The Investor: Long-term care policy saves cash

A recent column on long-term care insurance sparked questions from readers regarding the benefits of these policies, which pay for treatment of ailing individuals who need medical care over an extended period. Long-term health policies can help cover the cost of in-home assistance, adult day care, assisted living services or nursing home care. Here are more questions and answers.

Q I'm 80 and have had a long-term care policy for 16 years. I wonder if I could convert my policy so I would be covered by the Minnesota Long-Term Care Partnership Plan.

A The partnership plan, recently enacted in Minnesota, is designed to protect the assets of long-term care policyholders even if they exhaust their benefits. Without long-term care insurance, you would have to spend down your savings to the poverty level before the government would step in to cover the cost of your care.

But under the partnership plan, you would be able to keep assets equivalent to your total insurance benefit. For example: If your long-term care policy covers up to $400,000 in long-term care, and you exhaust that entire amount, you would only have to spend your own assets down to the $400,000 level before state and federal assistance kicks in to cover 100 percent of your long-term care costs.

Unfortunately, if you purchased your policy before the plan was enacted, you most likely would not qualify for the asset protection feature, according to Deb Newman, founder of Bloomington-based Newman Long-Term Care.

"You could ask your insurance company to try to get you into the plan," says Newman, "but we have not seen any companies go back further than July 2006, when the plan was approved."

If you opt to cancel your existing policy and buy a new one, the premium costs would be considerably higher because you would be older.

If asset protection is important, you might consider keeping your existing policy and buying a supplemental plan that would allow asset protection for the benefits covered by that new plan.

Q I was happy to learn from your column that Minnesota's partnership program allows me to hold onto assets equivalent to my total insurance benefits. My question is this: What if I'm living in Illinois when I need this coverage -- would the Minnesota benefits still apply? (A similar question came about Texas.)

A Your policy will be valid no matter what state you move to but the asset protection feature is not available in all states. Texas will honor the asset protection coverage for Minnesotans who move to Texas, but unfortunately, it is not yet available in Illinois. About 21 states have such a policy and other states are working on passing similar legislation, according to Newman.

Q Your article stated: "Once your savings run out and the state takes over the cost of your care, you may be reassigned to a care facility chosen for you by government health care officials." Theoretically this could happen. However, I have been a nurse for over 30 years and never have I seen this happen.''

A According to Newman, "It's very likely that you would be able to stay in the same nursing home, but there are a lot of private-pay, assisted-care facilities that will not allow you to stay if you run out of money."

She also pointed out that long-term care insurance can be helpful for people who want to care for their parents in their homes. The insurance would help pay the costs of a caregiver who can come into your home to assist your parents, and in some cases may also pay for family members to provide care.

Q I am 70 and my wife is 63. My question is about the assets either spouse can retain if the other is receiving long-term care. Is there written information clearly explaining spouse entitlements?

A The spouse still living at home can stay in the home and keep half of his or her assets up to a maximum of $109,560 (with a minimum of $31,094).

Q Are expenses for long-term care tax deductible?

A Long-term care expenses and insurance premiums would be included in your medical deductions. Under the law, you can deduct whatever medical expenses exceed 7.5 percent of your adjusted gross income, with deductible amounts based on your age. If your total medical expenses do not exceed 7.5 percent, there is no deduction. Minnesota offers a modest tax credit on premiums paid for long-term health care policies.

Q Your article said that if you buy a policy at age 50, you'll pay the rate for a 50-year-old for as long as you hold the policy.

I've had a policy for many years, so the rules may have changed, but there are two clauses in the policy: 1) your premium will never be increased because of changes in your individual status. 2) Your premium may only be increased if it is based on the overall experience of the policies in my class. Five years ago, my policy premium was increased by 15.9 percent. This was based on the company's experience with policyholders in Minnesota. Fortunately, there has been no further change to date.

A That's correct. If you bought the policy at age 50, you would always be charged the 50-year-old rate. However, increased costs in the insurance or medical area may cause insurance premiums to rise.