Long-Term Care Options Change Again
What are your plans for long term care? Is it the “I won’t need it so don’t worry about it plan?” That is not a plan, of course, and if you are leaning in that direction (or just sticking your head in the sand), I encourage you to read why I bought long term care insurance and predicting the costs of long term care. That may jolt you back into a state of reality. (Sorry – someone had to do it!)
This past week, the Administration announced that it would not attempt to actually implement that Class Act. Although technically still part of Obama Care, without rules in place to create and operate the plan, it is DOA. This was not unexpected because most experts inside and outside government believed that it would be too expensive to be sustainable.
Let’s be more specific: Once the actuaries started crunching numbers, they determined that the monthly premiums would be so high that only the wealthier workers would participate. With so few participants, the government would end up having to subsidize the program which it cannot afford to do.
This is unfortunate because so many of us need an affordable option to address long term care risk. Counting on Medicaid is a particularly sad alternative because of the requirement that you spend yourself into the poor house first.
One option that is gaining some traction in the U.S. is a hybrid annuity/long term care insurance product. These are sometimes marketed by the different insurance companies as a “life care annuity” (LCA), a “living care annuity”, a “total living coverage annuity” or simply as “annuity care.”
In a typical LCA product, the policyholder (you) pays a single premium for a deferred annuity with a long term care “rider.” (Compared to an immediate annuity, a deferred annuity doesn’t begin paying benefits until sometime in the future. ) The annuity value will increase from the single premium amount by a minimum guaranteed interest rate. That guaranteed interest rate will usually be less than for a simple deferred annuity because you are also paying for the LTC rider by premiums that are withdrawn from the annuity interest earnings each month.
When a LTC claim occurs, daily or monthly LTC benefits are paid in accordance with the terms of the hybrid insurance contract. The maximum benefits may be equal to the accumulated annuity value divided by the number of days (or months) of a defined time period, e.g., a two year benefit period. The maximum lifetime LTC benefits may be equal to two or three times the full accumulated annuity value.
If the LTC benefit is not needed within a defined period (e.g., 8–10 policy years), you may be allowed to annuitize (pay out over time) the accumulated annuity amount or withdraw that amount as cash without paying any surrender penalty.
Right now we are sticking with our LTC polices from MetLife but if things change, we will be looking at hybrid annuity products also.
If you haven’t spent much time exploring long term care problems and solutions, the Department of Health and Human Services has a very good clearinghouse site for long term care information.
Here is an article on the demise of the Class Act: CLASS is Killed: But How Will We Pay for Long-Term Care Services?
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