As the largest payer of long-term care in the United States, Medicaid is an important topic for advisors working with middle and upper-middle income retirees and pre-retirees. Learn more about some of the myths surrounding the program and why you need to add Medicaid to your discussions about retirement in this month's FinPlan Friday conversation with Joe.
In our video blog series, FinPlan Fridays, Covisum® Founder and President, Joe Elsasser, CFP®, offers his take on the issues financial advisors see every day. Joe is a practicing financial planner with a unique perspective into the challenges for which Covisum provides technology solutions. Join us on the first Friday of every month for FinPlan Fridays, and get helpful tips to grow your financial planning practice.
Hi, this is Joe Elsasser, CFP®, President and Founder of Covisum, and I'm also a practicing financial advisor. Welcome to another FinPlan Friday. April is Medicaid Awareness Month. I doubt that many of you are out talking about Medicaid day in and day out, but it's an important topic for those of us who work with middle and upper-middle income people in retirement transition and beyond. Medicaid is actually the largest payer of long-term care in this country, and that's a conversation we all need to be having with our clients.
Now, the fact is, long-term care planning is not really about paying for care. It's about protecting a community spouse (also called the well spouse or non-applicant spouse), the one who doesn't have the care need. This is particularly relevant when planning for married couples, but it can also be relevant if the oldest child is providing support instead of a spouse. Most couples are going to take care of each other for as long as possible, and in that process their lifestyle will change.
Big Medicare Myths:
Myth #1: Self-Insurance
For middle-income people, self-insurance is not possible. Instead, they take care of each other for as long as they can... to the point of exhaustion. And that's why you see spouses who became the primary caregiver when their loved one requires significant care dramatically reduce their own life expectancy. For these people, sometimes they have a fear of bringing in outside help, or potentially feel shame for needing outside help, and saying, "I'm not capable of doing this."
This can be avoided when you've planned in advance; you know exactly what assets are earmarked in order to take care of the spouse so as not to impoverish or deplete the well spouse.
Myth #2: Long-Term Care Insurance is Too Expensive
The second myth is the cost of care. You know, you will hear so frequently from consumers that long-term care insurance is just too expensive. And the reason people think it's expensive is because so many agents are out pushing policies that are based on the entire cost of care. And that is really not the way to think about it.
For example, if you're considering life insurance for a young family, you're going to think about how much of a gap is there between the assets they will have coming in and the obligations they'll need to meet. That's the same way we should be thinking about long-term care. The fact is, when one person in a household needs care, oftentimes the other still has income. The other still has assets, too. The couple's lifestyle will have changed and been reduced pretty significantly from when they were both in a go-go, or growth, position. What we need to be thinking about is just the gap between their current lifestyle and how much income they have coming in. That's how you target a long-term care policy to meet the need, and if you're doing that, then the policies really aren't nearly as expensive.
Now, the final consideration is the coordination with Medicaid. At the point that partnership policies became a reality across the vast majority of states, you really have an opportunity to protect the community spouse. For example, here in Nebraska, a well spouse is able to keep about $130,000 worth of assets. Now, that's not a lot if the well spouse has a potentially long retirement left. A long-term care partnership policy allows a household to protect assets for a well, or maybe more importantly, a surviving spouse after a care need.
Key Considerations for Medicaid Awareness Month
- Which clients are at risk of a longer-than-average duration care need? How will they will pay for care?
- How can you help your clients plan to protect the community spouse?
- Recognize that partnership policies have created an opportunity to protect a well spouse at a reasonable cost, because you should only be targeting the gap, not the entire cost of care.
That's it for another FinPlan Friday. Thanks for joining us today.