Your client has life insurance. Awesome! That protects the beneficiaries from financial struggles in case the client dies. They also have healthcare, which may include Medicare (or even Medicaid) to reduce the costs of things like co-pays, prescription drugs, hospital visits, and other related items.
Health insurance helps them save money while living and life insurance provides for their family even after death. This is fantastic!
But what happens when they unexpectedly become chronically ill or are critically injured? Your client was actively cashing out their retirement, but with this new onset of costs—sometimes near $200,000—it looks like those funds will be used up sooner than anticipated. Your client can dip into the cash value of their life insurance policy, but that will diminish the amount his or her beneficiaries receive at the time of death.
Additional coverage—specifically for long-term care—is a must.
But Medicare or Medicaid will cover the costs of long-term care, right? Wrong. Unfortunately, neither are full-proof options. Let’s explore.
Medicare First, Medicare only provides coverage on care aimed at shorter durations: prescription drugs to get healthy, overnight stays at the hospital, etc. Even extended stays are covered, but typically these are not of the long-term variety.
Similarly, Medicare will pay for short stays in a skilled nursing facility. But individuals must qualify based on three conditions: They have had a recent hospital stay of at least three days, they have been admitted to a Medicare-certified facility within 30 days of said hospital stay, and they still require skilled care.
If your client meets all three criteria, Medicare will pay for 100 days—the first 20 at full coverage and the last 80 at a specified cost. Your client must make up the difference.
For at-home care, a doctor must re-order the service every 60 days. In this case, Medicare will pay for part-time services, physical therapy (or related), medical social services, and medical supplies (client may have to take on 20 percent of expenses).
Medicare only covers hospice care for clients who are not expected to live more than six months.
Overall, Medicare is a short-term solution. It doesn't provide adequate coverage for those in need of care for years.
Medicaid Many state-implemented Medicaid programs do actually cover the costs of long-term care. There’s just one major caveat: you have to qualify for Medicaid first.
To qualify for Medicaid, one must:
- Own no assets exceeding $2,000
- Earn income at or less than the federal poverty level
- Five-year look back on assets
Medicaid is designed for extremely underprivileged families. In order to meet the above requirements, many individuals and families would have to spend down to qualify. This is obviously not ideal, and there is a five-year look back period anyway.
In order for your clients to keep their retirement savings and life insurance value intact, the best solution is to purchase a long-term care insurance policy. It's the most effective planning tool for long-term care.