Many agricultural producers have spent a lifetime building their business which they hope to pass on to the next generation. Some are concerned that the cost of nursing home care will force them to sell their farm or ranch to pay for their care. The cost of long term care can be startling. The average annual cost for nursing home care in Montana is approximately $81,000. According to Department of Health and Human Services about 70% of people over age 65 will need some long term care. Those that need care will stay an average of 3.7 years for women and 2.2 years for men. At today’s prices this average stay will cost between $178,000 and $300,000. Are you prepared for expenses like these?
You might think that because you have health insurance your part of the bill will be considerably less. Unfortunately, health insurance generally doesn’t pay for nursing home care unless the care is provided as a short term rehabilitation stay. For example, a ten day stay to recover from hip replacement would likely be covered. Medicare, the primary health insurance for most seniors, pays about 11% of nursing home expenses. Who pays the other 89%? Individuals, their families and long term care insurance policies pay about 30%. Medicaid pays for the remaining 60% of nursing home expenses.
Medicaid is program designed to help pay for the care of those with few resources available to pay for their own care. To qualify for Medicaid you have to spend your own assets (including farm assets) until you have about $2,000 remaining before Medicaid will start paying the bill. Your assets such as bank accounts and farm or ranch assets are considered resources that need to be spent before you are eligible for Medicaid. One way you can protect your assets and increase your chances of passing your farm or ranch on to the next generation is to purchase long term care insurance.
Long term care insurance is a policy that pays for some or all of the costs of long term care for the policy holder. The policies often provide a maximum daily benefit amount (such as $100 to $200 per day) and typically a have a lifetime maximum benefit of $100,000 to $300,000. These policies work similarly to health insurance, as soon as the policy holder has an expense that qualifies, the insurance company makes payments based on the terms of policy. Long term care policies typically have an elimination period rather than a deductible. For example, an elimination period of 60 days means that the policy won’t begin to pay for costs until the 61st day that a person is receiving eligible care.
There is a special kind of long term care insurance called long term care partnership insurance that provides an additional benefit. A partnership policy is very similar to a traditional long term care insurance policy. The partnership policy must have an inflation adjustment for the daily benefits and meet a few other requirements. The extra benefit of a partnership insurance policy is that it protects assets from the Medicaid eligibility determination. A $100,000 policy will provide $100,000 in payments for long term care costs and protect an equal amount from the Medicaid eligibility determination. The following example highlights the benefits of long term care insurance and a partnership policy.
Julie is a widowed farm owner with assets of $100,000. Julie will need three years of skilled nursing home care at a cost of $80,000 per year for total costs of $240,000. If Julie has no long term care insurance, Julie will need to use her income and spend her assets to pay for her care. Once her assets are spent down to approximately $2,000, she will be eligible for Medicaid. At that point Medicaid will pay for her long term care expenses. In this example, Julie’s heirs will not receive an inheritance and Medicaid would pay about $140,000 for Julie’s care.
If Julie had a $100,000 traditional long term care insurance policy with a 60 day exclusion period and a $225 daily benefit. Julie would need to pay for the first two months of care (about $13,000) then the long term care insurance would begin paying for the cost of her care until the policy is fully exhausted. Julie pays for the first two months of care then the insurance policy pays for the next 15 months of care before the policy maximum is reached. At this point, Julie would need to start spending her remaining resources to pay for her care until she has about $2,000 remaining. Medicaid would then pay for her care. In this example, Julie’s heirs would not receive an inheritance and Medicaid would pay about $40,000 for her care.
If Julie’s long term care policy was a partnership policy then the outcome would be different. She would still pay the $13,000 to cover the 60 day exclusion period. The insurance policy would pay for the next 15 months of care at which point the policy would be exhausted. Because the partnership insurance policy protects $100,000 from the Medicaid eligibility determination, Julie would be eligible for Medicaid as soon as her long term care policy has been fully paid out. Julie assets up to $100,000 are excluded from the Medicaid eligibility determination. Medicaid would then pay for Julie’s remaining long term care costs. In this example, Julie would pay $13,000 for her long term care costs (to cover the 60 day exclusion period), her long term care partnership policy would pay $100,000 and Medicaid would pay $127,000.
Two good resources for more detailed information are MSU’s Long Term Care Partnership Insurance MontGuide and Montana Commissioner of Securities and Insurance’s Long Term Care Shopper’s Guide.