Creative Financial Approaches to Long Term Care Costs

Long term care insurance was sold aggressively in the 1980s, 90s, and thereafter to offset the costs of seniors needing to live in a nursing home, assisted living or needing at-home health care. Now, however, the business of long term care insurance has dramatically changed. What was once over 100 insurers providing LTC policies for sale has shrunk to a pool of less than twenty insurers who continue to sell the health care product. The big financial problem was that the majority of insurers had badly underestimated the longevity of these long term care policy holders and how many claims would be filed during their lifetime. The model became unsustainable from a business perspective.

As reported by the Wall Street Journal (, the industry is now in financial turmoil and millions of people age sixty-five or older with long term care policies are facing steep rate increases. Because the industry itself used such poor benchmarks and miscalculated projections, policy holders are seemingly left with two choices: (1) pay the money, or (2) leave your coverage after paying into it for years, and sometimes decades.

What if you want a different choice? Everyone would agree that being priced-gouged for premiums as you age is inherently unconscionable, but if the policy is discontinued what then will happen to the peace of mind long term care brings? What was once the safety net for senior aging care (without becoming a burden to family members) is rapidly disappearing.

CNBC has recently reported about this very issue and suggests getting financially creative for long term care. ( There is a surprising source that you can tap to maintain protection for yourself. But it requires planning, professional help, and time.

The financially creative premise is to become asset poor, impoverished, and qualify for Medi-Cal, which pays for nursing home care and services. This does not mean, however, that the legacy you built during your lifetime will not go to your selected inheritors. On the contrary, the assets you own must move out of your name to qualify for Medi-Cal. The assets will then shift to your designated beneficiary.

To begin, you will need to retain the services of a qualified elder law attorney who may also bring in an accountant and a financial advisor. Ideally, you will have time before needing long term care and the help of Medi-Cal. If there are assets transferred during a “30-month lookback” period at the time you apply, it may make you ineligible for some period of time.  This will require you to pay for care out of your own pocket until that period of time ends.

With time on your side, it becomes critical to select the right vehicle for transfer. These often tend to be irrevocable trusts. The assets in the irrevocable trust are no longer under the control of the older person and can provide protection from certain creditors. The vehicle you choose for asset transfer is very important not only for the older individual, but for the recipient, as well. In the case of an outright gift of appreciated assets (i.e., stocks or real property) there would be no stepped-up cost basis, which could lead to capital gains taxes when it is time to sell. An elder law attorney with input from your accountant and financial planner can help you choose the right transfer of wealth plan.

Elder law attorneys are closely watching changes in Medicaid, as Congress is often proposing legislation to change the program. Eligibility requirements can change very quickly in each state, and sometimes each county.

Though you may never have thought you would find yourself creatively trying to qualify for Medi-Cal while protecting assets, the current long term care premium prices preclude a large portion of seniors from being able to pay the cost of the policy. Genworth Financial reports the national median cost of a private nursing home room to be $97,452 a year. It doesn’t take long to be wiped out at that cost without long term care. Medi-Cal may be your solution, and time is of the essence for planning.

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