Why Long-Term Care insurance is so important to the spouse

Last month we considered the need for Long-Term Care (LTC) Insurance, acknowledging that it’s not for everyone.  Obviously, there are folks who die without needing a nursing home and those who need it for less than 100 days (which is usually covered by Medicare).  Further, it is optional for the really rich, who can afford to pay for their care (approximately $60,000 a year and escalating at a rate faster than inflation).  In addition, singles whom do not care about leaving an inheritance may choose to skip on LTC insurance.

But, for the married, middle class, it’s a vital necessity because long-term care insurance can keep the healthy spouse from going broke. So, as a continuation and in celebration of Long-Term Care Awareness Month, we’d like to share one family’s story (names have been changed to protect privacy) as an example of the importance of insurance to the healthy spouse. Mary worked her whole career for the Federal Government and has a retirement pension worth $40,000 a year. Her husband, Bob worked in private industry and now contributes his monthly Social Security check of $1,100 to the family budget.

Between Medicare and Medicaid

Bob has investments valued at $280,000. He holds these in his own account. Unfortunately, Mary has been diagnosed with dementia. After caring for her at home for 3 years, Bob has decided that a nursing home is her only real option.

For those who may have missed last month’s column or need a refresher, let us remind you that Medicare will usually pay for the first 100 days of care, assuming you had a hospital stay that requires you to go directly from the hospital to a long-term care facility, which is often not the case with dementia. After that, neither Medicare nor Medicaid supplement policies will pay for nursing home health care and related benefits, nor will it pay for home care nursing benefits until the person is considered indigent. Basically, you have to be broke to get Medicaid.

The nursing home, with government approval, informed Bob that they will take Mary’s $40k a year pension and they will require Bob to supplement that payment as needed from his savings, until it is depleted to $104,400 as indexed. At that point, Medicaid can kick in and cover Mary’s needs.

Bob and Mary had planned to live on Mary’s income and his social security checks. Now that Mary’s income is gone, Bob is concerned for his financial security. How will he make it on his Social Security check and the $104,400 the government allowed him to keep? (The government does allow him to keep a Minimum Monthly Maintenance Needs Allowance (MMMNA) but in 2008 that capped at $1711 a month.) Furthermore, giving away assets to preserve them is not an option because the government has a Five Year Look Back Rule on all gifts.

The obvious and best answer in this case would have been for Mary to have purchased a long-term care policy on her life to protect Bob. The proceeds from this policy would help pay nursing home costs, thus allowing Bob to keep more of Mary’s pension for his own expenses.


Dan Searles and John Stohlman, of Medallion Financial Group, are CFP®’s and Registered Representatives with over 25 years of experience in the financial industry, offering securities and advisory services through National Planning Corporation (NPC), member FINRA/SIPC, a Registered Investment Adviser. Medallion Financial Group and NPC are separate and unrelated companies. They manage over $250 million of client assets. For further info, questions or comments regarding this article, Dan and John can be reached at 1-800-878-9704 or Dan.Searles@natplan.com. Although the opinions expressed are based upon assumptions believed to be reliable, there is no guarantee they will come to pass. The views within do not express the opinions of NPC.