I stopped by to pay a home visit to a 78 year old client this morning who is bed ridden after recently being diagnosed with cancer. My client purchased a Long-Term Care insurance policy from me at age 67, and now qualifies for home care benefits. The benefit available to the client is about $4000 per month. When I arrived, an employee of “At Home Assisted Care” was fixing breakfast for my client. At Home Assisted Care is locally owned by Jeff and Cindy Birnbaum here in Manhattan, and they are located on Seth Child Rd.
The Birnbaums met with me last week and offered to provide help for any of our clients who may need their services in the future. Ironically, there company was providing valuable assistance to the spouse of my client who I went to see this morning. I got a chance to see firsthand how their service works. Their “At Home Assisted Care company” provides in home non-medical care, companionship, meal planning and preparation, incidental transportation, running errands, light housekeeping, medication reminders, bathing, dressing, incontinence care, and respite care for families.
If you or a loved one needs this type of care, you can contact them at 785-473-7007 or stop by their office at 2401 N. Seth Child Rd, Suite 140. Manhattan, Ks 66503.
Medicare does not pay for this type of custodial care and only pays for skilled care following a 3 night hospital stay if the doctor says additional skilled care is needed. Medicare pays 100% for the first 20 days of skilled care, and then the patient pays a deductible of $148 for days 21-100. Usually, a Supplemental Medicare insurance policy pays the deductible. But, after 100 days Medicare pays nothing, and about 95% of care giving is custodial care and not skilled care.
This visit prompted me to remind all of our Medicare folks that if you are insurable and are between the ages of 55-70, you need to explore options to purchase a Long-Term Care insurance plan. My youngest client purchased Long-Term Care at age 40 due to a history of Alzheimer’s in the family and since she’s a CPA, and financial advisor to her family, she witnessed the evaporations of sizeable portions of her grandparents and parents estates- and she told me this was not going to happen a third time. But usually the sweet spot for buying Long-Term Care is when the kids leave home and the dog dies.. and that’s around age 55 for most couples.
Here’s how the policy is working for my client. The client purchased a daily benefit of $80 per day in 2002, that has now grown to $130 per day because we included a 5% compound inflation rider. We used a multiplier of 1460 days x $80 per day, and the opening available balance was $116,800. Now the balance has grown to $189,800 because of the inflation rider. The client has been paying an annual premium of $1788 to access this account and the cumulative premium total paid to date is $17,888. The premium stops once the client receives the first monthly benefit check.
The client was eligible to access the benefits because the inability to perform at least two of six ADL’s, activities of daily living (continence, transfers, toileting, eating, bathing and dressing) was met. Some clients are able to perform all six activities but if they have a cognitive issue like on set dementia, the policy pays without having to satisfy the ADL’s.
Now do the math and see why having the insurance beats the self insure or just investing approach to taking care of your Long Term Care risk. The client is now paying about 9.4 cents to access a 125% dollar because the benefit is tax free. How did I get the 9.4 cents number? Just take the total premiums paid $17,888 and divide by the accessible benefit account of $189,800 = 9.4%. What is a 125% dollar? That means, the client is in a 25% tax bracket, so since the benefit is tax free, the client doesn’t have to receive a $1.25 of income to net a $1.00 in benefits. If one was self insuring, that person would need to make $5000,pay the 25% in tax, to net a $4000 benefit. So actually an account balance of $189,800 is worth $237,250 due to the tax free nature of benefits received.
Here’s what I was able to tell my client’s spouse before leaving. You now have a tax free health care checking account with a balance of $189,800 that allows you to take up to $4000 per month to use for your spouse’s care, and you pay no more premium for the privilege. In addition, since you have paid at least ten years of premium, the surviving spouse has a paid up policy because we added the survivorship benefit. And, we also added a feature that allows you to purchase needed equipment not paid by Medicare in the amount of $6000 to purchase a chair lift, grab bars , wheel chair etc .
That’s what Long-Term Care insurance does. It provides a valuable financial lift to a family in need and makes the care giving process much smoother. Jeff and Cindy Birnbaum’s company takes care of all the administrative details including submitting the claims for my clients’ spouse . The care giving spouse will receive the monthly check up to a maximum of $4000, which can also be used for assisted living and/or nursing home care if needed later.
You can contact me if you’d like to look at a plan design that fits your needs, and I’ll be happy to put it in place so you too will have a tax free health care checking account if you are ever faced with the situation faced by my client who I visited this morning.
Long term care is not about who will take care of me? It’s about, what will happen to the family if I use up all the assets and income to provide for my care? What are the consequences, and what hardships will the family face financially? So buying Long-Term Care insurance is an unselfish act of love to protect the lifestyle of those you hold most dear to you.
Coach
