Archive for September, 2010

Colorado Long Term Care Partnership

September 23, 2010

Sounds mysterious, but is really very simple.  Here is how it works:

1. You purchase a “Colorado Long Term Care Partnership” insurance policy.

2. At some point in the future, you file a claim and the policy then pays you a benefit.

3. Each dollar of benefit paid by the policy increases the amount of assets you can keep, by one dollar, and still qualify for Medicaid Long Term Care.  There is no upper limit on how many dollars of assets can be “offset” for purposes of qualifying for Medicaid.

Example:  Colorado resident Sue is an un-remaried widow with a $400,000 net worth.  Her estate plan includes leaving $100,000 to each of her three grandchildren.  Because Sue is not currently married, the Medicaid qualification rules do not allow her to have more than $2,000 in countable assets.  Sue prudently purchased a Colorado Long Term Care Partnership insurance policy two years ago.  She later had a stroke that left her needing 12 hours per day of home health care (Sue could have gone to assisted living, but wanted to stay in her own home.).  Over time, the insurance policy paid Sue $300,000 before running out of benefits (It was a small policy.).  

Sue can now qualify for Medicaid while retaining $302,000 ($300,000 Medicaid asset offset plus the originally allowable $2,000).  Because she had a Colorado Long Term Care Partnership insurance policy, Sue’s grandchildren will receive their intended inheritances.  Without the Partnership insurance policy, Sue would have had to spend down her assets to $2,000 leaving nothing for her “grands”.  Of even greater importance, Sue had $300,000 in policy benefits that she controlled…she was able to remain in her own home and to select, pay for, and replace her professional caregivers if she wanted to. 

Note that if Sue had been married when she applied for Medicaid, the maximum allowable combined assets (not counting equity in her home) would be about $112,000.  Thus, given the above example, she and her husband could have retained $412,000 net worth (plus home equity) and still have met the Medicaid maximum asset requirement.

What makes an insurance policy qualify as “Colorado Long Term Care Partnership”?  All of the following conditions must be met:

1. Policy date:  The policy must have been issued on or after January 1, 2008. This seems unfair (and it is) for people, including myself, who purchased policies earlier.  Note: John Hancock Life Insurance Company is in the process of mailing an information packet to policyowners who purchased otherwise-qualifying Colorado Long Term Care Partnership policies between February 8, 2006 and January 1, 2008.  Contact me if you own a John Hancock policy issued between these dates. 

2. Inflation protection: The policy must include age-appropriate inflation protection.  “Age” refers to the insured person’s age when the policy was issued. 

    a. Under age 61: Must be a minimum of 5% annual compounded interest or the Consumer Price Index (CPI) computed annually.  A guaranteed/future purchase option is not acceptable. 

    b. For ages 61 through 75: Must be a minimum of 3% compounded annually or; 5% simple interest annually or; CPI computed annually or; 5% compounded annually capped at twice the initial benefit amount.  A guaranteed/future purchase option is not acceptable.

    c. Over age 75: Inflation protection is optional.

3. Residency: The insured person must have been a resident of Colorado (or a Partnership reciprocating state) when the policy was issued and a Colorado or reciprocating state resident when applying for Medicaid.

4. Other requirements: Must meet the criteria for “tax-qualified” as defined by the IRS in the Internal Revenue Code.  Must also meet the Long Term Care insurance requirements of the Deficit Reduction Act of 2005.

5. The policy must have been approved for Partnership by the Colorado Division of Insurance.

As a practical matter, what is the value to consumers of the Colorado Long term Care Partnership?

Being covered by a Colorado Long Term Care Partnership policy may have a huge positive financial impact.  Relative wealth comes and goes.  No one knows what the stock market (and real estate market) will be like when you need care.  If your financial situation ever necessitates reliance upon Medicaid, having a Partnership-qualified policy will allow you to keep significant asset amounts that you would otherwise be required to spend down.  Is Partnership yet another good reason to buy Long Term care insurance?  Definitely!

How much more expensive is a Partnership policy?  Other than requiring age-appropriate inflation protection (which should be included anyway), there should be no difference in cost.  In my view, there is no justification for an insurance company to charge more for Partnership policies of the same benefit design..and almost no companies do.

Who is Partnership good for?

1. People who have assets worth protecting, but want to know that the Medicaid “safety net” will be available without having to spend down almost all of what they own..  

2. The State of Colorado because it shortens the amount of time policyowners will actually spend on Medicaid.  Colorado and the Federal Government each pay about half the cost of Medicaid.  Think about it…while someone’s cost of Long Term Care services is being paid by policy benefits, that person is not on Medicaid and our state does not have the expense. 

3. Insurance companies because Partnership motivates more people to buy Long Term Care policies.

Some Partnership Odds and Ends:

Should you replace an older policy with a newer one merely to get the benefit of the Colorado Long Term Care Partnership?  The answer is “Probably not”.  While Partnership can prove to be a valuable benefit, that benefit does not usually outweigh the much higher ongoing cost of a new policy issued at an older age.  Other states: Almost all states now have Long Term Care Partnership programs in place.  Most, but not all, offer reciprocity.   California, Connecticut, Indiana and New York Partnership plans are so different from the other states that reciprocity is unlikely to ever happen.  Now that you know more about the Long Term Care Partnership than most folks, call me with your remaining unanswered questions.  I would love to hear from you.

© Raymond Smith, The Long Term Care Specialist, 2010

Which Is The Only Employee Benefit That Can Do All This?

September 19, 2010

Which is the only employee benefit that offers business owners ALL of the following?  1) The entire cost of the benefit is tax-deductible to the employer (for a C-Corp.).*  2) The cost of the benefit to the employer is not taxable to the employee.  3) The  benefit received by the employee is not taxable to anyone.  4) The employer can selectively pay the cost of the benefit to whichever employees it wants…without impacting the employer’s tax deduction.   The answer, of course, is Long Term Care Insurance.

For years I have had a standing offer to buy lunch or dinner to anyone who can show me another employee benefit that can provide all four “benefits” (advantages) for the business owner employer.  Would you like to try to be the first to collect?  Email me at with your ideas. 

All this talk about the “unique employee benefit” is interesting, but is there a practical application?  Yes there is!

Executive Carve-Out: A business owner can give him/herself, and spouse, and chosen key employees a tax-deductible benefit that is valuable in its own right.  Example: A 100% owner-employee of a C-corporation service company has 30 employees.  The Director of Operations is a critically important employee who has received several job offers from competitors.  The Director of Customer Service is not doing so great.  The owner could decide to have the business pay for Long Term Care insurance for him/herself and spouse and the Director of Operations (and spouse)…but not the Director of Customer Service.  Alternatively, the business could choose to only pay for the owner and spouse, or only for the owner.  If the business was other than a C-corporation, the owner and spouse could deduct at least part of the premium.

A business could pay the cost of Long Term Care insurance for more than just a few employees, but is not required to do so.   More common is an executive carve-out covering the owner(s), owner’s spouses and a few key employees coupled with offering Long Term Care insurance as a voluntary benefit to the remaining employees.  A voluntary benefit is one that is paid for by only the employees who choose to be covered.

As a bonus, Long Term Care insurance  executive carve-outs and voluntary benefit offerings often come with premium discounts and easier-to-qualify underwriting.   

*With rare exception, a regular (or “C”) corporation can fully deduct Long Term Care insurance premiums paid for an owner-employee and spouse.  Any other active-in-the-business owner (such as a sole proprietor, a partner, a S-Corporation owner, etc.) can deduct at least a portion of the premiums.

This article (or anything else that I write) should not be construed as tax advice.  Raymond Smith, the Long Term Care Specialist, does not give tax advice.  Please see your tax advisor for information as it pertains to your particular situation.

© Raymond Smith, The Long Term Care Specialist, 2010

Which Insurance Company Is The Best?

September 19, 2010

This is a question I am often asked by people considering Long Term Care insurance.  The answer, beyond any doubt, is…it depends.

Let’s start with underwriting issues.  About 80% of underwriting is essentially the same from company to company but the rest is not.  For example, a person with a history of well-controlled hypertension (and no other issues) is likely to qualify for the best rate class with most carriers.  Another example: a diagnosis of any form of dementia makes someone uninsurable across the board.  A diabetic who injects insulin is generally uninsurable, but a small number of insurance companies will provide coverage if everything else is really good.  Every company has its own height and weight table that shows if a person is insurable and, if so, at what rate class.  So the first thing for me to determine (after previously concluding that Long Term Care insurance may be appropriate) is which companies are likely to issue a policy…and at what rate class.  By the way, my standard practice when I am not sure is to call various insurance company underwriters and ask.

Second, I screen out those insurance companies that do not meet my high standards of financial strength, time in the insurance business, time specifically in the Long Term Care insurance business, history of past rate increases, and reputation for how easily claims are paid. 

Third, I look for what policy features are important to the particular individual or couple that I am working with.  Example: “Shared Care” (The combined dollar amount benefit pools may be used by either person) could be very important to a couple and yet would be meaningless to someone who is single.  Another example might be someone who is planning to retire outside the United States.  I would want to be sure that benefits would be paid in the selected country.  

Fourth, I tentatively establish a policy design starting point in terms of how much benefit, and when, and for how long that benefit would be delivered.

Now I am ready to create a spreadsheet.  I typically start with five or six companies, then whittle it down to two or three that I show to my client.  At this point we can look at comparative pricing.  Cost however, must be tempered by differences in policy features and company history.  At this point we together are finally able to refine the policy design (and thus cost) and arrive at what is the “best company” for the particular person or couple.

Which insurance company is best?  It depends.

Final note: Are there any Long Term Care insurance companies that I will not bring to my clients?  Most definitely.  Call me and I will be glad to tell you privately who they are and why I will not work with them.

© Raymond Smith, The Long Term Care Specialist, 2010.