Long-term Care Insurance vs. Medi-Cal Long-term Care Benefit

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Maloney_Daniel_webMost people, as they get older, must confront issues about assistance and care of a loved one. There is a spectrum of such issues. All it might entail is part-time, in-home assistance with day-to-day activities. It might also involve assisted living board and care, or sometimes full-time residence in a nursing home receiving skilled nursing.

Sometimes, the level of care may move through the spectrum to a higher level of care. Alternatively, a stroke, fall or the onset of dementia may require immediate admission to a skilled nursing facility. In all cases, the question that naturally arises is how to pay for the necessary assistance.

In California, there are three basic options: Private Pay, Long-Term Care Insurance (LTC) and Medi-Cal Long-Term Care Benefits (Medi-Cal). Private pay is the least desirable method because it means paying all the costs for care and assistance out-of-pocket, which greatly diminishes the patient’s estate and affects the family’s long-term wealth building potential.

One alternative is purchasing LTC. Proponents of LTC often insist that LTC aids in protecting assets and “insuring your bequest to heirs.”[1] As with all insurance, however, the protection comes at a continuing cost. LTC requires the payment of a periodic premium, the cost of which depends on your age and health.[2] The younger and healthier you are, the less expensive the initial premiums will be.

While paying a lower premium is attractive, purchasing LTC too early comes with distinct risk because, as discussed further below, it is difficult to predict with any certainty what type of coverage will be needed.

LTC is also touted for its flexibility in relation to Medi-Cal. LTC may be obtained by anyone that can afford to purchase it. Medi-Cal, on the other hand, is a needs-based program which means that people must qualify by demonstrating that they require custodial care in a skilled nursing facility and that their income and resources fall within the Medi-Cal limits.[3]

Also, LTC can pay for in-home care, assisted living or skilled nursing, while Medi-Cal pays only for custodial care in a skilled nursing facility.

Although these statements about LTC are true, the perception of flexibility should be assessed in light of the types of available policies and the inherent risks involved. In California, there are three categories of LTC polices: (1) nursing facility and residential care facility only; (2) home care only; and (3) comprehensive long-term care.[4]

Choosing the right policy is the most essential ingredient in ensuring coverage. Risks abound in such an endeavor because predicting what your circumstances will be in five, 10 or 20 years in the future is difficult, if not impossible.

For example, what if you purchase a home care-only policy at the age of 45, pay the premiums for 20 years, but by the age of 65, you require care in a facility or no longer own a home? Or the other way around—you decide to purchase an expensive, comprehensive policy that covers all scenarios, but ultimately do not require any assistance.

The only way to avoid losing all of your premiums would be to purchase (and pay for at a substantial cost) a non-forfeiture clause, which would allow you to recoup some of your money back if you have to cancel the policy in the future.[5]

Another LTC option in California is called a Partnership Policy (PP). The California Partnership for Long-Term Care is a program in which the California Department of Health Care Services (DHCS) partners with consumers, the State of California and a select number of insurance companies, plus the California Public Employees Retirement System (CALPERS).[6]

PPs include several interesting features such as asset disregard for purposes of Medi-Cal, inflation protection and certain qualified tax benefits.

“Dollar-for-dollar” asset disregard or “spend down” protection means that individuals who purchase a PP ”earn” one dollar of Medi-Cal asset disregard for every dollar of insurance coverage paid on their behalf. The value of the disregard is based on the amount that the policy ultimately pays out and is also protected from post-death estate recovery.[7]

Typically, you run the risk of having inadequate coverage if you do not purchase inflation protection on a regular LTC policy; PPs are required to include inflation protection.[8]

Further, PPs have certain tax benefits—annual premiums and other out-of-pocket expenses in excess of 7.5 percent of adjusted gross income are tax-deductible.[9] These PP features, particularly the asset disregard, sound great—in theory.

The reality is that DHCS is banking on your insurance covering your care and that they will not have to pay any benefits on your behalf. In the end, you and your estate will likely bear the entire cost of your care.

To summarize, LTC claims to protect your assets, insure your bequest to your heirs, pay for a wide array of services and even give you relief from Medi-Cal recovery claims along with tax benefits.

The catch is that there are significant risks involved with purchasing LTC and, ultimately, it is the individual that bears the burden of such risk in addition to the costs attendant thereto. Given the serious risks and costs involved with LTC, can you or your loved one qualify for Medi-Cal instead?

The first myth to be dispelled is that only low-income individuals can qualify for Medi-Cal. Middle to higher income individuals can routinely qualify for Medi-Cal given the proper assistance and guidance.

Although one is allowed only $2,000 in “countable assets”[10] for purposes of qualifying for Medi-Cal, many of an individual’s largest assets, including their residence and retirement accounts[11] are exempt and not counted towards the resource limitation.

Secondly, even if non-exempt assets are in excess to the allowable resource limitation, there are ways to legally transfer assets to a well spouse and/or other family members.

In other words, it is not necessary to simply spend all of your assets. You can qualify for Medi-Cal, protect your assets from estate recovery claims and truly transfer and preserve your estate for the benefit of your loved ones.

In order to accomplish those goals, the single most important component is to ensure that you have the proper estate planning documentation, particularly a Durable Power of Attorney for Financial Decisions with strong language authorizing your agent to do what is necessary to enable your initial and continued eligibility for benefits.

Unlike LTC, where you pay a lifetime for a gamble that you hope pays off, proper estate planning ahead of time can ensure that all the necessary tools are in the toolbox so they may be utilized if or when it becomes necessary.

In the end, you are encouraged to do your homework, read the fine print and be proactive in planning for your future.


Daniel H. Maloney is an Attorney at Mullin Law Firm in Concord practicing elder law and estate planning, with a strong focus on trust litigation. Mr. Maloney graduated from John F. Kennedy School of Law with honors and was the recipient of the 2010 Public Interest Advocate Award.


[1] See USNews.com article, “Should You Buy Long Term Care Insurance,” available online at: http://money.usnews.com/money/retirement/articles/2012/02/08/should-you-buy-long-term-care-insurance at page one, paragraph five.

[2] See USNews.com article, “Should You Buy Long Term Care Insurance,” supra, at page one bottom, page two top.

[3] Medi-Cal Eligibility criteria available online at: http://www.canhr.org/factsheets/medi-cal_fs/html/fs_medcal_overview.htm#B.

[4] See California Department of Insurance discussion, “What is Long-Term Care Insurance?” available online at: http://www.insurance.ca.gov/0100-consumers/0060-information-guides/0050-health/ltc-rate-history-guide/long-term-care-insurance.cfm.

[5] See USNews.com article, “Should You Buy Long Term Care Insurance,” supra, at page two, paragraph three.

[6] See California Department of Insurance discussion, “What is Long-Term Care Insurance?” supra.

[7] See American Association for Long-Term Care Insurance discussion, “Added Protection Ideally Suited for Middle-Income Americans,” available online at http://www.aaltci.org/long-term-care-insurance/learning-center/long-term-care-insurance-partnership-plans.php.

[8] See USNews.com article, “Should You Buy Long Term Care Insurance,” supra, at page three, paragraph one.

[9] Id.

[10] Medi-Cal Eligibility criteria available online at: http://www.canhr.org/factsheets/medi-cal_fs/html/fs_medcal_overview.htm#B.

[11] Id.

Additional resources:

California Department of Insurance
California Health Care Advocates
California Advocates for Nursing Home Reform
American Association for Long-Term Care Insurance:

 

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  1. Daniel provides useful insight into an estate planning issue: Is the likelihood of care giving a risk or gamble?

    We all have read and heard that we own auto, home, and health, and casualty insurance for risks we may or may not have but we own it because no one wants to spend money for a loss so we transfer the risk.

    To negate a risk which is likely to happen — at some point whether soon or later you will probably need some form of care giving before you die. The question is what is care giving and what does it mean?

    Care giving is an event which will change not just those who need care giving but those who will be responsible for their care needs. It disrupts families, estate planning, and people’s economic and emotional security.

    Long term care insurance is in a transition where premiums are being raised on plans sold during the last few decades. The actuaries got it wrong, the carriers believed it, and so did anyone recommending long term care benefits to people.

    Oh my, we got one thing the carriers and agents got correct. The need continues — more and more people have or will need care giving services. The challenge as it has always been is who will provide the care, where will it be provided, and who pays?

    I agree it is a painful experience to pay more in premiums then incomes may allow, especially since the economic catastrophe of 2008-2009 and the effects which continue into 2014.

    Having a extended care plan is what is important to those who come to terms that there are consequences with not knowing how you will pay for care services and your present cash flow will not provide sufficient amounts to pay for your life style and care needs.

    Gifting your estate away to qualify for medi-cal or medicaid is a decision which is a consideration with your family and a competent and qualified estate planning attorney.

    Owning an extended care plan would also be of value. Keep in mind, it is your estate and your money which you have accumulated over a lifetime. What is your plan to transfer that money when you die to your loved ones and to organizations which matter to you, and other commitments such as special needs children?

  2. Jay says:

    Medical expense deduction is now 10% not 7.5% unless 65 or older

  3. Dawn Helwig discusses how gender-based pricing of long-term care insurance will affect women. More: http://www.healthcaretownhall.com/?p=6637