A financial wipe-out: How to avoid it under the law.

As a matter of public policy, our state and federal governments have recognized that it doesn’t do anyone any good to have nursing home or in-home expenses wipe out savings intended for retirement. For example, if a husband’s stroke required extended nursing home care at $10,000 per month, the couple would have to spend most of their life savings to pay those costs before qualifying for Medicaid assistance. That’s where public policy comes in.

In simple terms, couples who have saved less than $500,000 to help them through retirement could be wiped out in a matter of months by long term care costs (e.g. assistance bathing, dressing, feeding, getting around, etc.). To “game” the system, some people have given away their assets to relatives, thus becoming “poor” in order to qualify for Medicaid. That becomes a burden on taxpayers and doesn’t recognize that we all have a responsibility to do our best to provide for ourselves – in sickness and in health.

To create an incentive to share the cost of long term care, Maine, New Hampshire and most other states allow what is known as an LTC Partnership Program. And most states allow reciprocity when it comes to qualifying for Medicaid under this program, though state requirements may differ.

How does it work?

Ted & Ethel, both 72 years old, have $500,000 in savings when Ted has a stroke. It’s a big one, and he’s never going to leave the nursing home. Ethel goes to talk to DHHS, hoping for help from the state to pay the $10,000 per month cost for care. They tell her she can keep their house, the car, and roughly $120,000.

While there are some legitimate expenses she can use to spend down some of the money, their savings were supposed to last her the rest of her life, and now she has to spend down $380,000 of it to qualify – financially – for assistance.

Fortunately, Ted had an LTC Partnership qualified policy in place. Under the terms of the policy he chose to purchase, he goes on claim, and the insurance pays $7,500 of his $10,000 monthly bill, for three years. Ethel uses their savings to pay the rest – $90,000 ($2,500 per months for three years). After three years, his LTC policy benefits are exhausted.

Now, Ethel goes to DHHS, and they tell her she can keep the house, the car, $120,000… AND an additional $270,000 – the amount the LTC Partnership policy paid over the past three years.

Because of the Partnership program, she can keep a total of $390,000.

She’s already spent $90,000 of their $500,000 on Ted’s care, leaving her with $410,000. Now, she only needs to spend $20,000 on home repairs, or other allowable expenses, and she’s at Medicaid eligibility.

That’s a powerful program.

The challenge of remaining financially independent as we age in Maine and New Hampshire is going to get worse. When Social Security was established, the average person who lived to 65 was only expected to draw social security benefits for two years before they died. The life expectancy today in the United States is nearly 79 years of age – 14 years after retirement for most Americans. In retirement, we are going to rely on our savings, Social Security income and retirement plans. The bulk of that income will likely come from tax deferred 401(k) savings plans that we thought would be taxed at a lower rate than during our working years.

With an accumulated national debt of more than $17 trillion, it is all but certain that income taxes on retirement plan disbursements are going to go up to pay not just the debt but the interest on the debt. In addition, for those over 65, medical expenses not covered by Medicare are going to go up. The need for more medications is likely to increase.

Insurance planning can change your future for the better just as public policy intended.