2012 wrote: Mon Oct 15, 2018 11:24 pm
willthrill81 wrote: Mon Oct 15, 2018 11:00 pm
WoW2012 wrote: Mon Oct 15, 2018 10:47 pm Obviously you guys had never priced a "Medicaid-compliant" annuity. I have.
Obviously, you're jumping to conclusions.

Here's a quote from www.immediateannuities.com. It is for a 70 year old female.

For a $1 million premium, the payout is $6,075 monthly, which is $72,900 annually. At that rate, it will take 13.72 years to recover the nominal premium paid. According to the Social Security Administration, a 70 year old female has a life expectancy of 17.4 years. That comes out to a 2.72% interest rate. And that's a positive rate. It's not high, but that's largely a function of current bond yields.

That's not a Medicaid compliant annuity.
Care to explain why you think that?

Again,
In order to qualify as a Medicaid-compliant annuity under federal law, the terms of the annuity contract must satisfy certain criteria. The income from the annuity contract must be payable only to the community spouse, the contract must be irrevocable and non-assignable, and the payment term must be based on the life expectancy of the community spouse. Payments must be made in equal installments (i.e., there can be no balloon-type payment) and the annuity cannot be a deferred annuity.
https://www.thinkadvisor.com/2017/05/17 ... 0915233135

The annuity I examined would meet all of these requirements.
First off, Medicaid-compliant annuities are not life annuities. They are period certain only. For example, if the annuity is being purchased on a 79-year-old woman, her Medicaid life expectancy is 9.67 years. The SPIA must fully pay all payments in less than 9.67 years. There's no "life contingency".

The very concept of a “Medicaid-qualified” (or Medicaid-friendly/Medicaid-compliant) annuity is that it is MEDICAID-QUALIFIED!!! Which means it CANNOT just be any old SPIA off the shelf. Technically you could use any SPIA, IF – and it’s a BIG IF – the issuing company is willing to issue it with the Medicaid-qualifying features.

Most insurance companies will NOT ISSUE their SPIA with the Medicaid-qualifying requirements.

There are only a handful of insurance companies that will (only three that I'm aware of and it's not available in every state). Those few insurers that do issue Medicaid-compliant annuities charge an arm and a leg for them because they know you're between a rock and a hard place. The last time I priced one was for a woman in her early 80's and her life expectancy was 8 years. The total payouts over the 8 year period were LESS THAN the single premium deposit. That was NOT a typo. The total payments over 8 years was LESS than the single premium deposit. (That is why I said the "return" is negative, because it IS negative.)

Since DRA, the only play for a Medicaid-SPIA is if spend-down assets are used to purchase the annuity in the name of the Community Spouse to increase his or her income and standard of living. But even this loophole is closing. Some states have begun to limit the amount of money used to purchase a Medicaid-qualified annuity to be no more than is necessary to bring a Community Spouse up to the Minimum Monthly Maintenance Needs Allowance (MMMNA). FYI, the MMMNA for 2018 ranges between $2,057 per month to $3,090 per month. How comfortably can your spouse live on that?
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ResearchMed
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Re: Long-term Care Insurance

Post by ResearchMed »

WoW2012 wrote: Tue Oct 16, 2018 3:00 pm
willthrill81 wrote: Mon Oct 15, 2018 11:54 pm
WoW2012 wrote: Mon Oct 15, 2018 11:24 pm
willthrill81 wrote: Mon Oct 15, 2018 11:00 pm
WoW2012 wrote: Mon Oct 15, 2018 10:47 pm Obviously you guys had never priced a "Medicaid-compliant" annuity. I have.
Obviously, you're jumping to conclusions.

Here's a quote from www.immediateannuities.com. It is for a 70 year old female.

For a $1 million premium, the payout is $6,075 monthly, which is $72,900 annually. At that rate, it will take 13.72 years to recover the nominal premium paid. According to the Social Security Administration, a 70 year old female has a life expectancy of 17.4 years. That comes out to a 2.72% interest rate. And that's a positive rate. It's not high, but that's largely a function of current bond yields.

That's not a Medicaid compliant annuity.
Care to explain why you think that?

Again,
In order to qualify as a Medicaid-compliant annuity under federal law, the terms of the annuity contract must satisfy certain criteria. The income from the annuity contract must be payable only to the community spouse, the contract must be irrevocable and non-assignable, and the payment term must be based on the life expectancy of the community spouse. Payments must be made in equal installments (i.e., there can be no balloon-type payment) and the annuity cannot be a deferred annuity.
https://www.thinkadvisor.com/2017/05/17 ... 0915233135

The annuity I examined would meet all of these requirements.
First off, Medicaid-compliant annuities are not life annuities. They are period certain only. For example, if the annuity is being purchased on a 79-year-old woman, her Medicaid life expectancy is 9.67 years. The SPIA must fully pay all payments in less than 9.67 years. There's no "life contingency".

The very concept of a “Medicaid-qualified” (or Medicaid-friendly/Medicaid-compliant) annuity is that it is MEDICAID-QUALIFIED!!! Which means it CANNOT just be any old SPIA off the shelf. Technically you could use any SPIA, IF – and it’s a BIG IF – the issuing company is willing to issue it with the Medicaid-qualifying features.

Most insurance companies will NOT ISSUE their SPIA with the Medicaid-qualifying requirements.

There are only a handful of insurance companies that will (only three that I'm aware of and it's not available in every state). Those few insurers that do issue Medicaid-compliant annuities charge an arm and a leg for them because they know you're between a rock and a hard place. The last time I priced one was for a woman in her early 80's and her life expectancy was 8 years. The total payouts over the 8 year period were LESS THAN the single premium deposit. That was NOT a typo. The total payments over 8 years was LESS than the single premium deposit. (That is why I said the "return" is negative, because it IS negative.)

Since DRA, the only play for a Medicaid-SPIA is if spend-down assets are used to purchase the annuity in the name of the Community Spouse to increase his or her income and standard of living. But even this loophole is closing. Some states have begun to limit the amount of money used to purchase a Medicaid-qualified annuity to be no more than is necessary to bring a Community Spouse up to the Minimum Monthly Maintenance Needs Allowance (MMMNA). FYI, the MMMNA for 2018 ranges between $2,057 per month to $3,090 per month. How comfortably can your spouse live on that?
So for a spouse who has this type of annuity - let's say with all assets but not topping, say, $3k/mo - IF they are in the group that lives longer than the expected value... they must be destitute for their remaining life?

RM
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WoW2012
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Re: Long-term Care Insurance

Post by WoW2012 »

ResearchMed wrote: Tue Oct 16, 2018 3:03 pm
So for a spouse who has this type of annuity - let's say with all assets but not topping, say, $3k/mo - IF they are in the group that lives longer than the expected value... they must be destitute for their remaining life?

RM
The spouse would still get his/her social security and/or pensions.
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ResearchMed
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Re: Long-term Care Insurance

Post by ResearchMed »

WoW2012 wrote: Tue Oct 16, 2018 3:05 pm
ResearchMed wrote: Tue Oct 16, 2018 3:03 pm
So for a spouse who has this type of annuity - let's say with all assets but not topping, say, $3k/mo - IF they are in the group that lives longer than the expected value... they must be destitute for their remaining life?

RM
The spouse would still get his/her social security and/or pensions.
Lower income are unlikely to have substantial pensions.

Even we have none, and we aren't close to lower-income.

Those "pensions" are becoming dinosaurs, being transformed into the defined contribution, which is how many of us would have $$ for any annuities in the first place.

RM
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ResearchMed
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Re: Long-term Care Insurance

Post by ResearchMed »

ResearchMed wrote: Tue Oct 16, 2018 3:08 pm
WoW2012 wrote: Tue Oct 16, 2018 3:05 pm
ResearchMed wrote: Tue Oct 16, 2018 3:03 pm
So for a spouse who has this type of annuity - let's say with all assets but not topping, say, $3k/mo - IF they are in the group that lives longer than the expected value... they must be destitute for their remaining life?

RM
The spouse would still get his/her social security and/or pensions.
Lower income are unlikely to have substantial pensions.

Even we have none, and we aren't close to lower-income.

Those "pensions" are becoming dinosaurs, being transformed into the defined contribution, which is how many of us would have $$ for any annuities in the first place.

RM
This might be state specific, no surprise.
Although I didn't "get" ALL of it when I read the state requirements, it certainly didn't look like what you describe.

But I'll look again. It's been a few months.

RM
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WoW2012
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Re: Long-term Care Insurance

Post by WoW2012 »

ResearchMed wrote: Tue Oct 16, 2018 3:09 pm
This might be state specific, no surprise.
Although I didn't "get" ALL of it when I read the state requirements, it certainly didn't look like what you describe.

But I'll look again. It's been a few months.

RM

What didn't look like what I described?
DC3509
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Re: Long-term Care Insurance

Post by DC3509 »

WoW2012 wrote: Tue Oct 16, 2018 3:00 pm
willthrill81 wrote: Mon Oct 15, 2018 11:54 pm
WoW2012 wrote: Mon Oct 15, 2018 11:24 pm
willthrill81 wrote: Mon Oct 15, 2018 11:00 pm
WoW2012 wrote: Mon Oct 15, 2018 10:47 pm Obviously you guys had never priced a "Medicaid-compliant" annuity. I have.
Obviously, you're jumping to conclusions.

Here's a quote from www.immediateannuities.com. It is for a 70 year old female.

For a $1 million premium, the payout is $6,075 monthly, which is $72,900 annually. At that rate, it will take 13.72 years to recover the nominal premium paid. According to the Social Security Administration, a 70 year old female has a life expectancy of 17.4 years. That comes out to a 2.72% interest rate. And that's a positive rate. It's not high, but that's largely a function of current bond yields.

That's not a Medicaid compliant annuity.
Care to explain why you think that?

Again,
In order to qualify as a Medicaid-compliant annuity under federal law, the terms of the annuity contract must satisfy certain criteria. The income from the annuity contract must be payable only to the community spouse, the contract must be irrevocable and non-assignable, and the payment term must be based on the life expectancy of the community spouse. Payments must be made in equal installments (i.e., there can be no balloon-type payment) and the annuity cannot be a deferred annuity.
https://www.thinkadvisor.com/2017/05/17 ... 0915233135

The annuity I examined would meet all of these requirements.
First off, Medicaid-compliant annuities are not life annuities. They are period certain only. For example, if the annuity is being purchased on a 79-year-old woman, her Medicaid life expectancy is 9.67 years. The SPIA must fully pay all payments in less than 9.67 years. There's no "life contingency".

The very concept of a “Medicaid-qualified” (or Medicaid-friendly/Medicaid-compliant) annuity is that it is MEDICAID-QUALIFIED!!! Which means it CANNOT just be any old SPIA off the shelf. Technically you could use any SPIA, IF – and it’s a BIG IF – the issuing company is willing to issue it with the Medicaid-qualifying features.

Most insurance companies will NOT ISSUE their SPIA with the Medicaid-qualifying requirements.

There are only a handful of insurance companies that will (only three that I'm aware of and it's not available in every state). Those few insurers that do issue Medicaid-compliant annuities charge an arm and a leg for them because they know you're between a rock and a hard place. The last time I priced one was for a woman in her early 80's and her life expectancy was 8 years. The total payouts over the 8 year period were LESS THAN the single premium deposit. That was NOT a typo. The total payments over 8 years was LESS than the single premium deposit. (That is why I said the "return" is negative, because it IS negative.)

Since DRA, the only play for a Medicaid-SPIA is if spend-down assets are used to purchase the annuity in the name of the Community Spouse to increase his or her income and standard of living. But even this loophole is closing. Some states have begun to limit the amount of money used to purchase a Medicaid-qualified annuity to be no more than is necessary to bring a Community Spouse up to the Minimum Monthly Maintenance Needs Allowance (MMMNA). FYI, the MMMNA for 2018 ranges between $2,057 per month to $3,090 per month. How comfortably can your spouse live on that?
Which states, specifically? If anything, I thought the trend was in the opposite direction -- see this important court decision from a few years ago.

http://www.paelderlaw.com/federal-appea ... annuities/

Here is a good guidebook to PA law -- and I have reproduced the key example on pg. 11. The return is not $0 -- and in any event, as I said before, the key is to avoid spending all of your assets at a nursing home when you don't otherwise have LTCI and don't have a lot of great options. The annuities are one potential option.

http://www.paannuity.com/pdf/guide_to_dra_annuities.pdf

On September 1, 2006, Theodore Weatherbee was admitted to a nursing facility in Warren, Pennsylvania.
Mr. Weatherbee and his wife, Adeline, had countable resources worth $543,635. After allowing for the
community spouse resource allowance, the couple had $442,695 in available resources. If the couple had
retained these resources, Mr. Weatherbee would never qualify for any Medicaid assistance. Instead, with
the advice of her elder law attorney Mrs. Weatherbee took the following actions:
1. She had already spent over $20,000 by privately paying for Mr. Weatherbee’s care before she
consulted the elder law attorney.
2. She spent $10,000 on two pre-paid funerals.
3. She spent $21,252 on a new vehicle.
4. With the remaining excess resources she purchased a DRA-compliant annuity that provided her
with payments of $4,423.47 per month over 107 months. Over the life of this annuity she will
receive $473,261 in payments.
5. In February 2007, Mr. Weatherbee applied for Medicaid long term care benefits.
6. The Weatherbee court held that the annuity must be disregarded in determining Mr. Weatherbee’s
eligibility for Medicaid.
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ResearchMed
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Re: Long-term Care Insurance

Post by ResearchMed »

WoW2012 wrote: Tue Oct 16, 2018 3:12 pm
ResearchMed wrote: Tue Oct 16, 2018 3:09 pm
This might be state specific, no surprise.
Although I didn't "get" ALL of it when I read the state requirements, it certainly didn't look like what you describe.

But I'll look again. It's been a few months.

RM

What didn't look like what I described?
I'll need to look it all up again.
I would have remembered just what I commented about here just now.

RM
This signature is a placebo. You are in the control group.
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ResearchMed
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Re: Long-term Care Insurance

Post by ResearchMed »

WoW2012 wrote: Tue Oct 16, 2018 3:12 pm
ResearchMed wrote: Tue Oct 16, 2018 3:09 pm
This might be state specific, no surprise.
Although I didn't "get" ALL of it when I read the state requirements, it certainly didn't look like what you describe.

But I'll look again. It's been a few months.

RM

What didn't look like what I described?
The surviving spouse being indigent, unless she/he happened to have high SS and also some sort of pension.
Just like I commented, as I wrote.

I would have noticed that then, just like I noticed it here.

RM
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WoW2012
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Re: Long-term Care Insurance

Post by WoW2012 »

DC3509 wrote: Tue Oct 16, 2018 3:31 pm
Which states, specifically? If anything, I thought the trend was in the opposite direction -- see this important court decision from a few years ago.

http://www.paelderlaw.com/federal-appea ... annuities/

Here is a good guidebook to PA law -- and I have reproduced the key example on pg. 11. The return is not $0 -- and in any event, as I said before, the key is to avoid spending all of your assets at a nursing home when you don't otherwise have LTCI and don't have a lot of great options. The annuities are one potential option.

http://www.paannuity.com/pdf/guide_to_dra_annuities.pdf

On September 1, 2006, Theodore Weatherbee was admitted to a nursing facility in Warren, Pennsylvania.
Mr. Weatherbee and his wife, Adeline, had countable resources worth $543,635. After allowing for the
community spouse resource allowance, the couple had $442,695 in available resources. If the couple had
retained these resources, Mr. Weatherbee would never qualify for any Medicaid assistance. Instead, with
the advice of her elder law attorney Mrs. Weatherbee took the following actions:
1. She had already spent over $20,000 by privately paying for Mr. Weatherbee’s care before she
consulted the elder law attorney.
2. She spent $10,000 on two pre-paid funerals.
3. She spent $21,252 on a new vehicle.
4. With the remaining excess resources she purchased a DRA-compliant annuity that provided her
with payments of $4,423.47 per month over 107 months. Over the life of this annuity she will
receive $473,261 in payments.
5. In February 2007, Mr. Weatherbee applied for Medicaid long term care benefits.
6. The Weatherbee court held that the annuity must be disregarded in determining Mr. Weatherbee’s
eligibility for Medicaid.

#1) You're using an example from 2006 to prove "the return is not $0"? Do you have a more recent example? IF you got a quote today, the return would be zero, probably negative.

#2) The trend is NOT to make these annuities more accessible and popular. With the aging of the Baby Boomers, states are faced with ballooning Medicaid budgets. They will do everything they can to fill loopholes like this.

#3) The point is NOT if Medicaid-compliant annuities work now. The point is: will they still work 10, 15, 20 years from now?
ralph124cf
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Re: Long-term Care Insurance

Post by ralph124cf »

WoW2012 wrote: Mon Oct 15, 2018 12:50 pm
ralph124cf wrote: Mon Oct 15, 2018 9:29 am My wife and I have LTCi policies with a one year elimination period. When shopping for policies this made a HUGE difference in the rates quoted. We also got a 40% discount for each of us, for both of us buying policies at the same time, even though she bought unlimited time with a 3% inflation rider while I only bought a six month limit after the one year elimination period, no inflation rider, and minimum benefit.

Ten years and no increase so far.

Ralph
There's no such thing as a long-term care policy with only six months of benefits.
I have one, purchased about ten years ago from Genworth Life. The cost is only $283.70 per year, with a one year elimination period. My wife's policy costs $2,268.70 per year, for an unlimited time, with a one year elimination period.

My mother-in-law also had a six month benefit policy from MetLife, purchased about 20 years ago, with a 90 day elimination period.

Ralph
ralph124cf
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Re: Long-term Care Insurance

Post by ralph124cf »

WoW2012 wrote: Mon Oct 15, 2018 1:27 pm
willthrill81 wrote: Sun Oct 14, 2018 9:54 pm Upon investigation, it seems that at least some states will allow an elimination period up to one year, but I can't find any longer than that. Someone here discussed why states don't allow longer periods, but I don't recall all of the specifics. I think it was something along the lines of preventing consumers from being sold policies that wouldn't benefit them unless they were able to first self-pay for multiple years of LTC, which clearly most Americans are not prepared to do.
fyi... the 365 day elimination period is probably only 5% cheaper than a 90-day elimination period.
When I shopped for our policies, there was close to a 60% price difference for the one year elimination period versus the 90 day elimination period. That was ten years ago, so I can't comment on today's price.

Ralph
WoW2012
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Re: Long-term Care Insurance

Post by WoW2012 »

ralph124cf wrote: Tue Oct 16, 2018 5:52 pm
WoW2012 wrote: Mon Oct 15, 2018 12:50 pm
ralph124cf wrote: Mon Oct 15, 2018 9:29 am My wife and I have LTCi policies with a one year elimination period. When shopping for policies this made a HUGE difference in the rates quoted. We also got a 40% discount for each of us, for both of us buying policies at the same time, even though she bought unlimited time with a 3% inflation rider while I only bought a six month limit after the one year elimination period, no inflation rider, and minimum benefit.

Ten years and no increase so far.

Ralph
There's no such thing as a long-term care policy with only six months of benefits.
I have one, purchased about ten years ago from Genworth Life. The cost is only $283.70 per year, with a one year elimination period. My wife's policy costs $2,268.70 per year, for an unlimited time, with a one year elimination period.

My mother-in-law also had a six month benefit policy from MetLife, purchased about 20 years ago, with a 90 day elimination period.

Ralph
Ralph, go find your policy and pull it out and read it.
If it has only six months of benefits then it is NOT long-term care insurance.
If it says "long-term care insurance" on the policy then it will have at least two years of benefits.
None of the 50 states allow long-term care insurance policies to have only six months of benefits.
Please report back after you've re-read your policy.
DC3509
Posts: 284
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Re: Long-term Care Insurance

Post by DC3509 »

WoW2012 wrote: Tue Oct 16, 2018 3:58 pm
DC3509 wrote: Tue Oct 16, 2018 3:31 pm
Which states, specifically? If anything, I thought the trend was in the opposite direction -- see this important court decision from a few years ago.

http://www.paelderlaw.com/federal-appea ... annuities/

Here is a good guidebook to PA law -- and I have reproduced the key example on pg. 11. The return is not $0 -- and in any event, as I said before, the key is to avoid spending all of your assets at a nursing home when you don't otherwise have LTCI and don't have a lot of great options. The annuities are one potential option.

http://www.paannuity.com/pdf/guide_to_dra_annuities.pdf

On September 1, 2006, Theodore Weatherbee was admitted to a nursing facility in Warren, Pennsylvania.
Mr. Weatherbee and his wife, Adeline, had countable resources worth $543,635. After allowing for the
community spouse resource allowance, the couple had $442,695 in available resources. If the couple had
retained these resources, Mr. Weatherbee would never qualify for any Medicaid assistance. Instead, with
the advice of her elder law attorney Mrs. Weatherbee took the following actions:
1. She had already spent over $20,000 by privately paying for Mr. Weatherbee’s care before she
consulted the elder law attorney.
2. She spent $10,000 on two pre-paid funerals.
3. She spent $21,252 on a new vehicle.
4. With the remaining excess resources she purchased a DRA-compliant annuity that provided her
with payments of $4,423.47 per month over 107 months. Over the life of this annuity she will
receive $473,261 in payments.
5. In February 2007, Mr. Weatherbee applied for Medicaid long term care benefits.
6. The Weatherbee court held that the annuity must be disregarded in determining Mr. Weatherbee’s
eligibility for Medicaid.

#1) You're using an example from 2006 to prove "the return is not $0"? Do you have a more recent example? IF you got a quote today, the return would be zero, probably negative.

#2) The trend is NOT to make these annuities more accessible and popular. With the aging of the Baby Boomers, states are faced with ballooning Medicaid budgets. They will do everything they can to fill loopholes like this.

#3) The point is NOT if Medicaid-compliant annuities work now. The point is: will they still work 10, 15, 20 years from now?
Doth protest too much?

Look, I don't have a horse in this race. If you have millions of dollars and can self-insure -- great. If you bought a LTCI policy at a young age and have done well in life and the premiums are nothing to worry about -- good for you too. But there are definitely people out there like the Weatherbee's -- modest mid six figure assets, who, for one reason, or another, never bought LTCI and can't qualify now, especially when they are living off of modest pensions and social security. For that group -- Medicaid planning is an option that can help preserve assets. That's all. It is at least something that people in that boat should consider. I really don't know why that is a controversial point.

To your specific points --

1. Who knows what will happen 20 years from now? Maybe the few LTCI carriers left will go bust after the Baby Boomers and decide they aren't offering these policies any more. That seems to me to be just as likely an outcome. In any event, there are always long-term risks that must be managed -- people making decisions today based on ACA subsidies, etc. I don't see this annuity risk as any different from those risks.

2. The first case I linked to -- that expanded annuities -- was from 2015. Yes, states might try to find creative ways to clamp down on things -- elder law attorneys will continue to try to find creative ways to help their clients. I do think most Courts that have actually ruled on this have tended to rule against the state.
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Re: Long-term Care Insurance

Post by sandramjet »

DC3509 wrote: Tue Oct 16, 2018 3:31 pm The last time I priced one was for a woman in her early 80's and her life expectancy was 8 years. The total payouts over the 8 year period were LESS THAN the single premium deposit. That was NOT a typo. The total payments over 8 years was LESS than the single premium deposit. (That is why I said the "return" is negative, because it IS negative.)
How is this possible? When I look at the requirements for the annuities, it says:
it must meet three basic requirements:

It must be irrevocable--you cannot have the right to take the funds out of the annuity except through the monthly payments.
You must receive back at least what you paid into the annuity during your actuarial life expectancy. For instance, if you have an actuarial life expectancy of 10 years, and you pay $60,000 for an annuity, you must receive annuity payments of at least $500 a month ($500 x 12 x 10 = $60,000).
If you purchase an annuity with a term certain (see below), it must be shorter than your actuarial life expectancy.
The state must be named the remainder beneficiary up to the amount of Medicaid paid on the annuitant's behalf.
So if you have one that pays back less than the total paid in, I don't believe that was a medicaid compliant one. I can see how you might have a zero return, but not a negative return.
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celia
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Re: Long-term Care Insurance

Post by celia »

willyd123 wrote: Sun Oct 14, 2018 4:09 pm What do you think? What's the best place to go to buy a policy? Roughly how much should it cost assuming a 56 year old male and 53 year old female? Would you buy an asset-based policy (life insurance or annuity with rider) or just a regular LTC policy?
My last employer paid for LTC insurance for coverage up to $50K per year but we could add more (and inflation protection) by paying the extra premium. I started paying when I was in my 50s and after I retired, I started paying the whole premium. When I was deciding to continue it or not when I retired, I contacted them to see how someone would be able to collect the benefits or not. This is important to know. In my case, I/my POA would need to contact them BEFORE I was placed somewhere. They will check with my doctor to see what services I require and will only pay if the facility I go to is licensed to provide those services. I think they will help us find an appropriate place. In other words, just because you want to go to home X, that does not mean they will pay for it if it doesn't meet all your needs and is not licensed properly (ie, having staff with the appropriate credentials for my services, staffing ratio).

The premium is still less than $100 a month since I started so early and it has never increased. The employer's benefits department said that it shouldn't increase as long as they still have the benefit for the employees. I never expect it to pay for all my expenses (ie, inflation or possible specialized care), but will be happy if half of my costs are covered. I'll be happier still if I never need to use it! :beer
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Re: Long-term Care Insurance

Post by marcopolo »

ResearchMed wrote: Mon Oct 15, 2018 11:07 pm
willthrill81 wrote: Mon Oct 15, 2018 11:04 pm
ResearchMed wrote: Mon Oct 15, 2018 10:59 pmObviously, we'll need to look more at our state's particular Medicaid/etc., laws, but this is much better than I had assumed.
(Um, obviously, we haven't really started looking at this particular wrinkle yet.)

And then there is the complication of what if the two are already in a long-term care facility, where they was a lump deposit?

NOTE: We have no serious legacy desires, other than "whatever is left" (and we have designations for that already).
Our primary concern is the care and comfort of both/each of us, for whatever time remains.

I need to figure how this interacts with a joint annuity, or maybe that's no longer wise if there is a chance one of them might need ultra-long term care? We had assumed we'd annuitize a portion.
Yes, definitely... an elder care attorney/etc., is in the cards...

Thanks.

RM
No problem. :beer

Yes, a good elder care attorney is a must for anyone doing serious LTC planning.

If you don't have a desire for a legacy, the issue is much simpler. You can just wait until one spouse needs LTC, then annuitize 'countable' assets for the benefit of the other spouse. If both spouses need LTC simultaneously, then whatever assets/income are available will fund the LTC, with Medicaid stepping in to pay any difference.

It's situations where one spouse needs LTC and there is a desire for a significant bequest that it gets more difficult.
Is the same 5-year look-back required before one can "suddenly" annuitize away all the goodies, for benefit of spouse?

:annoyed

RM
This does seem like an interesting strategy to pursue within the bounds of what is allowed under various state/federal laws/regulations.

I am curious how you rationalize this for yourself (and spouse) while simultaneously expressing such contempt (in recent thread) for people who pursue similar strategies to get help paying for healthcare prior to needing LTC?
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Long-term Care Insurance

Post by WoW2012 »

sandramjet wrote: Wed Oct 17, 2018 12:56 am
DC3509 wrote: Tue Oct 16, 2018 3:31 pm The last time I priced one was for a woman in her early 80's and her life expectancy was 8 years. The total payouts over the 8 year period were LESS THAN the single premium deposit. That was NOT a typo. The total payments over 8 years was LESS than the single premium deposit. (That is why I said the "return" is negative, because it IS negative.)
How is this possible? When I look at the requirements for the annuities, it says:
it must meet three basic requirements:

It must be irrevocable--you cannot have the right to take the funds out of the annuity except through the monthly payments.
You must receive back at least what you paid into the annuity during your actuarial life expectancy. For instance, if you have an actuarial life expectancy of 10 years, and you pay $60,000 for an annuity, you must receive annuity payments of at least $500 a month ($500 x 12 x 10 = $60,000).
If you purchase an annuity with a term certain (see below), it must be shorter than your actuarial life expectancy.
The state must be named the remainder beneficiary up to the amount of Medicaid paid on the annuitant's behalf.
So if you have one that pays back less than the total paid in, I don't believe that was a medicaid compliant one. I can see how you might have a zero return, but not a negative return.
Even if it's zero, the opportunity cost makes it negative.
If all you do is get back what you put in, you lose all the earnings you would have had over several years.

Thrillwill thinks he can put a million dollars into one of these Medicaid annuities and get the taxpayer to pay for his care, while his wife gets back the million bucks. He has a vivid imagination.
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Re: Long-term Care Insurance

Post by willthrill81 »

WoW2012 wrote: Wed Oct 17, 2018 10:44 am
sandramjet wrote: Wed Oct 17, 2018 12:56 am
DC3509 wrote: Tue Oct 16, 2018 3:31 pm The last time I priced one was for a woman in her early 80's and her life expectancy was 8 years. The total payouts over the 8 year period were LESS THAN the single premium deposit. That was NOT a typo. The total payments over 8 years was LESS than the single premium deposit. (That is why I said the "return" is negative, because it IS negative.)
How is this possible? When I look at the requirements for the annuities, it says:
it must meet three basic requirements:

It must be irrevocable--you cannot have the right to take the funds out of the annuity except through the monthly payments.
You must receive back at least what you paid into the annuity during your actuarial life expectancy. For instance, if you have an actuarial life expectancy of 10 years, and you pay $60,000 for an annuity, you must receive annuity payments of at least $500 a month ($500 x 12 x 10 = $60,000).
If you purchase an annuity with a term certain (see below), it must be shorter than your actuarial life expectancy.
The state must be named the remainder beneficiary up to the amount of Medicaid paid on the annuitant's behalf.
So if you have one that pays back less than the total paid in, I don't believe that was a medicaid compliant one. I can see how you might have a zero return, but not a negative return.
Even if it's zero, the opportunity cost makes it negative.
If all you do is get back what you put in, you lose all the earnings you would have had over several years.
Even if all you do is break-even, which I don't believe is likely to be the case, that must be compared to the alternatives: paying for LTCi and hoping that rates don't go up dramatically and your insurer maintains the policy or becoming impoverished so that Medicaid will step in. None of these are ideal, but some are far less so than others.

What's your plan to deal with the risk of LTC?
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Re: Long-term Care Insurance

Post by DC3509 »

WoW2012 wrote: Wed Oct 17, 2018 10:44 am
sandramjet wrote: Wed Oct 17, 2018 12:56 am
DC3509 wrote: Tue Oct 16, 2018 3:31 pm The last time I priced one was for a woman in her early 80's and her life expectancy was 8 years. The total payouts over the 8 year period were LESS THAN the single premium deposit. That was NOT a typo. The total payments over 8 years was LESS than the single premium deposit. (That is why I said the "return" is negative, because it IS negative.)
How is this possible? When I look at the requirements for the annuities, it says:
it must meet three basic requirements:

It must be irrevocable--you cannot have the right to take the funds out of the annuity except through the monthly payments.
You must receive back at least what you paid into the annuity during your actuarial life expectancy. For instance, if you have an actuarial life expectancy of 10 years, and you pay $60,000 for an annuity, you must receive annuity payments of at least $500 a month ($500 x 12 x 10 = $60,000).
If you purchase an annuity with a term certain (see below), it must be shorter than your actuarial life expectancy.
The state must be named the remainder beneficiary up to the amount of Medicaid paid on the annuitant's behalf.
So if you have one that pays back less than the total paid in, I don't believe that was a medicaid compliant one. I can see how you might have a zero return, but not a negative return.
Even if it's zero, the opportunity cost makes it negative.
If all you do is get back what you put in, you lose all the earnings you would have had over several years.

Thrillwill thinks he can put a million dollars into one of these Medicaid annuities and get the taxpayer to pay for his care, while his wife gets back the million bucks. He has a vivid imagination.
Weatherbee did put in $450K into annuity; the taxpayers did pay for his care immediately; and his wife did get the money back. No? This was an actual legal case.
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Re: Long-term Care Insurance

Post by WoW2012 »

DC3509 wrote: Wed Oct 17, 2018 12:02 pm
Weatherbee did put in $450K into annuity; the taxpayers did pay for his care immediately; and his wife did get the money back. No? This was an actual legal case.
That case was from 12 years ago.
The Medicaid compliant annuities available for sale today return LESS than the premium paid.
Just because this is legal now does not guarantee that this will be legal 5, 10, 15 years from now.
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Re: Long-term Care Insurance

Post by WoW2012 »

willthrill81 wrote: Wed Oct 17, 2018 11:32 am

Even if all you do is break-even, which I don't believe is likely to be the case, that must be compared to the alternatives: paying for LTCi and hoping that rates don't go up dramatically and your insurer maintains the policy or becoming impoverished so that Medicaid will step in. None of these are ideal, but some are far less so than others.

What's your plan to deal with the risk of LTC?

...(hope) your insurer maintains the policy...

From this and other posts you've made, you seem to be under the impression that an insurance company can cancel a long-term care policy for any reason. That's false. Long-term care insurance policies canNOT be canceled by the insurance company. If the insurer stops selling new policies, they must continue to service and honor all the policies they ever sold. The only party that can cancel a long-term care policy is the policyholder. Over 100 insurance companies incurred long-term care insurance claims last year, totaling almost $15 Billion. 87 of those 100 companies don't sell long-term care insurance anymore, but they are legally obligated to pay all claims and service those policyholders.



...paying for LTCi and hoping that rates don't go up dramatically...

If long-term care policies had the same regulations today that they had 15 years ago, then, yes, I would be concerned about dramatic price increases. But just like new cars are safer because they have airbags and anti-lock brakes, LTCi policies are safer now because of the Rate Stability Regulation. To prevent rate increases, 41 states have enacted very strict pricing regulations for new policies.

For an insurance company to get approval to sell a new long-term care insurance policy today, the policy must comply with the following pricing regulations:

It must include ALL prior rate increases in the new pricing, and
It must include a pricing “cushion” (about 10%) as extra protection from future rate increases.

For example, if the older policy sold by the insurance company cost $1,000 per year for X benefits and that policy had an 80% rate increase, a new policy with X benefits must be priced no less than $1,980. Here’s how that’s calculated:

$1,000 (older policy pricing)
plus 80% (older policy rate increase)
plus 10% (cushion)
= $1,980 (new policy pricing)

So I'm not concerned about new policies have exorbitant rate increases because they already have all the old rate increases included in the current pricing.

Additionally, these 41 states have removed the profit incentive from rate increases. If an insurer seeks a rate increase on one of these newer policies, they have to REDUCE THEIR PROFITS and they can't price any net profit into the rate increase itself.

So, based upon the new regulations, I'm not worried about exorbitant rate increases on my long-term care policy.



...becoming impoverished so that Medicaid will step in...

44 states now offer Long-Term Care Partnership Programs which can protect 100% of your savings from Medicaid even if your long-term care policy runs out of benefits. 15 years ago most states did not have LTC Partnership Programs. If your policy ran out of benefits you were out of luck. Today, in 44 states, a consumer can protect most, if not all, of their assets if they buy a policy that has an amount of benefits equal to (or near) their net worth.
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Re: Long-term Care Insurance

Post by Artful Dodger »

From the OP...
I know that the market for LTC has been evolving since these products first came out and the premiums are much higher than they were. However, my understanding is that the reason for this is that insurance companies greatly under estimated persistence (the percentage of policy holders holding on to their policies) but have since repriced the policies so in theory, the prices should be leveling out.
FWIW, I do think today's policies, as well as those which have received recent increases, will be more stable going forward. Insurers underestimated claims in the early days, overestimated the number who would drop policies, and were more lenient in underwriting. In addition, we hit a patch of extremely low interest rates that caused a drop in expected revenue from the reserves set up to cover future claims. As WOW noted, there has been recent regulatory action to stabilize the market pricing.
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Re: Long-term Care Insurance

Post by DC3509 »

WoW2012 wrote: Wed Oct 17, 2018 12:29 pm
DC3509 wrote: Wed Oct 17, 2018 12:02 pm
Weatherbee did put in $450K into annuity; the taxpayers did pay for his care immediately; and his wife did get the money back. No? This was an actual legal case.
That case was from 12 years ago.
The Medicaid compliant annuities available for sale today return LESS than the premium paid.
Just because this is legal now does not guarantee that this will be legal 5, 10, 15 years from now.
As I said earlier, this can be true of anything -- ACA subsidies might go away, Congress might pass a law to severely limit the home interest mortgage deduction...oh wait, that happened! The fact that the case is 12 years old doesn't really matter -- it is the law now. My point in responding was that you said it can't be done with a million dollars -- of course it can. Most people with a million dollars do not want to do this strategy and for good reason -- but it is hypothetically possible even at a million dollars.
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Re: Long-term Care Insurance

Post by WoW2012 »

DC3509 wrote: Wed Oct 17, 2018 2:27 pm My point in responding was that you said it can't be done with a million dollars -- of course it can. Most people with a million dollars do not want to do this strategy and for good reason -- but it is hypothetically possible even at a million dollars.
The only way a $1,000,000 Medicaid-compliant annuity would work is if the community spouse spent ALL the income every year. For example:

Couple has $1,125,600 in countable assets.
Hubbie, in the nursing home, can only keep $3,000.
Wifey, at home, can keep $122,600.
They take the remaining $1,000,000 and buy Medicaid-compliant annuity.
Wife has 10 year life expectancy, so the annuity (in the best case) pays out $100,000 per year for 10 years.

The wife has to SPEND IT ALL every year. She can't put it in a savings account.
Every year the hubbie will have to be re-certified to continue to qualify for Medicaid.
If she puts $40,000 of the $100,000 into a savings account, she'll then have $162,600 in countable assets. That's over the limit. She'll have to spend that down.

The more money someone has the dumber it is to plan for Medicaid.
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Re: Long-term Care Insurance

Post by DC3509 »

WoW2012 wrote: Wed Oct 17, 2018 3:14 pm
DC3509 wrote: Wed Oct 17, 2018 2:27 pm My point in responding was that you said it can't be done with a million dollars -- of course it can. Most people with a million dollars do not want to do this strategy and for good reason -- but it is hypothetically possible even at a million dollars.
The only way a $1,000,000 Medicaid-compliant annuity would work is if the community spouse spent ALL the income every year. For example:

Couple has $1,125,600 in countable assets.
Hubbie, in the nursing home, can only keep $3,000.
Wifey, at home, can keep $122,600.
They take the remaining $1,000,000 and buy Medicaid-compliant annuity.
Wife has 10 year life expectancy, so the annuity (in the best case) pays out $100,000 per year for 10 years.

The wife has to SPEND IT ALL every year. She can't put it in a savings account.
Every year the hubbie will have to be re-certified to continue to qualify for Medicaid.
If she puts $40,000 of the $100,000 into a savings account, she'll then have $162,600 in countable assets. That's over the limit. She'll have to spend that down.

The more money someone has the dumber it is to plan for Medicaid.
Can you give a source for this? I am not an expert on this, but it was my understanding that you have one snapshot date and that Medicaid does not go through all of your finances every year. How would that even work on a practical level if what you are saying is true? You start with $122,600. Let's say you have a good year in the market and the amount increases to $130k now. Every year the state makes you spend down or buy another annuity? I have never heard of that and would appreciate an actual objective source for this.
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Re: Long-term Care Insurance

Post by DC3509 »

WoW2012 wrote: Wed Oct 17, 2018 3:14 pm
DC3509 wrote: Wed Oct 17, 2018 2:27 pm My point in responding was that you said it can't be done with a million dollars -- of course it can. Most people with a million dollars do not want to do this strategy and for good reason -- but it is hypothetically possible even at a million dollars.
The only way a $1,000,000 Medicaid-compliant annuity would work is if the community spouse spent ALL the income every year. For example:

Couple has $1,125,600 in countable assets.
Hubbie, in the nursing home, can only keep $3,000.
Wifey, at home, can keep $122,600.
They take the remaining $1,000,000 and buy Medicaid-compliant annuity.
Wife has 10 year life expectancy, so the annuity (in the best case) pays out $100,000 per year for 10 years.

The wife has to SPEND IT ALL every year. She can't put it in a savings account.
Every year the hubbie will have to be re-certified to continue to qualify for Medicaid.
If she puts $40,000 of the $100,000 into a savings account, she'll then have $162,600 in countable assets. That's over the limit. She'll have to spend that down.

The more money someone has the dumber it is to plan for Medicaid.
This website actually directly contradicts what you have said:

https://vparkerlaw.com/use-medicaid-com ... -medicaid/

Once the Medicaid applicant qualifies for Medicaid, the Medicaid beneficiary must only show on an ongoing basis that he does not have $2,000 in assets. So even though the community spouse receives a monthly annuity check that could accumulate into an asset if saved, the value of the assets in the name of the community spouse is no longer a concern of Medicaid.
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Re: Long-term Care Insurance

Post by pintail07 »

It is really confusing to me as to why someone would want to plan on having to use Medicaid facilities versus private pay facilities. I want more options not less options.
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Re: Long-term Care Insurance

Post by DC3509 »

pintail07 wrote: Wed Oct 17, 2018 4:36 pm It is really confusing to me as to why someone would want to plan on having to use Medicaid facilities versus private pay facilities. I want more options not less options.
Because in most low cost of living areas the two are one in the same -- private pay people can sometimes be living right next door to a Medicaid person. There is no difference in the care. And people do not want to spend down all of their assets on a nursing home.
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Re: Long-term Care Insurance

Post by JoeRetire »

pintail07 wrote: Wed Oct 17, 2018 4:36 pm It is really confusing to me as to why someone would want to plan on having to use Medicaid facilities versus private pay facilities. I want more options not less options.
Because the goal is preserving assets by making the patient poor, not having lots of choices of facilities.
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Re: Long-term Care Insurance

Post by pintail07 »

Because in most low cost of living areas the two are one in the same -- private pay people can sometimes be living right next door to a Medicaid person. There is no difference in the care. And people do not want to spend down all of their assets on a nursing home.
Top
You are correct regarding a facility that takes private pay and Medicaid. However, go visit those facilities that are private pay only, compare the smell, the food, the residents attitudes. Huge difference in my area as I am currently doing this with my parents. I guess if you are ok with a less than best facility so you can get the taxpayers to fund and pass on inheritance to family, not really what the objective of medicaid is.
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Re: Long-term Care Insurance

Post by DC3509 »

It really depends by geographic area. In some areas, there are huge differences; in some areas, not so much.
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Re: Long-term Care Insurance

Post by willthrill81 »

WoW2012 wrote: Mon Oct 15, 2018 9:52 pm
DC3509 wrote: Mon Oct 15, 2018 9:49 pm As Willthrill mentioned earlier -- that's really not necessary if you are willing to put your assets into an irrevocable trust and you survive the 5 year look-back. You can hypothetically have 7 figures of assets and still qualify for Medicaid under this scenario.
Are you aware of the tax consequences of "putting" a 401k into an irrevocable trust?
You'd lose about half of its value in taxes.
This is false. Deposits to an irrevocable trust that exceed the $15k annual limit per giver (ergo $30k for a married couple) merely count toward the $11.18 million lifetime exemption per person and double that for spouses. Note that gifts that count toward the lifetime exemption also count against your estate tax exemption. But the bigger point is that someone with anywhere near that much doesn't need to worry about paying for LTC.
The lifetime gift tax exemption is the total amount you can give away over the course of your entire lifetime. These gifts will be free from taxation as well.

But the overall gifted amount will reduce the amount of exemption you have left to shield your estate from U.S. federal estate taxes at the time of your death. If you gift away any amount of your lifetime gift tax exemption, this amount is subtracted from your estate tax exemption when you die because both taxes share the same exemption.

Under the provisions of the American Taxpayer Act of 2013 (ATRA), the lifetime gift tax/estate tax exemption is indexed for inflation so it increases by year. It was $5.45 million in 2016 and $5.49 million in 2017. Then the Tax Cuts and Jobs Act (TCJA) hiked it up to $11.18 million beginning in 2018.

Yes, you read that correctly. The TCJA more than doubled the lifetime exemption, but only temporarily. The TCJA expires at the end of 2025 unless Congress acts to renew its provisions.

So, if you give away $10 million during your lifetime and you die in 2018, your federal estate tax exemption will only be $1.18 million—the balance of the exemption after all your generous gifting. If your estate is worth more than $1.18 million, it will owe an estate tax on its value over that amount.

What happens if you make a total of $120,000 in gifts to your daughter in one year? Then you will have made a taxable gift to your daughter equal to $105,000 in 2018—$120,000 less the $15,000 annual exclusion.
https://www.thebalance.com/gift-tax-exc ... on-3505656

So for someone realistically seeking to employ this strategy, the only tax consequences of moving money from a tax-deferred source into an irrevocable trust is the income taxes paid on the withdrawal, and these would not need to be half of the assets. A MFJ couple can have $339k ($24k std. deduction + $315k) of income and stay within the 24% bracket. So they could 'move' a million dollars in fewer than four years.
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Re: Long-term Care Insurance

Post by WoW2012 »

willthrill81 wrote: Sat Oct 20, 2018 10:13 am
This is false. Deposits to an irrevocable trust that exceed the $15k annual limit per giver (ergo $30k for a married couple) merely count toward the $11.18 million lifetime exemption per person and double that for spouses. Note that gifts that count toward the lifetime exemption also count against your estate tax exemption. But the bigger point is that someone with anywhere near that much doesn't need to worry about paying for LTC.

https://www.thebalance.com/gift-tax-exc ... on-3505656

So for someone realistically seeking to employ this strategy, the only tax consequences of moving money from a tax-deferred source into an irrevocable trust is the income taxes paid on the withdrawal, and these would not need to be half of the assets. A MFJ couple can have $339k ($24k std. deduction + $315k) of income and stay within the 24% bracket. So they could 'move' a million dollars in fewer than four years.

Thrill, the sources you link to do not prove your point.
You canNOT "gift" a 401(k) (or any other retirement account) into an irrevocable trust.
Retirement accounts must remain in your individual name for your lifetime.
If ownership is transferred, it is a taxable event.

IRS Rules
Because of tax treatment, putting an individual retirement account into an irrevocable trust can be costly. Internal Revenue Service regulations allow assets in an IRA to accumulate earnings tax-free. However, rules also permit only individual taxpayers to own an IRA. When the IRA is transferred into the trust, the assets in the account lose IRA status with the IRS. The IRS treats the transfer as a distribution, and it is therefore taxable.


https://budgeting.thenest.com/can-ira-i ... 33659.html

and

https://budgeting.thenest.com/tax-conse ... 22362.html

and

https://www.thebalance.com/how-to-fund- ... st-3505283
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Re: Long-term Care Insurance

Post by willthrill81 »

WoW2012 wrote: Sat Oct 20, 2018 11:29 am
willthrill81 wrote: Sat Oct 20, 2018 10:13 am
This is false. Deposits to an irrevocable trust that exceed the $15k annual limit per giver (ergo $30k for a married couple) merely count toward the $11.18 million lifetime exemption per person and double that for spouses. Note that gifts that count toward the lifetime exemption also count against your estate tax exemption. But the bigger point is that someone with anywhere near that much doesn't need to worry about paying for LTC.

https://www.thebalance.com/gift-tax-exc ... on-3505656

So for someone realistically seeking to employ this strategy, the only tax consequences of moving money from a tax-deferred source into an irrevocable trust is the income taxes paid on the withdrawal, and these would not need to be half of the assets. A MFJ couple can have $339k ($24k std. deduction + $315k) of income and stay within the 24% bracket. So they could 'move' a million dollars in fewer than four years.

Thrill, the sources you link to do not prove your point.
You canNOT "gift" a 401(k) (or any other retirement account) into an irrevocable trust.
Retirement accounts must remain in your individual name for your lifetime.
If ownership is transferred, it is a taxable event.

IRS Rules
Because of tax treatment, putting an individual retirement account into an irrevocable trust can be costly. Internal Revenue Service regulations allow assets in an IRA to accumulate earnings tax-free. However, rules also permit only individual taxpayers to own an IRA. When the IRA is transferred into the trust, the assets in the account lose IRA status with the IRS. The IRS treats the transfer as a distribution, and it is therefore taxable.


https://budgeting.thenest.com/can-ira-i ... 33659.html

and

https://budgeting.thenest.com/tax-conse ... 22362.html

and

https://www.thebalance.com/how-to-fund- ... st-3505283
I never said that it was. Please reread what I said: "the only tax consequences of moving money from a tax-deferred source into an irrevocable trust is the income taxes paid on the withdrawal."

Unless people are transferring several million, which wouldn't make sense for those employing this strategy, they won't pay the gift tax on transfers to the irrevocable trust, so they won't lose "half" their balance. They will only pay income tax on the amount withdrawn from their 401k or other tax deferred accounts.

Someone could pull $200k, for instance, in a given year from their 401k, pay the income tax on that money, then transfer it with no gift tax to an irrevocable trust.
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WoW2012
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Re: Long-term Care Insurance

Post by WoW2012 »

willthrill81 wrote: Sat Oct 20, 2018 1:14 pm
WoW2012 wrote: Sat Oct 20, 2018 11:29 am
willthrill81 wrote: Sat Oct 20, 2018 10:13 am
This is false. Deposits to an irrevocable trust that exceed the $15k annual limit per giver (ergo $30k for a married couple) merely count toward the $11.18 million lifetime exemption per person and double that for spouses. Note that gifts that count toward the lifetime exemption also count against your estate tax exemption. But the bigger point is that someone with anywhere near that much doesn't need to worry about paying for LTC.

https://www.thebalance.com/gift-tax-exc ... on-3505656

So for someone realistically seeking to employ this strategy, the only tax consequences of moving money from a tax-deferred source into an irrevocable trust is the income taxes paid on the withdrawal, and these would not need to be half of the assets. A MFJ couple can have $339k ($24k std. deduction + $315k) of income and stay within the 24% bracket. So they could 'move' a million dollars in fewer than four years.

Thrill, the sources you link to do not prove your point.
You canNOT "gift" a 401(k) (or any other retirement account) into an irrevocable trust.
Retirement accounts must remain in your individual name for your lifetime.
If ownership is transferred, it is a taxable event.

IRS Rules
Because of tax treatment, putting an individual retirement account into an irrevocable trust can be costly. Internal Revenue Service regulations allow assets in an IRA to accumulate earnings tax-free. However, rules also permit only individual taxpayers to own an IRA. When the IRA is transferred into the trust, the assets in the account lose IRA status with the IRS. The IRS treats the transfer as a distribution, and it is therefore taxable.


https://budgeting.thenest.com/can-ira-i ... 33659.html

and

https://budgeting.thenest.com/tax-conse ... 22362.html

and

https://www.thebalance.com/how-to-fund- ... st-3505283
I never said that it was. Please reread what I said: "the only tax consequences of moving money from a tax-deferred source into an irrevocable trust is the income taxes paid on the withdrawal."

Unless people are transferring several million, which wouldn't make sense for those employing this strategy, they won't pay the gift tax on transfers to the irrevocable trust, so they won't lose "half" their balance. They will only pay income tax on the amount withdrawn from their 401k or other tax deferred accounts.

Someone could pull $200k, for instance, in a given year from their 401k, pay the income tax on that money, then transfer it with no gift tax to an irrevocable trust.

I never mentioned gift tax. I was only talking about the income tax consequences.
Even if you "moved" a million dollars over 4 years and you had no state income taxes and only 24% federal income tax, it would cost you $240,000 in unnecessary taxes!!!!!

Wouldn't it just be easier (and a lot cheaper) to buy a long-term care insurance policy?
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willthrill81
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Re: Long-term Care Insurance

Post by willthrill81 »

WoW2012 wrote: Sat Oct 20, 2018 1:49 pm
willthrill81 wrote: Sat Oct 20, 2018 1:14 pm
WoW2012 wrote: Sat Oct 20, 2018 11:29 am
willthrill81 wrote: Sat Oct 20, 2018 10:13 am
This is false. Deposits to an irrevocable trust that exceed the $15k annual limit per giver (ergo $30k for a married couple) merely count toward the $11.18 million lifetime exemption per person and double that for spouses. Note that gifts that count toward the lifetime exemption also count against your estate tax exemption. But the bigger point is that someone with anywhere near that much doesn't need to worry about paying for LTC.

https://www.thebalance.com/gift-tax-exc ... on-3505656

So for someone realistically seeking to employ this strategy, the only tax consequences of moving money from a tax-deferred source into an irrevocable trust is the income taxes paid on the withdrawal, and these would not need to be half of the assets. A MFJ couple can have $339k ($24k std. deduction + $315k) of income and stay within the 24% bracket. So they could 'move' a million dollars in fewer than four years.

Thrill, the sources you link to do not prove your point.
You canNOT "gift" a 401(k) (or any other retirement account) into an irrevocable trust.
Retirement accounts must remain in your individual name for your lifetime.
If ownership is transferred, it is a taxable event.

IRS Rules
Because of tax treatment, putting an individual retirement account into an irrevocable trust can be costly. Internal Revenue Service regulations allow assets in an IRA to accumulate earnings tax-free. However, rules also permit only individual taxpayers to own an IRA. When the IRA is transferred into the trust, the assets in the account lose IRA status with the IRS. The IRS treats the transfer as a distribution, and it is therefore taxable.


https://budgeting.thenest.com/can-ira-i ... 33659.html

and

https://budgeting.thenest.com/tax-conse ... 22362.html

and

https://www.thebalance.com/how-to-fund- ... st-3505283
I never said that it was. Please reread what I said: "the only tax consequences of moving money from a tax-deferred source into an irrevocable trust is the income taxes paid on the withdrawal."

Unless people are transferring several million, which wouldn't make sense for those employing this strategy, they won't pay the gift tax on transfers to the irrevocable trust, so they won't lose "half" their balance. They will only pay income tax on the amount withdrawn from their 401k or other tax deferred accounts.

Someone could pull $200k, for instance, in a given year from their 401k, pay the income tax on that money, then transfer it with no gift tax to an irrevocable trust.
I never mentioned gift tax. I was only talking about the income tax consequences.
Even if you "moved" a million dollars over 4 years and you had no state income taxes and only 24% federal income tax, it would cost you $240,000 in unnecessary taxes!!!!!

Wouldn't it just be easier (and a lot cheaper) to buy a long-term care insurance policy?
A MFJ couple would only pay an estimated $31k on $200k of income, about 15.5%. Do that five times, and the total income tax would be $155k, not $240k. And most people will pay some amount of income taxes on their 401k withdrawals anyway, so you cannot directly compare the $155k income tax to the cost of a LTC policy.

A good estate planning attorney and perhaps a CPA could help such a couple compare the cost of a LTC policy to the cost of alternative strategies like irrevocable trusts and Medicaid-compliant annuities. LTC insurance is a viable solution for some, but it's not a one-size-fits-all approach.
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WoW2012
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Re: Long-term Care Insurance

Post by WoW2012 »

willthrill81 wrote: Sat Oct 20, 2018 1:57 pm
WoW2012 wrote: Sat Oct 20, 2018 1:49 pm
willthrill81 wrote: Sat Oct 20, 2018 1:14 pm
WoW2012 wrote: Sat Oct 20, 2018 11:29 am
willthrill81 wrote: Sat Oct 20, 2018 10:13 am
This is false. Deposits to an irrevocable trust that exceed the $15k annual limit per giver (ergo $30k for a married couple) merely count toward the $11.18 million lifetime exemption per person and double that for spouses. Note that gifts that count toward the lifetime exemption also count against your estate tax exemption. But the bigger point is that someone with anywhere near that much doesn't need to worry about paying for LTC.

https://www.thebalance.com/gift-tax-exc ... on-3505656

So for someone realistically seeking to employ this strategy, the only tax consequences of moving money from a tax-deferred source into an irrevocable trust is the income taxes paid on the withdrawal, and these would not need to be half of the assets. A MFJ couple can have $339k ($24k std. deduction + $315k) of income and stay within the 24% bracket. So they could 'move' a million dollars in fewer than four years.

Thrill, the sources you link to do not prove your point.
You canNOT "gift" a 401(k) (or any other retirement account) into an irrevocable trust.
Retirement accounts must remain in your individual name for your lifetime.
If ownership is transferred, it is a taxable event.

IRS Rules
Because of tax treatment, putting an individual retirement account into an irrevocable trust can be costly. Internal Revenue Service regulations allow assets in an IRA to accumulate earnings tax-free. However, rules also permit only individual taxpayers to own an IRA. When the IRA is transferred into the trust, the assets in the account lose IRA status with the IRS. The IRS treats the transfer as a distribution, and it is therefore taxable.


https://budgeting.thenest.com/can-ira-i ... 33659.html

and

https://budgeting.thenest.com/tax-conse ... 22362.html

and

https://www.thebalance.com/how-to-fund- ... st-3505283
I never said that it was. Please reread what I said: "the only tax consequences of moving money from a tax-deferred source into an irrevocable trust is the income taxes paid on the withdrawal."

Unless people are transferring several million, which wouldn't make sense for those employing this strategy, they won't pay the gift tax on transfers to the irrevocable trust, so they won't lose "half" their balance. They will only pay income tax on the amount withdrawn from their 401k or other tax deferred accounts.

Someone could pull $200k, for instance, in a given year from their 401k, pay the income tax on that money, then transfer it with no gift tax to an irrevocable trust.
I never mentioned gift tax. I was only talking about the income tax consequences.
Even if you "moved" a million dollars over 4 years and you had no state income taxes and only 24% federal income tax, it would cost you $240,000 in unnecessary taxes!!!!!

Wouldn't it just be easier (and a lot cheaper) to buy a long-term care insurance policy?
A MFJ couple would only pay an estimated $31k on $200k of income, about 15.5%. Do that five times, and the total income tax would be $155k, not $240k. And most people will pay some amount of income taxes on their 401k withdrawals anyway, so you cannot directly compare the $155k income tax to the cost of a LTC policy.

A good estate planning attorney and perhaps a CPA could help such a couple compare the cost of a LTC policy to the cost of alternative strategies like irrevocable trusts and Medicaid-compliant annuities. LTC insurance is a viable solution for some, but it's not a one-size-fits-all approach.
Only 15.5% in federal income taxes on a $200K withdrawal from a 401(k)? No way. It would be at least 22%, probably 24% plus state income taxes. Taxable income over $77,401 is taxed at 22%.

https://www.doughroller.net/taxes/feder ... n-limits/


Let's suppose your tax rate is only 22%. Your strategy is to move $1,000,000 over 4 years, costing you (at least) $220,000 in federal income taxes. If your "normal" tax bracket is 12%, then the real cost in taxes to "move" your 401(k) into an irrevocable trust is only $100,000 (because to move it you're paying 22% in taxes rather than just your normal 12%).

I pay $100 a month for about $900,000 of LTC insurance but I'm in my early 50's. Even a couple in their early sixties could get LTCi similar to mine for about $170 per month per spouse, if they're healthy.

It would take that couple over 25 years to pay $100,000 in premium, yet you think it makes sense to give up that $100,000 over 4 years in order to protect your assets from long-term care expenses and rely on the state to pay for your care.

If paying $100,000 in extra taxes makes sense to you, why does paying $170 per month, per spouse NOT make sense to you?

Just the opportunity cost of that $100,000 you pay in extra taxes is greater than the annual premium this couple will pay! You're not only losing the $100,000 you're also losing what that $100,000 would earn every year.

Keep in mind, your assets aren't protected. You haven't put anything into an irrevocable trust. Even after you put some in, it's still not protected until 5 years after the transfer.

When are you meeting with the elder law attorney to set up your irrevocable trust?
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Re: Long-term Care Insurance

Post by bsteiner »

Either buy the insurance or don't buy the insurance (and withdraw from your IRA as needed when you're in the nursing home0 and offset the income with a medical expense deduction. But don't cash in a $1 million IRA (even if over 4 or 5 years) to put the after-tax proceeds into an income-only trust. IRAs offer a substantial income tax benefit, which you would be giving up by cashing in your IRA.

Note than in some states IRAs are considered available resources for Medicaid, while in other states they're not (but you have to contribute your required distributions toward your care).

WoW2012 makes a good point that the insurance hedges against having to cash in your IRA if you're in a state where IRAs are considered an available resource.

On the other hand, as we've discussed here on several occasions. most of the policies cover the first few years of care. That's in the nature of a prepaid expense since many people will need care for up to a few years. What's really needed is a policy that pays for an unlimited duration, but not for the first few years, but apparently such policies don't exist.
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Re: Long-term Care Insurance

Post by pintail07 »

On the other hand, as we've discussed here on several occasions. most of the policies cover the first few years of care. That's in the nature of a prepaid expense since many people will need care for up to a few years. What's really needed is a policy that pays for an unlimited duration, but not for the first few years, but apparently such policies don't exist.
Top
That is basically what the hybrid policies offer. However, if healthy, a traditional policy is a better tool, IMO.
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willthrill81
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Re: Long-term Care Insurance

Post by willthrill81 »

WoW2012 wrote: Sat Oct 20, 2018 2:36 pmOnly 15.5% in federal income taxes on a $200K withdrawal from a 401(k)? No way. It would be at least 22%, probably 24% plus state income taxes. Taxable income over $77,401 is taxed at 22%.

https://www.doughroller.net/taxes/feder ... n-limits/
Let me show you the math.

$200k of gross income from withdrawal
-$24k of standard deduction for MFJ
$176 of taxable income
From the table in your post, the tax due is $28,179 + 22% of the amount over $165k ($2,200)
$28,179+$2,200=$30,379

$30,379/$200,000 = 15.19% effective tax rate
WoW2012 wrote: Sat Oct 20, 2018 2:36 pmLet's suppose your tax rate is only 22%. Your strategy is to move $1,000,000 over 4 years, costing you (at least) $220,000 in federal income taxes. If your "normal" tax bracket is 12%, then the real cost in taxes to "move" your 401(k) into an irrevocable trust is only $100,000 (because to move it you're paying 22% in taxes rather than just your normal 12%).

I pay $100 a month for about $900,000 of LTC insurance but I'm in my early 50's. Even a couple in their early sixties could get LTCi similar to mine for about $170 per month per spouse, if they're healthy.

It would take that couple over 25 years to pay $100,000 in premium, yet you think it makes sense to give up that $100,000 over 4 years in order to protect your assets from long-term care expenses and rely on the state to pay for your care.

If paying $100,000 in extra taxes makes sense to you, why does paying $170 per month, per spouse NOT make sense to you?
Since your federal income tax estimates are way off, so is the rest of your analysis. But let's be generous and say that moving the assets into an irrevocable trust would cost you an additional $75k.

Using Genworth's LTC insurance calculator, an opposite gender couple, both age 65, buying a policy with $300 per day maximum benefit ($109,500 maximum annual benefit, about the cost of a nursing home in our area) with a five year maximum benefit period would pay $4,553 each per year, $9,106 for the couple. It would take a little over eight years for them to break-even. Yes, there is some time-value of money at work here, but the couple wouldn't pay that additional $75k estimated taxes all at once; it would be spread out over five years in this instance. Five years after they are done, all of the assets in the trust are protected from Medicaid. That sounds like a good bet to me.
WoW2012 wrote: Sat Oct 20, 2018 2:36 pmWhen are you meeting with the elder law attorney to set up your irrevocable trust?
I'm a long way off from needing LTC, but I'm advising my parents to speak with an elder care attorney once they move to our state next year.
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Re: Long-term Care Insurance

Post by willthrill81 »

bsteiner wrote: Sat Oct 20, 2018 3:22 pm Either buy the insurance or don't buy the insurance (and withdraw from your IRA as needed when you're in the nursing home0 and offset the income with a medical expense deduction. But don't cash in a $1 million IRA (even if over 4 or 5 years) to put the after-tax proceeds into an income-only trust. IRAs offer a substantial income tax benefit, which you would be giving up by cashing in your IRA.
The problem in the hypothetical instance we've been discussing is that there are two dragons to slay: minimizing one's income taxes and covering the risk of hefty LTC expenses. Doing one well involves some measure of sacrificing the other.
bsteiner wrote: Sat Oct 20, 2018 3:22 pmNote than in some states IRAs are considered available resources for Medicaid, while in other states they're not (but you have to contribute your required distributions toward your care).
This is why it's important to know how your state treats IRAs, 401k plans, and the like. Trying to move these assets into an irrevocable trust would be very counterproductive if your state did not count such assets for Medicaid purposes.
bsteiner wrote: Sat Oct 20, 2018 3:22 pmOn the other hand, as we've discussed here on several occasions. most of the policies cover the first few years of care. That's in the nature of a prepaid expense since many people will need care for up to a few years. What's really needed is a policy that pays for an unlimited duration, but not for the first few years, but apparently such policies don't exist.
Yes, and that's what makes it difficult to do an apples-to-apples comparison with the scenario we've been discussing. An unlimited benefit period is not available with any LTC policy, and as the numbers that I just ran from Genworth show, a 65 year old couple in my state would pay over $9k every year for a policy barely able to pay for a nursing home for no more than five years.
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pintail07
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Re: Long-term Care Insurance

Post by pintail07 »

To be fair, shouldn't you take your parents to visit private pay facilities and medicaid/private pay ones? Are you certain they might not want to stay at home, have you seen what Medicaid pays for home care? I often see more children recommending their parents use Medicaid, is that to protect their inheritance, usually yes.
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Re: Long-term Care Insurance

Post by WoW2012 »

Nearly every long-term care insurance company today offers couples the ability to share 10 to 16 years of benefits. Two long-term care insurance companies offer policies with lifetime/unlimited benefits.

More importantly, 44 states have Long-Term Care Partnership Programs which can protect your assets from Medicaid if your long-term care policy runs out of benefits. In those states you only need to buy an amount of long-term care insurance benefit that is equal to the amount of assets you want to protect from Medicaid.
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ResearchMed
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Re: Long-term Care Insurance

Post by ResearchMed »

WoW2012 wrote: Sat Oct 20, 2018 4:45 pm Nearly every long-term care insurance company today offers couples the ability to share 10 to 16 years of benefits. Two long-term care insurance companies offer policies with lifetime/unlimited benefits.

More importantly, 44 states have Long-Term Care Partnership Programs which can protect your assets from Medicaid if your long-term care policy runs out of benefits. In those states you only need to buy an amount of long-term care insurance benefit that is equal to the amount of assets you want to protect from Medicaid.
Which two companies currently offer "lifetime/unlimited" benefit policies?

RM
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WoW2012
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Re: Long-term Care Insurance

Post by WoW2012 »

ResearchMed wrote: Sat Oct 20, 2018 4:53 pm
WoW2012 wrote: Sat Oct 20, 2018 4:45 pm Nearly every long-term care insurance company today offers couples the ability to share 10 to 16 years of benefits. Two long-term care insurance companies offer policies with lifetime/unlimited benefits.

More importantly, 44 states have Long-Term Care Partnership Programs which can protect your assets from Medicaid if your long-term care policy runs out of benefits. In those states you only need to buy an amount of long-term care insurance benefit that is equal to the amount of assets you want to protect from Medicaid.
Which two companies currently offer "lifetime/unlimited" benefit policies?

RM
National Guardian Life
OneAmerica

Keep in mind, a long-term care partnership policy that protects 100% of your assets from Medicaid is essentially the same as having a lifetime/unlimited policy. 44 states have approved those programs and nearly every insurance company participates in those programs. If you've only got $500,000 of countable assets, then you only need $500,000 of long-term care insurance benefits. If your policy runs out of benefits then Medicaid will take over from there and you can keep your $500,000 of countable assets.
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Re: Long-term Care Insurance

Post by WoW2012 »

bsteiner wrote: Sat Oct 20, 2018 3:22 pm What's really needed is a policy that pays for an unlimited duration, but not for the first few years, but apparently such policies don't exist.

That's essentially how the OneAmerica policy works.
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