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Published: Jun 28th, 2017

Long-Term Care Insurance Has Positive Impact on Families & Assets

Long-Term Care Insurance Has Positive Impact on Families

Long-Term Care Insurance has had—and will continue to have—a positive impact on hundreds of thousands of policyholders and their families, and it is already leading to reductions in public expenditures on LTC.  This according to a study funded by AHIP, America’s Health Insurance Plans which is a national political advocacy and trade association.

More Americans are looking to protect their future retirement income and savings from the financial costs of long-term care. The results of the study show these plans are doing exactly that. The nation’s long-term care insurance companies paid $8.65 Billion in claim benefits in 2016 according to the American Association for Long-Term Care Insurance (AALTCI) a national consumer education and advocacy group. But what is the impact?

The study shows that American’s who have a policy have a substantial amount of long-term care services paid for then they would be using their own money including what most people and their families prefer, care at home.

The problem of long-term care has become near a national crisis as America ages. With more Americans living a longer life with advances in medical science the flip side of that coin is the increased risk of needing extended care.

 "The amazing statistic -- and it is still one that's hard for me to get my arms around -- is that 70 percent of people over the age of 65 will need care of some kind, whether in their home or in institutions before the end of their life."

Tom Daschle, former Democratic Senate Majority Leader

With the risk of needing long-term care high, the financial costs and burdens of aging will impact the American family in a tremendous way as often the default caregiver, in the absence of any advance plan, is a daughter or daughter-in-law.

This is where long-term care insurance has become a huge value. The study shows people with an LTC policy pay much less out of pocket than those who do not. since policyholders receive benefits to cover care costs, they pay much less out of their own pockets than those without insurance.  The chart below shows the average amount of money an insured person would receive in benefits and therefore avoid spending from her own resources.  Depending on the care setting, this amount ranges from $3,000 to $5,000 a month.   

This means the draining of a family’s retirement savings is reduced thus protecting assets and promoting the lifestyle of the other spouse. Even a small policy would provide asset protection not to mention a reduction of burden on the family.

The study also says that Long-Term Care insurance offers benefits that are not strictly monetary. Insureds may be better able to obtain care in the setting of their choice, including their own homes. Many people think that long-term care insurance pays for only nursing homes. This is not true as most policies provide benefits at home, adult day care, assisted living, memory care as well as a traditional nursing home.

Perhaps one of the biggest benefits reported by the study was the fact that LTC policyholders received more care than they would have if they were playing with their own money.

“With LTC insurance benefits, policyholders can afford more care; those without insurance may be forced to rely more on family caregivers or simply make do with less care than they really need. We set out to ascertain whether those with insurance, in fact, receive more hours of care than those without. We looked at data from a population of people with insurance who had an impairment (an inability to perform at least two activities of daily living (ADLs) or a cognitive condition) who were receiving home care. For data on non-insured persons with similar levels of impairment."

National Health and Aging Trends Study (NHATS)

The study shows insured individuals receive substantially more hours of care (35 percent more) than the uninsured.  The insured receive almost twice as much paid care, but only 10 percent less unpaid care. This suggests family members can spend more time with companionship and less time with help with activities of daily living. This would place less stress of loved ones and perhaps better quality of care for the person needing the help.

Long-Term Care Insurance is very effective in paying or a majority of the costs associated with extended care. This safeguards a bigger portion of a policyholder’s assets for either lifestyle needs for them and spouse or partner or for inheritance purposes as opposed to spending own their savings.  

The study does not talk about the federal/state long-term care partnership program that most states participate in. This program provides additional dollar-for-dollar asset protection in the event a person exhausts their benefits in a qualified partnership LTC policy.

“We have said the Partnership Long-Term Care program was the best-kept secret because it was created to provide middle-income individuals with a special incentive to purchase coverage.” 

Jesse Slome, the executive director of the AALTCI

43 states have partnership plans in place providing “asset disregard” which allows a family to keep assets in an equal amount of the amount of benefits paid by their LTC insurance policy and still qualify for Medicaid long-term care benefits. Most states require a spend-down to $2000 in assets to qualify for Medicaid long-term care benefits. This means even a small policy can provide outstanding asset protection.

The National Association of Insurance Commissioners (NAIC) “State of Long-Term Care Insurance” report in May 2016, suggested expanding the support and promotion of these Partnership Programs between state Medicaid programs and the private Long-Term Care Insurance.

The report also called for more tax incentives for the purchase of LTC policies. Some states already have a deduction or credit in place and federal law allows some people and businesses to deduct the cost of long-term care insurance premiums.

President Trump’s administration has talked about above-the-line tax deductions for health insurance premiums and long-term care insurance is considered a type of health insurance. The administration has also indicated they want to expand Health Savings Accounts which already can be used to pay for LTC insurance using pre-tax money.