LTC Bullet: Options for the LTC Uninsurable
Thursday, May 22, 2003
LTC Comment: Even Medicaid planners acknowledge nowadays that private long-term care insurance is highly preferable to Medicaid planning. But what do you do if you're uninsurable? More after the ***news***.
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*** Kudos to American Health Care Association President and CEO Chip Roadman for recognizing the importance of private long-term care insurance and for urging Congress to encourage LTCI with tax deductions and credits. Here's more: "LTC Daily Analysis Briefs. Individuals Should Take LTC Reins, Industry Official Says WASHINGTON, DC -- 05/20/2003 -- (Eli Digital) The federal government should do more to encourage individuals to take responsibility for their long-term care needs. That was the message American Health Care Association President and CEO Dr. Charles Roadman delivered last week in testimony before a House Financial Services subcommittee hearing on retirement security. 'While there are healthy differences of opinion regarding the precise parameters of comprehensive Medicaid reform, there is growing concurrence that individuals -- not just government -- should also be responsible for long-term care planning,' stated Roadman. Though Roadman called on Congress to boost Medicaid funding, he also urged lawmakers to help individuals provide for their care through a combination of new tax credits and incentives. To read Roadman's complete testimony, click here. http://www.ahca.org/brief/test030515.htm " Source: LTC Daily Analysis Briefs, May 20, 2003, prepared by http://www.eliresearch.com/ for http://www.snalf.com/ , http://www.snalfnews.com/AnalystNews.cfm?id=1740 ***
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LTC BULLET: OPTIONS FOR THE LTC UNINSURABLE
LTC Comment: Recently, a faithful reader of LTC Bullets sent us this note: "Many insurance agents have no idea what to do to help an uninsurable prospect who needs to spend money for long-term care services. May I suggest an article on solutions, like reverse mortgaging the house, selling or viaticalizing the life insurance, or converting other assets into income with a truly medically underwritten immediate annuity to provide funds to pay for care versus hiding what you can when the end is near." We responded that we agreed, that "LTC Bullets" has covered each of those topics periodically, but that these points can not be made too often. So, write us an article! He did. Here it is.
(LTC Bullets welcomes article submissions from LTC providers, financiers, insurers, senior advisors and others on any and all issues related to long-term care service delivery and financing. Simply email your submissions to mailto:firstname.lastname@example.org .)
"Options for the LTC Uninsurable," by Romeo Raabe
Irresponsible Medicaid planners hustle Medicaid as a cost-free alternative to private long-term care insurance (LTCI) for anyone and everyone. Other, ostensibly more responsible Medicaid planners, encourage LTCI as a better alternative for those who are medically and financially eligible to insure privately. These same practitioners often justify Medicaid planning, however, for anyone and everyone who is uninsurable.
Many insurance agents will resort to Medicaid planning when their client receives a declination from a long-term care insurance carrier. They may resort to Medicaid planning in a well-intentioned attempt to "help." Unfortunately, Medicaid tends to force the client into a nursing home which may not be necessary or desirable. Nursing facilities frequently lose money on Medicaid reimbursement, which makes it difficult for them to hire qualified staff and provide quality care. In contrast, if the agent can assist the client by finding alternative private funding sources to pay for long-term care, the client will have more choices of where to receive better care. Let's look at ways to help uninsurables pay their bills.
First, how many LTCI clients are truly uninsurable? There are over 100 LTC insurance companies, each with different underwriting guidelines. Spending the time to learn who will accept what medical conditions is part of the LTCI agent's job (and a lot better for both agent and client than merely explaining that the client is uninsurable). But, be careful. Some carriers that accept "substandard risks" do so with appropriately increased prices and limited benefits, while others simply have loose underwriting and will someday pay for that carelessness with severe premium increases. Good LTCI agents discern which companies are which and recommend only the most responsible ones. There are circumstances, however, when people are simply not going to be underwritten for LTCI insurance. Let us explore options for those clients.
The goal is to give the client options by finding a source of funds to pay for the cost of care. Many clients are not aware of all the assets they have at their disposal. Certificates of Deposit, annuities, stocks, bonds, IRA and 401K accounts, real estate, antiques, collectibles, life insurance cash values or viatical settlement values are all assets that can and do get overlooked. The strategy to pay the bills for long-term care will depend on what assets are available, so a thorough inventory is vital. Can the assets produce income through renting or leasing, as in real estate, or can collectibles or antiques be liquidated? Homes that are primary residences can be reverse mortgaged. The older the client, the larger the percentage of home value that can be obtained with a reverse mortgage.
Once all the funds available are identified, the next step may be to see how far this money can go. If assets are spent, they are gone forever. Even a fairly large sum produced by a reverse mortgage can be spent on long-term care in a very short time. Stretch the money as far as it can go. For example, this might be a good time to verify that care is being provided in the most appropriate and least costly setting. Family members, even with an advance directive, often place the client in a more restrictive setting than necessary. Many conditions that required nursing home placement just a few short years ago can be now handled in an assisted living facility. If home care can be provided by family or friends on weekends and evenings, then a home care agency might provide one visit a day during working hours to allow the client to stay at home.
An annuity can convert an asset into income for a set period of time, or for life. Normally, the only factors taken into consideration for a life income annuity are the client's age and sex. The insurance company will then factor "average" life expectancy with current interest rates to quote the income for life that the lump sum will produce. Some annuity companies will go a step further and shorten the life expectancy by a few months for things like smoking or overweight, producing a slightly larger income.
There are now annuity companies that will completely underwrite a life income annuity by taking the client's health and disability into consideration. Rather than a quick quote over the phone, these companies will get medical records and send a nurse to interview the client and/or the caregivers. This intensified underwriting takes the individual client's "actual" prospective lifespan into account and can produce a significantly higher income from the assets available. The more severely impaired the individual's health, the better the annuitization factor. This is also a wonderful way to allow someone already needing nursing care to continue paying the bills for life - rather than running out of funds, turning to Medicaid, and being forced into a nursing home.
Annuitization is a strategy that is simple to explain to a client and family. Rather than spending down until the money is gone, like watching a jug of milk tipped over and spilling until empty, you can stop the leak by providing the income needed - for life - and possibly even have some cash left over for emergencies or for heirs. This is also a tool to explain to nursing facility and home care agency administrators. If you can be the part of the solution by providing the funding to pay for care, these folks will be calling on you for assistance on a regular basis.
As insurance agents, we are used to devising solutions - providing money to pay the bills when an insurable event occurs. The products now exist for us to solve these problems even after the insurable event occurs. Why would we choose to be part of the problem by advising our clients how to collect from our tax dollars (Medicaid) when we can be the solution? Being part of the solution lets us hold our head high and do the right thing, allowing our client to pay for the care most appropriate - and this kind responsible LTC planning can pay even better than Medicaid planning!
Romeo Raabe is an LTCI agent working exclusively with long-term care issues at Informed Choice, an insurance agency. He writes and teaches professional continuing education courses on LTC for Dearborn Financial and is the Field Sales Director (trainer) for JSA, a brokerage of LTCI in Green Bay, WI. - 800 582-5721.