Long-Term Care Partnership Insurance in Montana

Transcription

1 1 Long-Term Care Partnership Insurance in Montana Presenter Notes and Script April 2013 Note to presenter: Have a copy of the following on hand to show to participants: 1. Long-Term Care Partnership Insurance in Montana MontGuide: 2. Medicaid and Long-Term Care Costs MontGuide: 3. Approved Company List: Montana Long-Term Care Rate Comparison Guide: 5. A Shopper s Guide to Long-Term Care Insurance: Slide 1: Today I am going to be sharing information about the Long-Term Care Partnership Insurance Program that is now available in Montana. Slide 2: First, let me define what is meant by long-term care. Long-term care includes a wide variety of services and supports that can be provided in your home, an adult day care, or in other living arrangements, such as continuing care retirement communities, home health care, assisted living facilities, or nursing homes. Slide 3: Next let s explore some quick facts about long-term care services that help with chronic illness, disabilities or other conditions that may be limiting physically or mentally for members of our older population. Slide 4: (Hint: Have Participants vote by raising their hands) What percentage of persons age 65 and older do you think are expected to need some type of long-term care? Slide 5: The National Institute of Health reports that 70 percent of persons age 65 or older are expected to need some type of long-term care during their lifetime.

2 2 Slide 6: While many people think that Medicare covers all long-term care expenses it does not. Medicare pays only for medically necessary skilled nursing facility or home health care. However, you must meet certain conditions for Medicare to pay for these types of care. Slide 7: Most long-term care is to assist people with support services as activities of daily living like dressing, bathing, and using the bathroom. Medicare doesn t pay for this type of care called custodial care. Slide 8: What was the average length of stay in a nursing home in Montana during 2013? Slide 9: During 2013 the average length of residency in Montana was about 2.4 years. 1 in 5 stay more than 5 years Slide 10: What is average monthly cost of nursing home care in Montana for 2013? This figure is re-calculated by DPHHS every January based on surveys with nursing homes in the state. Slide 11: The Montana Public Assistance Bureau reports that the average cost of care for an individual in a nursing facility in Montana for 2013 is $5,955 per month about $71,456 annually. Slide 12: A three-year stay for an individual would cost about $214,380. For a married couple the cost would be $428,760. Slide 13: There are choices in addition to a nursing home. On your screen are some of the costs for home health aide, adult care center, assisted living facility and a semi private and private room in a nursing home.

3 3 Slide 14: Once you become aware of these startling facts and costs you may be asking yourself, How will I ever be able to afford long-term care if I need it? Slide 15: Some Montanans are able to pay for their long-term care from present income, savings and investments. Slide 16: Others, who own real property such as a home, farm, or ranch could sell them and use the proceeds to pay for care. A reverse mortgage is another possibility. This special type of home loan allows an individual to convert a portion of the equity in their home into cash with payments that are typically made on a monthly basis to the owner. Slide 17: Some elderly persons plan to depend on a spouse or adult children to care for them, while others would not want to place such a burden and responsibility on their family members. Slide 18: Another option often discussed at the local coffee shop is for people to use up or give away their assets to their children to qualify for Medicaid. The goal is to become impoverished and let the government pay for their long-term care. This program is funded by the federal and state governments. Medicaid pays for care for those who can t afford it. However, to apply for Medicaid a person must meet certain federal and state eligibility requirements. Slide 19: Another alternative to cover the costs of long-term care is the purchase of long-term care insurance. Policies may be purchased from a licensed insurance agent who represents one or more companies. Some employers offer group long-term care policies. Slide 20: About 50% of people who apply for long-term care insurance are between the ages of 55 and 64. Only 6% apply between the ages of 35 and 44; 15% between agent

4 4 Slide 21: But only, a little over 12% of those age 65 and older actually had private LTC insurance in Slide 22: A new alternative for Montanans to pay the cost of long-term care is the purchase of a long-term care partnership insurance policy. You have in your hands a MSU MontGuide that provides basic information about the development of the program and how it works. Tax benefits and shopping tips are also highlighted. Slide 23: Let s explore how the long-term care partnership insurance program developed in Montana. Slide 24: One of the major reasons a new approach was and still needed for long-term care is the increasing cost of the Medicaid program at the state and federal levels. Slide 25: For example, on average what percent of nursing home care costs were paid by Medicaid in Montana? Slide 26: In Montana, Medicaid pays 60% of Long-Term Care costs while nursing home residents pay 29%. The remaining 11% is paid by Medicare or long-term care policies that were purchased by individuals. Slide 27: It s no wonder that states were encouraged to develop programs that would help reduce the growth of Medicaid expenses.

5 5 Slide 28: Montana s long-term care partnership insurance program was authorized by the legislature and became effective on July 1, Slide 29: The program is a public and private collaboration among: Private insurance companies Insurance Division within the office of Montana Commissioner of Securities and Insurance; and Montana Medicaid program within the Department of Public Health and Human Services (DPHHS). Slide 30: Let s examine how the long-term care partnership insurance works. Montanans who purchase a long-term care partnership insurance policy are protected from the requirement they have to use up almost all their financial resources to qualify for Medicaid. Slide 31: When a Montanan who has purchased a qualified long-term care partnership insurance policy needs care, assets up to the value of the LTC partnership policy will not count when making an eligibility determination whether the person qualifies for Medicaid. Slide 32: Let me show an example of how the program would work for a single person named Betty. By age 72 Betty s remaining assets included $50,000 in certificates of deposit (CDs) she wants to leave to her two grandchildren to help them pay for college. Slide 33: Let s assume Betty purchased a long-term care partnership insurance policy when she was age 45. She selected a maximum lifetime benefit pool of $100,000. Slide 34: When Betty needed long-term care, first in her home and later in a nursing home, the benefits of the partnership policy helped cover her expenses until the maximum lifetime pool of $100,000 on her policy was reached.

6 6 Slide 35: When Betty became responsible for the payments to the nursing home, her daughter visited the local Office of Public Assistance (OPA) to determine whether Betty would be eligible for Medicaid. Slide 36: As a part of the Medicaid application process, the daughter provided documentation from the insurance company of Betty s use of a maximum lifetime benefit pool of $100,000 from a qualified long-term care partnership insurance policy. Slide 37: The Office of Public Assistance could have excluded up to the benefit of $100,000 paid to her in the calculation for Betty s Medicaid eligibility, but in this case $50,000 was excluded. Slide 38: Since Betty met other eligibility requirements for Medicaid for she became immediately eligible. Slide 39: Thus Betty was able keep the CDs ($50,000) to leave to her grandchildren and the $2,000 in her checking account because she had purchased and used the $100,000 benefit in her qualified longterm care partnership insurance policy. Betty did not have to spend down all of her remaining resources before becoming eligible for Medicaid. Slide 40: You may ask yourself why not give away all my assets to become qualified for Medicaid instead of paying for a long-term care partnership insurance policy? Slide 41: Federal law requires a period of Medicaid ineligibility if people give away assets or transfer them for less than fair market value within a certain time period (termed look-back period). In 2006 the look-back period for the transfer of assets changed from 36 months (3 years) to 60 months (5 years).

7 7 Slide 42: Let s assume Betty had gifted the $50,000 CDs to her grandchildren within 5 years of applying for Medicaid. The uncompensated asset transfer penalty and ineligibility period rules would apply. Slide 43: The ineligibility period is set at the number of months that would otherwise be required to spend the uncompensated value of the transferred assets (the $50,000 in CDs in Betty Lou s situation) on nursing home care. During 2012 the Montana average monthly cost of nursing home care is about $5,818. Slide 44: What would have happened if Betty had given $50,000 to her grandchild in an attempt to become eligible for Medicaid? Slide 45: If she had given the CDs to her grandchildren, Betty would not have received Medicaid coverage for approximately 8.4 months after she entered the nursing home. Her $50,000 gift was divided by the monthly nursing home cost of $5,955. This means Betty would not be eligible for Medicaid for about 8.4 months. Slide 46: How will Betty pay for the 8½ months of care? How many of the grandchildren would still have their portion unspent and would be willing to pay towards Betty s care? Slide 47: Remember the asset protection feature for Medicaid is available only after all benefits of the long-term care policy have been utilized. Slide 48: (Have a copy on hand to show participants) Further information about Medicaid eligibility requirements in Montana is available in the MSU Extension MontGuide Medicaid and Long-Term Care Costs. Copies can be obtained from your local County Extension office or ordered from MSU Extension Publications Store at

8 8 Slide 49: The purchase of a long-term care partnership insurance policy may help protect your assets up to the amount of benefits paid, if you become eligible for Medicaid, but it does not automatically qualify you for Medicaid. Slide 50: What companies are authorized to provide long-term care partnership insurance policies in Montana? Slide 51: (Show list to participants) As of April 2013, the Montana Commissioner of Securities and Insurance Web site lists 14 companies who can sell policies. The list is available at the Web site on page 4 of the MontGuide or by calling the number on the screen. Your insurance agent should also have a copy of the list. Slide 52: Each of the next 3 slides list companies that were listed as of April Slide 53: You may recognize the names of some companies. Slide 54: But not the others. Slide 55: Understandably, Montanans who purchase long-term care partnership policies from a company want some assurance that the company will be in business to pay their claims 20 years in the future when they need long-term care.

9 9 Slide 56: While there are no guarantees, there are ratings provided by credit agencies such as A.M. Best Company, Standard & Poor s Corporation, and Moody s Investor Services. Slide 57: Each agency has a system for rating an insurer s financial strength and viability to meet claims obligations based on a variety of factors such as underwriting, expense control, reserve adequacy, and investments. Slide 58: The American Association for Long Term Care provides a summary from the 3 rating agencies for many insurance companies. The Web site is provided on page 4 of the MontGuide. Slide 59: You may be wondering, what is the cost of a long-term care partnership policy? Slide 60: The cost of premiums for a partnership policy will depend on your age when the policy is purchased and the type of coverage chosen. Slide 61: (Show to participants) The 2011 Montana Long-Term Care Rate Comparison Guide from the Montana Commissioner of Securities and Insurance is a good place to start. Rates from a variety of companies are provided. Slide 62: While these rates are for regular long-term care policies and from companies that don t necessarily sell partnership policies that have been endorsed by the Montana Commissioner of Securities and Insurance, the charts can provide a basis for comparison.

10 10 Slide 63: You can order the publication from the Montana Commissioner of Securities and Insurance. The address is on page 5 of the MontGuide. Slide 64: (Show to participants) The National Clearinghouse for Long-Term Care also has information about cost comparisons. Slide 65: You may be wondering how much of your income should be spent on long-term care insurance? Slide 66: Take a guess which of these answers is correct. LTC premiums should consumer no more than what percent of income? Slide 67: The National Association of Insurance Commissioners (NAIC) recommends that long-term care insurance premiums should consume no more than seven percent (7%) of annual gross income. Slide 68: Let me share an example, Susan and Larry have a gross income of $65,000. Based on the recommendation of NAIC, the cost of their long-term care insurance policies should cost no more than $4,550 annually. Their income of $65,000 is multiplied by 7% with a result of $4,550. Slide 69: The annual premiums of $4,550 are divided by 12. Their monthly insurance premiums should not cost more than $380 based on the NAIC recommendation.

11 11 Slide 70: What questions should you ask before purchasing a long-term care partnership insurance policy? Slide 71: Where is the care provided? While some policies cover only nursing home stays, others are more comprehensive, paying benefits for home care, adult day care and care provided in assisted living facilities. Slide 72: Policies also offer various options for the benefit amount paid for care each day and over a person s lifetime, the length of the elimination or waiting (deductible) period and the type of inflation adjustment provided. Slide 73: There are many resources that provide additional information about features to consider when shopping for a long-term care insurance policy. Some are booklets that can be mailed to you. Other publications are also available for download from the Web. Addresses are provided in the MontGuide on page 8 if you do not have access to a computer and the Internet. Slide 74: Are premiums paid for a long-term care partnership insurance policy or regular LTC policy tax-deductible at the state and federal levels? Slide 75: At the Federal level, premium payments for long-term care insurance or partnership policies are deductible on Schedule A (Form 1040) for individuals who have itemized medical expenses exceeding 7.5 percent of their adjusted gross income (AGI). However, there are limits on the amount deductible based on the taxpayer s age as you can see on the table on your screen. For example a person age 49 can only deduct $660. Slide 76: Dan (age 64) and Marlene (age 62) paid $8,537 for long-term care partnership insurance in Each has an allowable deductible amount of $3,500 (Table 2). The amount included on Schedule A: Itemized Deductions (Form 1040) is $7,000.

12 12 Slide 77: Only itemized medical expenses exceeding 7.5% of Dan and Marlene s adjusted gross income are deductible. With their combined income of $65,000, they are in the federal marginal tax bracket of 15% which mean only the expenses above $4,875 are deductible. Dan and Marlene s federal tax deduction is $2,125 resulting in potential tax savings of $319 (if the rest of their itemized deduction exceeds the standard deduction) ($2,125 x 15% = $318.75) Slide 78: Montana has a better deal. Montana allows a dollar-for-dollar reduction in the Montana adjusted gross income for qualified longterm care premiums. Slide 79: And, here is another Montana benefit. A tax deduction is allowed for premiums paid for long-term care insurance for not only a Montana taxpayer but also the taxpayer s dependents, parents or grandparents. Slide 80: The total amount for the premiums is entered on Form 2 Schedule III Montana Itemized Deductions, line 6. Keep in mind the line number may change from year to year. Slide 81: The amount Dan and Marlene can deduct from adjusted gross income on their Montana tax return is $8,537, which is the total cost of their long-term care partnership premiums. The amount of their Montana tax savings is about $589. Slide 82: The total state and federal tax savings for Dan and Marlene for their purchase of a long-term care partnership insurance policy is $908. Slide 83: Are the benefits (payments) paid to the purchasers of a long-term care policy tax deductible?

13 13 Slide 84: Generally the answer is no. Long-term care benefits paid to the insured are generally excluded from income if the policy was tax qualified and the payments are under a certain limit that changes annually. In 2012 the limit was $113,150 annually. Details are provided in the IRS form 1099 LTC. Slide 85: Is a long-term care policy purchased before the partnership program began in Montana considered a partnership policy? Slide 86: It depends. If you purchased a long-term care policy before July 1, 2009, the policy could be eligible for designation as a long-term care partnership insurance policy. Slide 87: First, the company would need to decide if it wants to comply with the new partnership rules at the federal and state levels and reissues or exchanges your policy for a qualified partnership policy. Slide 88: If the company decides yes, the next step is for the company to submit the policy to the Montana Commissioner of Securities and Insurance. Slide 89: If the Commissioner provides the company with a certification, you should be provided with a Partnership Status Disclosure Notice. Slide 90: Is a qualified long-term care partnership insurance policy purchased in another state certified in Montana?

14 14 Slide 91: A long-term care partnership insurance policy issued when you lived in another state may be designated as certified if you later become a Montana resident. Slide 92: Contact representatives from the Montana Commissioner of Securities and Insurance who will review the policy to determine if all of the following conditions are met. Slide 93: Was the insured person was a resident of one of the states whose Commissioner of Insurance has endorsed companies to sell LTC partnership insurance? Slide 94: Does the policy meet the IRS definition of a qualified LTC partnership insurance policy IRS rules? Section 7702 B (b) has about an 8-page definition. We ll count on the Montana Commissioner of Securities and Insurance to know the IRS rules. Slide 95: Was the policy issue date issued, re-issued, or exchanged July 1, 2009 or thereafter? Slide 96: Does the policy meets specific rules of the National Association of Insurance Commissioners? Slide 97: Does the policy include inflation protection? This requirement varies depending on the age of the insured at the time of purchase: If the purchaser is under 61 years of age, compound annual inflation protection must be provided. If the purchaser is between years of age, some level of inflation protection must be provided. If the purchaser is over 76 years of age, inflation protection is optional.

15 15 Slide 98: What if I want to make changes to my long-term care partnership insurance policy after it is purchased? Slide 99: Any changes made to a long-term care partnership insurance policy could affect whether the policy continues to be certified under Montana regulations. Slide 100: Before you make any modifications, consult your insurance agent to determine the effect of proposed changes. Be sure to get any responses in writing so you will have documentation should questions arise later about whether the policy remains certified in Montana. Slide 101: Montana has initiated a long-term care partnership insurance program allowing persons to protect some or all of their assets (depending on the plan purchased), if they need long-term care. A partnership policy helps Montanans pay for their long-term care without having to use up their assets, as they would have to do if they relied totally on Medicaid to pay for their long-term care. Slide 102: By allowing Montanans to keep what they ve worked hard to accumulate and by reducing Medicaid costs for the state and federal governments, the partnership provides benefits for everyone. State and federal laws also allow for deductions for qualified long-term care premiums when calculating annual income taxes. Slide 103: The MSU Extension MontGuide is available from our local Extension Office, on the Web or from the Extension Publications Distribution Center Store within the last page of the MontGuide. Slide 104: The co-authors of this MontGuide include: Marsha Goetting, MSU Extension Family Economics Specialist

16 16 Slide 105: Nancy Clark, Shannon Mykins, Barbara Flamand, Public Assistance Bureau, Montana Department of Public Health and Human Services Christina Goe, Montana Commissioner of Securities and Insurance Slide 106: Joel Schumacher, MSU Extension Economics Associate Specialist PowerPoint Developer is: Keri D. Hayes, MSU Publications Assistant Slide 107: Reviewers of PowerPoint and script are: Jane Wolery-Teton County Extension Agent Jesse Fulbright-Liberty County Extension Agent