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Friday, November 6, 2009

Myth: The Government Will Take Care of Me

As we live longer and longer, the uncertain and usually untold story about quality of life needs to be looked at. The number one cause of debilitating but not immediately fatal conditions such as arthritis, dementia, heart & respiratory decline is longevity. How is this affecting us as families, communities and a society? How will it affect us?
I've met with more couples than I care to admit who are "in betweeners", that is, they are cornered into taking care of adult children and at the same time saddled with caring for one or both sets of their parents. The stress is palpable, incredibly emotionally and financially draining.
Right now, Medicare does not pay for long term care. State Medicaid programs do but only if you are virtually impoverished. I won't go into the details here, but the legal consequences of shifting assets to qualify for Medicaid keep getting more punitive as the financial solvency of the program becomes more and more scary. What are the options?
Well, you can:
  • Be really rich or have really rich kids. Seriously. This is an option that works for a few people.
  • Spend down your assets to qualify for Medicaid.
  • Set up an Income Cap Trust- see
  • Buy Long Term Care insurance
  • Hope and pray that the health care reform bills in Congress will deal with this issue (not likely).
  • Only get malignantly terminal illnesses
Let's examine these primary alternatives.

The first one is the best but, based on statistics, the least probable. Even so, the reality is that even well-off folks buy Long Term Care insurance because they've done the math: If you could save the monthly premium for long term care insurance in an account earning 6% for 20 years- instead of buying the insurance -then you would have enough money to pay for about 9 months of care. The insurance, on the other hand, would give you inflation adjusted care for 5 years.
The second possibility is commonly used, but usually involuntarily. Plus, it leaves your spouse in a world of financial hurt, if you care about that.
The Income Cap Trust should be drafted by an attorney. It can allow you to qualify for Medicaid earlier, and stay on longer, by meeting the "300% of SSI standard income limit" test.
Buying Long Term Care insurance LTCi) is actually the cheapest option for all of us, if you can qualify. This is especially true in Oregon which is a "partnership" state, meaning that to the extent you have private long term care insurance you will be exempted from Medicaid recovery from your estate. For example, let's say you have LTCi, go on claim, and your insurer pays out a total of $300,000 before you die. Your Medicaid exempt assets will be increased by $300,000.
The fourth option, hoping Congress will fix it, doesn't look too promising. We can't afford the programs they've already promised us.
The last option is out of our control. And, I wouldn't wish that on anyone.

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