October 25, 2019
CONSIDER THESE FACTS: People turning 65 today have almost a 70% chance of needing some type of long term care.1 And Medicare generally doesn’t cover the cost of that care.
Under the Chronic Care Act, approved by Congress in 2018, Medicare Advantage plans, purchased at extra cost, may now pay for certain home-care services. But Medicare itself offers very limited coverage for nursing home and home health services, and that coverage is subject to strict rules.
So what are your options as you begin to think ahead to how you’ll pay for the care you or your family might need? “Hoping that you’ll stay healthy isn’t enough,” says Joe Tantillo, Director of Personal Retirement for Bank of America’s Retirement and Personal Wealth Solutions. He recommends putting together a plan for covering future medical costs using a combination of the suggestions below.
Creating a portfolio of conservative, liquid assets for the specific purpose of funding long-term-care needs is one choice to consider. Those assets could be placed in a revocable trust designated for your future care, says Tantillo. Or they could be invested in a Health Savings Account (HSA). But relying on self-funding as the exclusive means of covering long-term-care costs has its risks. “Your expenses may exceed the amount you’ve set aside and then deplete the assets you’ve designated for other goals or for heirs,” he says. “Then, again, if you set aside enough funds for a worst-case medical or disability scenario, you may be tying up assets that could otherwise be invested and growing.” Tantillo suggests bolstering that safety net with some sort of insurance.
“You’ve got several approaches to consider here,” he says. Traditional long-term-care insurance policies provide the most robust benefits, but insurers have had poor experience with these products, which has resulted in significant premium increases, even on existing policies. Those premiums can, however, be paid for with money drawn from a Health Savings Account, which you can fund with pre-tax dollars, notes Tantillo.
But what if you purchase a long-term-care policy and end up not needing care? Then, you’d forfeit the money you paid out in premiums. For that reason, you might consider hybrid life insurance with a long-term-care benefits rider. If you use only a portion or none of the long-term-care benefits, your heirs will receive an income-tax-free death benefit from the balance of the policy. Or, you might explore permanent life insurance with a long-term-care or chronic-illness benefits rider. This option could be a good fit if your primary goal is to provide a death benefit for your heirs, but you also want the option of tapping into the policy’s death benefit early in the event that you need it to supplement your health-care costs.
“Your financial advisor can help you decide how to put together a long-term-care funding strategy that’s right for you—one that’s based on your age, your family’s medical history and the resources you have available to you,” says Tantillo. "Whatever option you choose, you’ll feel better that you’ve done something to prepare."
This material should be regarded as general or educational information on Healthcare/Medicare considerations and is not intended to provide specific healthcare/Medicare advice. If you have questions regarding your particular situation, please contact your legal or tax advisor.
Long-term care insurance coverage contains benefits, exclusions, limitations, eligibility requirements and specific terms and conditions under which the insurance coverage may be continued in force or discontinued. Not all insurance policies and types of coverage may be available in your state.
All guarantees and benefits of the insurance policy are backed by the claims-paying ability of the issuing insurance company. They are not obligations of, nor backed by, Merrill or its affiliates, nor do Merrill or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company.
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