So many Americans are worried about how healthcare reform will ultimately impact them.  As we age, the potential for long term care needs becomes more and more of a concern.

     The biggest reason many people do not purchase long term care insurance is because they are worried about paying for it and never using it.  However, just like every other insurance product, it is better to have it than to realize too late that we actually would have benefited from it.

     There are products available, though, that allow you access to long term care coverage if the need arises.  These products combine long term care insurance with other insurance products – life insurance or annuities.  The long term care insurance is added as a rider to the other insurance product that is being purchased.

     There are a variety of ways to purchase these combination products, and it depends on what makes the most sense for the policyholder.  Here are a few variations to consider.

Premium options

     Some policies are only available with a single premium payment – one large lump-sum payment.  Others will allow for multiple, flexible premium payments over time.

     If there is a concern that the premiums will “go to waste” if the policyowner never needs long term care, some insurance carriers still offer the return of premium feature.  This feature refunds premiums paid toward long term care insurance if it is never used.

Payout options

     Some life insurance-long term care combination products will accelerate the death benefit so that the policyholder has access to cash to cover long term care expenses.  Other products separate the long term care benefits so that they can be drawn completely independently of the life insurance.

     Most policies are flexible in how the long term care monies can be spent.  Many policies allow the monies to cover expenses in a facility as well as for in-home care.

     There are caps to the long term care insurance payout.  Some will determine the cap based on a multiple of the life insurance death benefit.  For example, a $250,000 life insurance policy may determine that the long term care benefit is capped at twice the death benefit, or $500,000.

     Some insurance carriers offer an additional rider that will enable to policy to continue to pay long term care benefits even after the original policy’s cap is met.

Underwriting options

     Some insurance carriers are willing to accept a simplified underwriting process.  This makes it easier for potential policyowners with health issues to still qualify for a policy.  While they may be faster to get, policies with simplified underwriting may not offer as high of a payout for either long term care or the death benefit.

     Combination policies make long term care more accessible for people who may not be able to afford a more expensive individual long term care policy.  With a variety of options, these policies can be tailored to meet the needs of each policyowner.  A financial professional can help families review the various options to create a policy that works best for the household.

     Some aspects of the healthcare reform have already taken effect, while others are being phased in over several years.  Nevertheless, most Americans will be impacted by the changes.  Choosing among the various health care options may prove harder than choosing the most appropriate mutual funds for our portfolios.

     Today, we will review several of the changes that are on the horizon.  Each household should consider how these changes may impact them so that they can plan ahead against any potential negative result.

Extended coverage for children

     Insurance providers must continue to cover children to age 26.  They also cannot be denied coverage due to preexisting conditions.

     For some families, keeping their older children as part of the family plan may be more cost effective than having the child obtain coverage on their own.  On the other hand, single parents with only children may find that individual policies are cheaper than a family plan.

Limits on deductibles

     Many of us choose health care packages with high deductibles to reduce the monthly premium cost.  This can work well for individuals and families who don’t have a huge need for medical care.  However, the reform plans to put a cap on deductibles.

     If we are already in a plan with a high deductible, the plan will be grandfathered.  It will have to accept some of the new required provisions, but it may no longer be available for new enrollees.

Higher premiums

     Since the reform is designed to make sure everyone has coverage, the insurance pool will now contain many more individuals who are more likely to have costly claims.  This will result in everyone sharing the cost, and premiums will be higher for everyone.

Higher taxes

     Single taxpayers making more than $200,000 per year and couple making more than $250,000 per year will see an increase in Medicare payroll taxes.  There will also be a new Medicare tax on dividends and capital gains, in addition to an increase in the tax rates on these unearned income sources.

New taxes and penalties

     As the current healthcare plan stands, every American will be required to have healthcare insurance, whether they want it or not.  Beginning in 2016, there will be a fine for not being insured.  This will amount to the greater of $695 or 2.5% of income.

Higher interest rates

     If the government is unable to control costs as they expect, it is possible that there may be more federal debt to pay the costs.  More debt will increase the likelihood of higher interest rates all around.

     We should monitor our variable rate loans and be prepared to seek a fixed rate alternative to better control a sudden dramatic rise in our monthly payments.

Higher employer expenses

     Beginning in 2014, any company with 50 or more employees will be required to offer healthcare insurance.  There will be a penalty of $2,000 per employee for noncompliance.

     Companies with less than 25 employees and average annual wages under $50,000 per employee are exempt from penalty and may get a tax credit for providing insurance coverage.

     While the healthcare reform was designed to help the country overall, many of the changes will result in higher expenses that will be passed on to many “average” Americans.  If we don’t carefully plan how we will combat these changes in advance, we may find ourselves struggling financially much more so than we are right now.

     During the most recent Presidential campaign, health care reform was a hot topic.  When President Obama took office, elected officials began to work more vigorously on creating a plan that they hoped would better benefit the majority of Americans.

     Another health care issue that has drawn concern, especially among retirees and those preparing to retire, is the proposed change to Medicare coverage.  This is especially important because it is hard to get our finances under control with so many unknown expenses that may arise.  We will look at why changes are inevitable, what changes are being considered, and what impacted retirees should do now.

Why are changes inevitable?

     As individuals, as states, and as a country, we have all been impacted by tough economic times.  Everyone has been looking for ways to reduce unnecessary spending.  Government officials are attempting to make cutbacks to help open up funding for the new health care program.  Many cuts are expected to come from Medicare Advantage.

     Medicare Advantage is a group of private health care plans that receive federal funding.  The plans include health maintenance organizations (HMOs), preferred provider organizations (PPOs), and private fee for service (PFFS).

     The government is trying to attack the unfair practice by some insurance companies of overcharging Medicare Advantage patients.  Average government spending per Medicare Advantage beneficiary has been more costly than the average for beneficiaries enrolled in traditional Medicare coverage.

What changes are being considered?

     If government funding is reduced for Medicare Advantage plans, premiums for individuals using these plans will increase.  As a result, these options may become less and less attractive.

     Individuals may reconsider their coverage and opt for a traditional Medicare plan with a Medigap supplement.  However, there are also changes on the horizon for the various Medigap supplement options.

     For example, at-home recovery, a benefit rarely used, is being eliminated.  Preventative care is also being removed from Medigap policies since it is now available under traditional Medicare.  As a result of these changes, some Medigap policies are being discontinued.

     For those concerned with high premiums, there will also be new policies added that will offer lower premium payments and higher co-payments and deductibles.

What should impacted seniors do now?

     Given the vast number of changes that are coming, it would be advantageous for all individuals covered by Medicare to reevaluate their current coverage.  It is possible that one of the new policies could be a better alternative to the old policy that is being used now.  There could be a policy with similar benefits and lower premiums.

     In reconsidering coverage, it is important to keep in mind that some programs work better than others for some individuals.  For example, some plans are designed specifically for local health care service.  If there are plans to travel frequently, it may be better to choose a plan that will provide coverage when out of town.

     Also, some policies differ in the types of prescription drug coverage offered.  It may be a good idea to review the policies to determine which option works best for the kinds of prescriptions used most and the frequency with which prescriptions are purchased.

     The changes are still in the works.  By summer, the details should be finalized.  Contacting a local professional or visiting the Medicare website may help determine whether there is a need to make any changes in the near future.

     I recently read a magazine article that pointed to an ever-growing group of people – centenarians.  The percentage of people who live beyond age 100 is rapidly increasing.  With that in mind, I thought this would be a good time to discuss long term care insurance.

     The importance of having long term care insurance cannot be emphasized enough.  It has been estimated that about half of people living today will need long term care at some point in their lives.  About 75% of people over the age of 65 will need long term care.

     In talking with many of my clients, as they aim to look out for family, the resounding majority do not want to be a burden on their spouses or their families.  Many also want to make sure that illness does not deplete their retirement nest eggs.  Long term care insurance can help with both of these concerns.

What is long term care insurance?

     Long term care insurance is a type of insurance policy that allows you access to funds to help pay for your long term care needs.  As with other types of insurance, the funds are available to you tax free.

When do I need it?

     Long term care insurance providers will usually accept your claim if a doctor confirms that you are unable to perform at least 2 of the 6 activities of daily living.  These are: eating, bathing, dressing, toileting, walking, and continence.

     The funds are then made available to pay for the assistance you need.  This assistance may come in many forms, including transferring to an assisted living facility or having an in-home care nurse visit you in your home several times each week.

How much do I need?

     Individual needs vary.  Looking at current expenses for long term care providers can help you determine how much coverage you should have.  For example, the national average cost of a private room in a nursing home is about $60,000 per year.  The estimated cost of a home care nurse is $19 per hour.

     These figures should help you see the value that the policy can bring to your household.  Approximately 92% of long term care claims last three years.

     Imagine that you are in that group.  The cost of the nursing home for three years would be about $180,000.  That can severely deplete a retirement nest egg and change the course of living for the future.  The unexpected expense can eliminate all retirement money.  Approximately 75% of single people and 50% of couples spend all of their savings within one year of entering a nursing home.

What about inflation?

     There are riders that you can add to the policy to ensure that the value of your coverage keeps up with the cost of living.  This is an extremely important addition.  Based on research from MetLife, the cost of long term care rose by about 7% from 2004 to 2006.

     We are living longer.  Long term care insurance can help us reduce the chances of depleting our retirement nest eggs.  But more importantly, it may stop us from being a burden on our spouses or our families and provide us with the comfort we need during such a difficult time.

“His sons Isaac and Ishmael buried him in the cave of Machpelah near Mamre, in the field of Ephron son of Zohar the Hittite, the field Abraham had bought from the Hittites.  There Abraham was buried with his wife Sarah.”     Genesis 25:9-10 (NIV)

     These verses describe the end of Abraham’s journey here on earth.  His sons laid him to rest beside his beloved wife, Sarah, in a burial site that Abraham had purchased earlier.  As the text illustrates, Abraham was prepared for his death, which made it less of a burden for his sons.

     Many of us choose not to think about the ends of our lives, even though death is inevitable.  But Solomon reminds us in Ecclesiastes 3:2 that there is “a time to be born and a time to die.” (NIV)  Paul also tells us in Hebrews 9:27 that man is destined to die once.” (NIV)

     Knowing this, we should be willing to be more proactive about this phase of our lives.  As Isaiah shared with Hezekiah in 2 Kings 20:1, “This is what the LORD says: Put your house in order, because you are going to die.”

Alleviate the burden on our families

     The average funeral costs between $8,000 and $10,000.  Most families do not have this type of cash readily available.  This can be confirmed by the numerous times we have witnessed families and friends holding car washes in our neighborhoods on weekends, hoping to raise enough money to properly bury their loved ones.

     There are many ways to help alleviate this burden on our families.  We will briefly look at three options.

1) Prepaying funeral expenses.  Many funeral homes will allow us to arrange and pay for our funeral services in advance.  Oftentimes, paying in advance will allow us the opportunity to lock in the expense so that no additional money will be needed at the time of the actual funeral.

2) Buying burial insurance.  Burial insurance policies are similar to life insurance policies, but there are two main differences.  The benefit amount of a burial insurance policy is lower because it is purchased to cover the costs of the funeral.  Many of these policies are also purchased without a medical exam.  The applicant does not need to be in the best of health to get the coverage.

3) Using a regular life insurance policy.  Our loved ones can also use a portion of our life insurance death benefit to help cover the costs of the funeral.  The one challenge to consider is that each life insurance company is different, and payout may not come as quickly as needed.  This is especially the case if the cause of death is questionable and leads to an investigation.  The payout can be held up until the investigation is complete.

Remove all fear

     Another step in getting prepared is removing the biggest obstacle that most of us deal with: fear.  God knew our weak, human minds, though, and addressed our issue of fear in many verses in the Bible.

     In 2 Timothy 1:7, we are reminded that “God has not given us a spirit of fear, but of power and of love and of a sound mind.” (NKJV)

     We can also turn to David’s example in the popular Psalm 23.  David remembered that God is ever-present.  “Even though I walk through the valley of the shadow of death, I will fear no evil, for you are with me; your rod and your staff, they comfort me.”  (Psalm 23:4 NIV)

     In addition to knowing that God is with us, we can also remind ourselves that this death is only a natural death.  We will transition on to an eternal life with God.  John tells us that “a time is coming when all who are in their graves will hear his voice and come out—those who have done good will rise to live, and those who have done evil will rise to be condemned.”  (John 5:28-29 NIV)

     Procrastination may delay our dealing with issues that make us uncomfortable, but there will come a time where it can no longer be put off.  If we don’t handle it, our survivors will have to do it while they are in mourning.  Let’s not allow the enemy to turn our fear into paralysis.