Long-term care insurance: buy now or pay later.

• Author: Jackson, Kevin W.
• Position: By the numbers

long-term care is becoming a hot topic due to improved health care, longer life expectancy and the growing number of retiring Baby Boomers.

The average cost of long-term care in America can be daunting, and for California residents, even worse. Based on a Mature Market Institute's 2007 study, the average Los Angeles area private nursing home costs more than $78,000 per year. Top-shelf care can cost as much as 40 percent more. And home health care can run $20 per hour.

Recent government policy changes encourage private solutions to this challenge by providing favorable tax treatment to longterm care insurance buyers.

Changes in Government Policy

In February 2006, President Bush signed the Deficit Reduction Act of 2005, which highlights the need for estate planning and the role long-term care insurance plays in protecting one's assets. Among other things, the Act:

* Extends the look-back period for all asset transfers from three to five years. A longer look-back period now makes it harder to transfer funds out of one's estate to qualify for welfare and long-term care benefits.

* Makes ineligible for Medi-Cal (Medicaid in the rest of the country) anyone with home equity above $500,000 (a limit that states can raise to $750,000, which California is expected to do). The value of an individual's home was previously not included when determining eligibility. The implications for California homeowners, where home values have skyrocketed over the past decade, are clear.

* Requires Medi-Cal applications with annuities to name the state as remainder beneficiary. No longer can annuities be used as a loophole to shield assets.

The result of these policy changes is that most Californians can depend less on the government for long-term care needs.

What to Consider When Purchasing LTC

How much coverage is necessary? The monthly or daily benefit selected is the maximum dollar amount that the insurance company must pay for covered long-term care expenses. Note, however, that the higher the benefit, the higher your premium.

Location and the individual's risk profile have a big impact on deciding this amount as the cost for care can vary greatly within the state and within cities. Individuals must decide what percentage of the cost of care they want the policy to pay. (See chart above).

Nursing Home & Assisted Living Costs in California Nursing Home Assisted Living Semi Private Private Monthly Daily Average Daily Average Daily Average Base Rate Los Angeles...