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Published: Jan 31st, 2017

Hybrid Long-Term Care and Short-Term Care Options

Hybrid Long-Term Care and Short-Term Care Options
Article Updated:October 13th, 2019

The impact of aging on health care and our future retirement income is on the mind of Generation X and Boomers these days. As the parents of these generations have aged their adult children (age 40 to 60 primarily) have seen first-hand the costs and burdens Long-Term Care places on finances. The additional burden, placed primarily on the daughters and daughters-in-law, creates issues within the family as well.

In Washington, President Trump still supports the expansion of Health Savings Accounts in order to make them available for more people. You can use this pre-tax money to pay for Long-Term Care Insurance premiums. Other tax incentives, both federal and state are available for some people.

Traditional Plans Still an Affordable Option

First, let’s review Traditional Long-Term Care Insurance. Traditional Long-Term Care Insurance is still the primary way people address extended care. Most states have partnership plans which provide additional dollar-for-dollar asset protection.  These insurance policies are very affordable if purchased younger when your health is much better.

For example, a healthy married 50-year-old male could obtain a partnership certified policy in Colorado, featuring $4000 a month with an initial $150,000 all growing by 3% compounded for life would run about $82 a month with a major company. The smaller the initial benefit the lower the premium, larger benefit the bigger the premium.

Premiums are intended to remain level. Some companies have had approved increases on older series of policies. Any increase must be approved by the state’s insurance department and must impact a class of people, not an individual.

“Interest rates or investment return is vitally important.”

“Years ago, when interest rates were higher, an insurance company easily assumed a five percent interest rate when it priced policy for a 55-year-old.  If the actual interest rate was closer to say one percent and assuming every other actuarial assumption was correct, they would need a 50 percent or greater premium increase to pay out future claims.”

Jesse Slome, Executive Director for the American Association for Long-term Care Insurance (AALTCI) 

Rate Stabilization Rules Benefit Consumers 

Today Long-Term Care Insurance policies are priced for the low-interest rate environment. Also, experts say underwriting criteria is much more conservative than 20 years ago. For consumers today, this is good news. Many states have rate stabilization rules in place. This makes it much harder for an insurance company to raise the premium on these policies. You can find if your state has this rule in place by clicking here. You will also learn about partnership and tax incentives which may be available in your state.

Asset-Based or "Hybrid" Plans Provide Long-Term Care and Death Benefits

Today other options are available. One option getting press is an asset-based “hybrid” long-term care policy. A hybrid policy is typically a life insurance policy or annuity with a rider for Long-Term Care. While many insurance companies offer these type of policies, experts warn consumers to be careful of policy language.

Some policies will not pay benefits over a certain age (making them a bit useless for Long-Term Care) others require a doctor saying you have no chance of recovery. The best plans use the regulated language triggers for Long-Term Care Insurance.

The upside and benefits of these “hybrid” policies? You could get all your money back if you never require care. Most of these plans are single premium (or an annual payment which can never go up). The single premium could be $75,000 or more depending on your age and the amount of Long-Term Care benefit you wish to have available. 

The downside? Experts say the opportunity cost of the single premium may not be worth it for some people. A specialist in Long-Term Care Planning can discuss the pros and cons of this type of policy.

Limited Duration or Short-Term Plans

The third option is what the industry describes as “Short Term Care.” These are limited benefit plans designed to be very affordable and available to those with existing health problems or older adults who may not qualify for traditional plans.

The vast majority of buyers (90 percent) of Short Term Care insurance policies were 60 or older. 

“Some 45 percent were between ages 61 and 70 and around a third (36.5%) were between 71 and 80.”

“It’s a great option for people who waited too long to start the Long-Term Care planning process.”

Jesse Slome

Can You Self-Insure for Long-Term Care Expenses?

There is a fourth option: Roll the dice and do nothing. This means you become the insurance company. Usually it means your family will become caregivers and decide if your money will be used for paid care. They control the quality and setting of your care.

The risk of needing long-term care services and supports is high, especially as you get older. The US Department of Health and Human Services says if you reach the age of 65 you have a 7 in 10 chance of requiring some type of long-term care service in your lifetime. Many financial advisors recommend obtaining a Long-Term Care Insurance plan before you retire for this reason.

“I'm a huge fan of this insurance. If you become ill, it ensures that your spouse will have enough money to eat and your kids won't be burdened with huge payments. Not having LTC insurance can be a $300,000 to $400,000 mistake.”

 Dave Ramsey, a nationally known author, and radio talk show host.

Tax Incentives for Qualified Long-Term Care Insurance Policies

Don’t forget to consider the tax benefits of these plans. In addition to being able to use pre-tax money from Health Savings Accounts, you can deduct premiums if you itemize under the medical expense section. Also, if you are self-employed or own an LLC, S Corporation or C Corporation the premiums can be a tax-deductible business expense. Seek the advice of a tax professional for details.

Also, many states offer tax incentives as well. Those states are:

Alabama Arizona Arkansas California
Colorado District of Columbia Hawaii Idaho
Indiana Iowa Kentucky Louisiana
Maine Maryland Minnesota Mississippi
Missouri Montana Nebraska New Jersey
New Mexico New York North Dakota Ohio
Oklahoma Oregon Virginia West Virginia
New Mexico New York North Dakota Ohio

The AALTCI says to work with a Long-Term Care specialist who represents all the top companies to help you learn your options and shop and design an affordable plan to make sure you have a successful retirement.