De-mystifying the Deficit Reduction ACT OF 2005 for Long Term Care Insurance

A question that many people ask me is why is there such a big push for consumers to plan for long-term care costs?   Well, perhaps the real reason is that the first wave of more than 75 million Baby Boomers turns 60 this year.  

“By 2030, Medicaid’s (Welfare) expenditures for long term care alone could reach nearly $134 billion, a 360 percent increase.  While the annual cost of a facility stay is nearly $60,000 per year now, it is expected to increase to $200,000 by 2030.”  ACLI, 6/18/2004.*

The message is clear—consumers are urged to plan now for future long-term care needs because there is simply not enough money to fund everyone’s care.

On February 8th, 2006, President Bush signed the Deficit Reduction Act of 2005.  The changes in this law substantially alter eligibility for the Medicaid long-term care benefit, and also will help to expand the number of states offering long-term care “partnership” programs beyond the existing four states.

The law encourages Americans to take control of their long term care planning and serves as a reminder that the Medicaid long term care benefit will only be available to those who are truly needy.  Those who can afford to plan for long-term care are obligated to do so.

Medicaid Eligibility Changes**

Below are some bullets highlighting the changes to Medicaid eligibility.  This listing is by no means a comprehensive look at all the changes, but it highlights some of the major ones:

Old Medicaid Rules

  • Home equity was not counted under Medicaid Eligibility (although states had a right to recover the estate after the death of the person in the nursing home).
  • The past three years of finances were examined for gifts of assets before Medicaid Eligibility for long-term care was granted.
  • There was an imposed waiting period for long-term care eligibility—one month for each $10,000 in assets given or transferred.
  • The waiting period for long-term care eligibility was counted retroactively, from the time of the transfer or gift.

New Medicaid Rules

  • Home equity of $500,000 or more, bars admission into the Medicaid program (States can change the limit to $750,000).
  • The past five years of a person’s finances are examined for gifts of assets before Medicaid Eligibility for long-term care is granted.
  • The imposed waiting period for long-term care eligibility is the same, but there are additional rules on timing.
  • The waiting period for long-term eligibility will be counted forward, from when the applicant is deemed eligible for Medicaid.

Expansion of Partnership Plans*

In addition, the Deficit Reduction Act of 2005 allows the states to institute the successful long-term care partnership program.

Currently, there are only four partnership states—New York, Connecticut, Indiana, and California.  The new law allows all states to establish partnership plans.

What are Partnership Long-Term Care Plans?

Partnership plans offer dollar-for-dollar Medicaid asset protection for consumers buying tax-qualified long-term care insurance, subject to certain inflation requirements.

Specifically, individuals seeking to qualify for Medicaid are permitted to retain certain assets equal to the dollar amount of long-term care coverage they purchase.  For example, if you purchase $500,000 of long-term care coverage, you are able to protect $500,000 of assets from Medicaid should you exhaust your insurance benefits and other savings.

Long-Term Care Partnership Plans encourage people to be responsible for their own care and rewards them for doing so.

By: Moira McCracken a Long Term Care Specialist  at

In my last article in the October/November 2006 Issue of “400Edition”, I explained what the Deficit Reduction Act of 2005 was all about and it’s significant impact on long-term care.  The bottom line is that neither the federal nor state government is going to cover your long-term care needs!  So if you have to be responsible, what should you be looking for?

My thoughts on this topic are just that, they are my own!  I do have an advantage; however, as I am working within the insurance industry, only selling long-term care products and I believe I have a pretty good understanding of them!

So, what would I look for….?

First and foremost, I would want to ensure that my carrier is going to be a strong financial company so they will still be in business when I need to collect on my long-term care policy…that could be 20-25 years from now!

Since there is no crystal ball that predicts the future of companies…we know only too well, living in the modern world of Eastern Airlines,  Enron and other large companies that are no longer with us, that the provider of the service must be a strong, solid financial company that can pay against long-term care claims.  My advise to is make sure that any company you are thinking about providing your long-term care policy with has a financial rating of A++, A+  or at least A from an organization such as the AM Best Company.    AM Best’s mission is to perform a constructive and objective role in the insurance industry toward the prevention and detection of insurer insolvency.* These ratings are used to quickly enable buyers to understand the financial footing of the company they are going to be doing business with.

I would learn what long-term care is about…the lingo used by the insurance industry…what are the Activities of Daily Living (ADL’s)? What is an Elimination Period?  What is covered in Home Health Care?  What is a monthly benefit and benefit period?

There are many valuable websites that you can gain information about long-term care.  Start with the federal government website at  This site will give you information on long-term care and what to look for when purchasing a policy.  You can get the Long-Term Care Buyers Guide at this site.  Also, visit some of the website of the leading long-term care providers such as John Hancock ( and Genworth Financial (www.genworth) who can reinforce  long-term care concepts and show you the cost of such care…whether in nursing home or staying at home to receive your care.  Good insurance brokers also have sites that help educate consumers on long-term care and please feel free to visit my own business site,

Now you’re ready to speak with several of these A-rated providers to get some comparison quotes on long-term care!

That’s correct…please be sure you get COMPARISON QUOTES from the top tier long-term care providers…not just a single company!  Also, please be sure that you do an “apples to apples” comparison on each feature of the policy, otherwise you can be fooled into thinking one company is offering a better deal…when in actuality, the benefits are much less!

In closing, I hope I have given you enough information to start on a constructive search into a necessary product!  Next time, I will focus on what specific benefits I think you should be looking at!

*AM Best Company’s mission taken from their website


In my last installment of what to look for in long-term care policy…we covered such topics as what is the financial history and future of the long-term provider you are considering doing business with.   I also talked about taking the time to learn the long-term care insurance “lingo” so that each of you would be comfortable about such topics as Activities of Daily Living and understanding what an Elimination Period means.

Finally, I closed by stressing the importance of ensuring that when you are in the market for this type of insurance, you need to make sure that you ask for comparison quotes from several companies and that the benefits you look for are “apples for apples” so that you can take sensible decisions about which company and product is right for your particular situation.

Starting with this segment, I would like to begin a discussion on what potential benefits you should be looking for in a long-term care policy.  Before doing that, however, what are the variable benefits that you, the policy holder can influence in a long-term care policy?    The benefits that are decided by holder of the policy are the monthly or daily benefit amounts that the policy will pay, the length of benefit period that the policy will be in force, whether or not you want or need inflation protection on the benefit amount since the cost of long-term care is rising every year.  Finally, all the various waivers that these policies offer…such as “0” day Elimination Period for Home Health Care or a Survivorship Waiver if you or your spouse should pass… are additional options for the policyholder.  The list of what can be added to each of these policies is long and it’s important that each of you is prepared and understands what is important for you!

So, let’s start with a fundamental benefit of a long-term care policy, the daily/monthly benefit amount.

With many long-term care carriers, one can chose whether they want to receive daily or monthly benefit dollar amounts ($125.00 per day/$3,500 per month).  It’s important to consider since the policyholder may have two services performed on a single day that exceed the daily allowance of the long-term care policy.  An  example might be the physical therapist and the homemaker who prepares  weekly meals both appeared on Monday and both services are billed for that same day…will your long-term care policy cover both services?  Perhaps it is better to move to a monthly benefit amount so that services can be performed at your discretion and convenience and the long-term care policy will cover it all—assuming you don’t exceed your monthly benefit amount!

Your next consideration regarding the benefit amount is just that…the amount.  What should your daily/monthly benefit amount be?  I believe it is important to first understand what is the monthly cost of going to a fine nursing home that offers comprehensive care?  On average, in Georgia, good nursing home care equates to approximately $54,000 per year.  Looking at that amount on a monthly basis, you are talking about $4,500 per month or $150 per day.

From this point, the decision on the benefit amount even gets more difficult!  Assuming that you will need the $4,500 monthly or $150 daily benefit amount…will you have to carry a long-term care policy to cover the entire amount or can some of your savings pay for it, if needed?  Perhaps part of your pension?  So, what really does need to happen is that you must think through and decide can you afford to pay the premium to cover a large benefit amount or should you opt to receive a smaller benefit amount since if real catastrophe occurs…you will have some monies from elsewhere to assist.  It is vital that anyone looking to purchase a long-term care policy does their financial homework of their future needs.  Whether or not you use a financial planner, please take the time to study your financial situation today and for the future!

So, I cannot tell you what your monthly or daily benefit amount should be since I don’t know each and everyone’s financial environment.  What I can say is that it is important that you are comfortable paying your premiums, even if they don’t cover the entire exposure (remember this is insurance), and that you have thought through what the consequences would be if the ultimate disaster does occur, i.e., long-term nursing home care.

I want to close on a positive note and give everyone a good rule of thumb when they are thinking about benefit amounts…the benefit amount should cover approximately 80% of the cost of nursing home care…this is your best and safest option!

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