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Despite Biden’s Plan, Long-Term Care Planning Remains Crucial 

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What You Need to Know

  • Home-based long-term care is prohibitively expensive for many Americans.
  • Biden's plan would expand federal funding for Medicaid home- and community-based long-term care by $400 billion.
  • People shouldn’t rely on the expanded government coverage as an alternative to independent planning.

Even before the COVID-19 pandemic devastated nursing homes nationwide, the need for long-term care in a nursing facility was one of the costliest post-retirement expenses any client will face — and home-based care options remain extremely limited for most Americans.

President Joe Biden’s American Jobs Plan would expand federal funding for Medicaid home and community-based long-term care services by $400 billion. But Biden’s plan, however ambitious, would by no means eliminate the need for clients to engage in comprehensive long-term care planning — especially if the client is too well-off to rely on Medicaid for coverage.

In fact, even if Medicaid’s home-based care programs receive the added funding they need, this new plan should serve to highlight the need for clients to proactively explore alternative solutions to expensive long-term care insurance (LTCI) so that they have options when the need for long-term care arises.

Biden’s Plan for Long-Term Care

Biden’s American Jobs Plan proposes expanding federal funding for home- and community-based long-term care by $400 billion over an eight-year period — on top of the $12 billion in federal funding that was allocated to Medicaid home-based care in the American Rescue Plan, enacted in March. That would perhaps represent the largest increase in federal funding for home-based long-term care in history. 

Currently, hundreds of thousands of people who qualify for Medicaid assistance are unable to gain access to home- and community-based long-term care. 

If the American Jobs Plan becomes law, the funding would be dedicated primarily to increasing wages for people who provide home-based care in order to attract more workers to the industry. The idea is that with increased wages, these workers will provide higher-quality care so that Americans can get the help they need to remain safely in the home.

While the details of the plan have yet to emerge, current information indicates that funds would be focused on only a few pieces of the long-term care puzzle — meaning that clients shouldn’t rely on the expanded government coverage as an alternative to independent planning.

The Ongoing Need for Independent Long-Term Care Planning

Long-term care (LTC) itself has become so expensive that many insurance providers have stopped offering standalone LTCI policies entirely. Insurers that do offer coverage charge premiums that are prohibitively expensive for many clients, even if the client is healthy enough to qualify in the first place — and many LTCI policies don’t cover in-home care or alternative care solutions for clients who are understandably wary of nursing homes.

That makes it critical for clients to explore alternative funding solutions. Often, clients find it more attractive to bundle LTCI with a life insurance policy or annuity contract — which reduces the risk of paying for LTCI insurance that the client may never need. Although hybrid LTC-annuities and hybrid LTC-life insurance contracts are still referred to as “alternatives” to traditional LTCI, these products are now very common.

Some new hybrid LTC-annuities contain income multipliers. Rather than providing a traditional LTC benefit, these multipliers increase the income that will be paid out under the annuity based on certain health triggers. Usually, these health triggers are tied to the basic “activities of daily living” (ADLs), which include bathing, dressing, eating, transferring, continence and toileting.

The client can also choose to purchase inflation protection, which ensures that the contract value grows at a rate that is designed to keep pace with the rising cost of long-term care.

A hybrid life insurance policy provides a traditional death benefit to the client’s beneficiaries, but also allows the client to withdraw some or all of this benefit during life to pay for long-term care expenses after a certain period of time has passed. The client may also purchase a rider that requires the carrier to continue to pay for coverage even after the death benefit and cash value of the policy are exhausted. With these policies, if the client never needs coverage, the beneficiaries will still receive tax-free life insurance proceeds.

Some carriers even allow the client to pay for the contract in installments over time to ease the financial burden. Other clients may have the option of exchanging an existing annuity or life insurance contract for one that also provides long-term care coverage

Conclusion

Biden’s American Jobs Plan provides much-needed funding for a system that has generally failed many Americans — failures that were largely exposed during the pandemic, but that existed for decades before COVID-19. 

However, that funding focuses on expanding Medicaid, and will do very little to help the middle-class Americans who are simply too wealthy to qualify for Medicaid coverage. That means that the need for proactive long-term care planning remains critical for most clients even as these new initiatives continue to expand awareness.

For previous coverage of LTCI in Advisor’s Journal, see https://nationalunderwriteradvancedmarkets.com/articles/default.aspx?filename=fc090318-a.htm&search=long-term%20care%20insurance&type=and

For in-depth analysis of long-term care options, see Advisor’s Main Library: https://nationalunderwriteradvancedmarkets.com/articles/default.aspx?filename=f22-1_1_9_3730.htm&search=long-term%20care%20insurance&type=and 

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