Let the government (CMS) help pay your LTCi costs?
As expensive as Long Term Care insurance can be for many of us, one should always look for creative ways to help pay for it….as it can be critical to have. The IRS gives you potential tax breaks for having LTCi. You can use HSA funds to pay for LTC premiums up to the age of 65, but then what? Wouldn’t it be nice if someone just gave you a handout for this?
Well……there is another option that lets the government (Medicare) actually put money in your pocket to help you directly pay some or all of your LTC premiums if you choose. It is called a Medicare Advantage Plan – Medical Savings Account. Like a HSA, a MSA allows you to have control over your health care spending. Unlike a HSA, where you put your money in the account, if you elect to get a Medicare Advantage (MA) plan with MSA savings options, Medicare will immediately deposit as much as $1300 per person into a MSA account in your name. This money is deposited every year (subject to change of course) and that money is to be used for medical expenses as needed. Then when the $1300 is spent, the Medicare beneficiary spends his/her own money up to a max out of pocket (typically another $1700) before medicare pays 100% of all Medicare eligible costs. It turns out that LTCi premiums is a valid IRS medical expense, so you could take that $1300 every year and pay LTC premiums with it.
Now keep in mind that the $1300 is supposed to be used to pay for doctor visits, annual checkups, Rx drugs, hospital stays, etc. But…… what if you are lucky enough to be one of the healthier baby boomers hitting 65…have had HSA plans all your life….don’t mind having a deductible for health care costs….and know that the Medicare rates for medical services tends to be fairly cheap? So maybe at the end of the year, you still have $800 left in the account…..you can spend it on LTC if you choose. I think the healthier individuals may like the idea.
I am not advocating that you sacrifice your health checkups just so you can pull out the $1300 for LTC premiums, but if you stay healthy for several years, you could build up a little MSA nest egg. You could of course get your teeth fixed, new glasses, and other medical services too and use the $1300 they handed you. Oh, and did I tell you that the monthly premium for these MSA plans tends to be $0….as opposed to maybe $150/month for a good Med Sup Plan F? Now you just saved $1800/year in premium per person, Medicare put $1300 per person into your MSA account and handed you a debit card and said “have fun”. With the savings over the traditional Med Sup and the $1300 cash, you may now have enough for a fully paid LTC plan…and then you can pay minimal medical fees as you go, with typically no more than about $3000 out of pocket in the event of a tragedy. Can you spell “no brainer”?
Interesting concept.
What does Clark Howard know about Long Term Care anyway?
What does Clark Howard know about Long Term Care anyway?
As a consumer advocate, Clark Howard offers a lot of great advice on many subjects, such how to save money and how to avoid getting ripped off. When it comes to giving advice on insurance options…..well, and I hate to admit it, but you need to remember that Clark Howard’s background is that he is a travel agent, and not an insurance agent.
He does in fact advise people to look into Long Term Care insurance, which is a good thing, but some of his approaches and recommendations are a bit flawed, or at best misleading. If you go to his web page, you will note that he has a LTC “honor roll” of carriers. He also lists some carriers that we would give “honorable mention” to.
Here is what Clark Howard states on his web page about LTCi:
1) You only want to consider companies that have been rated “A++” (by A.M. Best), which means they are of the highest financial strength. It also means that they won’t jack up the rates after a few years and they will cover you for either in-home care or nursing home care.
2) The prime age to buy is late 50s to early 60s. So if you have aging parents, talk to them about it.
3) You should not buy LTC insurance if you are very wealthy or don’t have a lot of assets.
The problem with the first recommendation is that AM Best is not the sole reason you should consider a carrier, but an A+ or A++ rating is of course desireable, and you do not want to buy a B- company. Of the names on the list, most are fine, but he suggests, for example, USAA. USAA does not sell LTC insurance (LTCi), they sell John Hancock LTCi, who is also on the list. The Hartford is on his list, but Hartford (unless I missed something along the way) does not sell LTC insurance…never did. Ameriprise is on his list, but they do not sell LTCi either, as they are contractually obligated to sell Genworth LTCi. What I find the strangest of all is that Genworth is only given honorable mention. Genworth is the 900 pound Gorilla in the LTC market. Great plans, great rates, more policy holders and claims paid than any carrier out there. Go figure. There are many fine carriers out there, and you need to work with an experienced agent to help you find the best fit for your situation. All comprehensive LTC plans by the way cover in home, assisted living and nursing home…..regardless of AM Best ratings. Health issues or special requirements will determine which quality carrier to go with. Some of the carriers he suggests are terribly overpriced compared to the rest of the field, and I would never recommend you look at some of them.
The second recommendation on the age to buy LTCi was addressed in a separate blog, but there are definite advantages to starting earlier than he suggests. Early to mid 50’s is better than early 60’s.
The third recommendation is subjective, but ok in priciple. Many people who are wealthy still buy LTC because they believe that spending a little bit of money now to avoid a major expense later is a good thing…..even if they can afford the costs of LTC. Maybe decisions like that is why they got to be wealthy in the first place. People who may not have a lot of assets may not be able to afford to get a LTC plan….and Medicaid will possibly help them live in an overcrowded, understaffed facility some day. Maybe the children of those people would care enough about their parents to help them with the premiums if at all possible to make sure they got the best possible care one day should a LTC need ever arise.
Anyway, Clark has great deals on cheap airfare, but look to an experienced LTC agent for help protecting your future.
Herman Bruns
Long Term Care – what age should you buy it?
What is the best age to buy a Long Term Care plan?
As with most types of insurance, the ideal time to purchase LTC insurance (LTCi) is about one month before you need it. That way you can potentially collect from the LTC carrier for a lifetime and have only paid one month’s premium. Of course, without a crystal ball, very few of us can predict when we will have a car accident, have a stroke, or be diagnosed with cancer or Alzheimer’s. Many of us may be one doctor’s visit away from a diagnosis that will either cause us to pay more for LTC premiums, or possibly not even qualify for the insurance. Christopher Reeves (Superman) never planned to fall off his horse.
As more and more of the baby boomers become aware of the devastating financial and emotional effects that a long term care need can have on their family, the average age that people purchase LTC insurance has been steadily dropping every year. Government awareness programs advising people to look into this type of insurance is also causing people to get educated on how these plans work and to start early. LTC insurance is surprising affordable when you buy it at a younger age, so more and more people are simply taking advantage of it sooner. My own personal experiences with my elderly parents and in-laws in nursing homes and assisted living (all paid out of their own pocket) caused my wife and I to purchase our plan when I was 52 and she was 50. I happily pay the premium every year, even though in the back of my mind, I hope I never have to use the insurance at all. Statistically, my wife has a much better chance of using the plan than I do.
The cost of purchasing LTC insurance goes up every year you delay. Carriers raise their rates for new purchase periodically too. The older you get, the faster it rises. As one starts to move into their early to mid 60’s, you begin to enter into what the mathematicians call the “exponential curve” of rapid price increases. The good news is that when you buy a LTC plan from a quality carrier, you are essentially “locking in” your rate for the rest of your life. Now it is true that the rates on existing policies can and do in fact increase, but many of the top carriers in the industry have a long history of little or no rate hikes. No matter when you purchase a plan, it is always going to offer you tremendous protection for a fraction of the cost of an extended nursing home stay.
Sadly, as we grow older, many of us also get less healthy. Blood pressure, arthritis, diabetes, and other ailments show up frequently as we get into our late 50’s. Many of us simply don’t take good care of ourselves, and others of us are a product of our heredity. LTC carriers give preferred health discounts to those who qualify of between 10% and 20%…so it pays to be healthy. There are a lot more healthy 55 year olds than 65 year olds out there.
Back to the original question….when should you buy LTC insurance? Although you can buy it at any age up to 84 with some carriers as long as you can medically qualify, I would urge everyone to start considering it by age 50, and try to get it in your early to mid 50’s if at all possible. If you can handle the premiums at that time, it can be a great value……and with the power of a 5% compound benefit increase, the benefit you purchase at age 50 will immediately start growing. This will provide you with a huge plan of protection by the time you statistically will most likely need the coverage, which is in your 80’s. In the long run, even though you start paying the premium sooner, the overall amount of premium paid out can be less by starting early.
Everyone’s financial situation is different, and no one plan fits all. Not everyone can start at age 52. You may have to wait until the kids get through college to afford LTCi. You may first need to move to a more cost effective high deductible or HSA eligible health insurance plan, or wait until you are on Medicare, so you can free up the funds to pay for LTC insurance. If you are already 65 and reading this blog, then the time to buy LTCi is before you turn 66….assuming LTCi makes sense for your situation. The key is to first learn more about how LTC insurance works by speaking with an experienced LTC agent representing a variety of carriers and who can advise you as to all your options.
I hope this answers the question, but I would be happy to hear your thoughts.
