Long-Term-Care Insurance
Medicare and private health insurance, including supplemental plans, generally will cover only limited care for a patient in a nursing facility or in a patient’s home. For in-home care, a patient in recovery must often must require skilled nursing care (not simply help with daily living activities). Private insurance coverage may pay for in-home care, but often if it’s less than eight hours a day for 21 days or less. After a hospital stay of at least three days, a patient needing continuing treatment typically can be provided with 100 days of coverage in a skilled nursing facility.
Long-term-care insurance can be purchased as an option to insure beyond what health-care insurance covers. These policies can be designed to pay a specific daily benefit, with or without inflation adjustments, and to pay out after a specific elimination period for a number of years. There are also stand-alone options, asset-based long-term care products, and life-insurance policies that can have riders allowing benefits to be paid under certain circumstances. When the insured patient cannot perform at least two of the six activities of daily living—eating, bathing, dressing, toileting, transferring and continence—the benefits can then be triggered on such policies. Mental impairment alone may not trigger the benefit, and although it is more common today to see specific cognitive triggers included, policies can differ, so it is important to review the policy to understand what is covered.
The cost of care can be extraordinary, with the average stay for an Alzheimer’s patient in a skilled nursing home facility currently estimated at eight years. The average cost of a skilled nursing home stay in the United States is approximately $8,000 a month for a private room, according to Genworth. Individuals and families may want to attain insurance coverage specifically to protect assets, and in some cases, to pay for care that otherwise would not be affordable.
Life Insurance
Life insurance policies may include a rider for accelerated death benefits, which means benefits can be paid while the insured person is still living. These policies have varying conditions, but this benefit typically is structured to allow a percentage of the death benefit to be paid out when a client is terminally ill or meets the standard of requiring nursing home care. When the policy pays a benefit to cover the cost of current nursing home care, that payout typically allows for 2% of the death benefit monthly and it’s capped at 50% of the total policy.
A client’s existing life insurance policy also may be sold to a third party in exchange for cash. There are two main options: life settlements and viatical settlements. With a life settlement (typically available to women over age 75 and men over age 70), a third party buys the policy and then takes over premiums until the death of the insured individual. A viatical settlement can be explored if the person named on the policy is suffering from a terminal illness that is expected to last two years or less. The life settlement is taxable, while a qualifying viatical settlement generally isn’t. In most cases, the cash offers for the insurance policies are a fraction of the full value of the death benefit the family otherwise would have received.
Tax Planning
When recording expenses, it is important to plan early to have a system to keep good records or hire a bookkeeper. There are professionals who have expertise in care management and related resources that can help. When clients file, it is important that they not overlook the tax deductions available for medical expenses that exceed 7.5% of adjusted gross income (AGI) for 2017 and 2018. These deductions become subject to a limit of 10% of AGI in subsequent years under the current tax code and they are subject to future legislative action. Clients can find tax breaks elsewhere—for example, they can sometimes receive dependent-care credits when patients move in with them. Lastly, don’t forget about Flexible Spending Accounts and Health Savings Accounts; monies deposited in these could be used to reimburse health care expenses.
Conclusion