Thinking about the potential impact of long-term care often involves considering whether to buy long-term care (LTC) insurance or to self-insure. Sometimes your options are limited. For example, poor health or old age may make the cost of LTC insurance too expensive for you, or you may be denied coverage altogether. Medicaid may not be an alternative either if your income and assets exceed minimum qualification limits. In this case, self-insuring may be your only option. But if you are able to choose between LTC insurance and self-insuring, here are some issues to consider.

Why might you self-insure?

There are many reasons why people choose to self-insure rather than buy LTC insurance, presuming these options are available. Often, people will choose to self-insure because they think they have enough income and assets to pay for whatever long-term care they'll need, or they decide not to plan for long-term care because they think they'll never need it during their lives. However, there are both advantages and disadvantages to self-insuring.

Advantages of self-insuring

You have greater flexibility in how you use your financial resources. Even if you choose to allocate income or savings to potential long-term care costs by self-insuring, those assets will still be available to use for other purposes such as retirement, business ventures, or education funding.

Long-term care insurance premiums may become too expensive. Often, people buy LTC insurance during their working years, but find that their income decreases in retirement or policy premiums increase, making LTC insurance hard to pay for. If you own LTC insurance, or you're thinking about buying it, try to estimate what your income will be in retirement and whether you'll be able to afford the premiums, especially if they increase. If you think the premiums might be too costly, as an alternative, consider setting up an LTC savings account into which you can contribute as much as you can afford. This account may not provide the funds that an LTC policy could, but it can help pay for LTC expenses if they occur, and you won't be financially strapped with premium payments you can't afford.

You have more control over your care. Many policies provide only limited benefits--often with additional restrictions and conditions--that may end up covering only a small percentage, or even none, of your long-term care costs. For example, a policy may provide limited benefits for in-home care, even though most people would prefer to receive care at home. If you do need long-term care, using your own assets may give you more control over the type of care you get, where you receive the care, and who provides the care to you, without the restrictions or limits of some LTC insurance policies.

Disadvantages of self-insuring

If you never need long-term care, then, in hindsight, self-insuring is almost always the right choice. But what if you do need long-term care? How long will you need that care and how much will it cost? These uncertainties lead to some of the disadvantages of self-insuring.

Long-term care expenses can deplete your assets and income, leaving little or nothing for your spouse or dependents. Paying for some of your care with LTC insurance may allow you to conserve more of your savings and income for your spouse or dependents.

You may need to depend on family members to provide your care. Some people gamble that they'll never incur long-term care expenses. If they're wrong, their options may be very limited. If they can't qualify for Medicaid, their assets and income may be enough to pay for some of the care, but not all of it. Consequently, they often rely on family to provide some if not most of their long-term care. Long-term care insurance may cover some of the costs of skilled or custodial services and nursing home care, relieving your family of some of these caregiving responsibilities.

Self-insuring could increase your taxes. Depending on the type of assets you have, paying for long-term care from your savings could increase your income taxes. Withdrawals from certain retirement plans such as IRAs or 401(k)s are usually subject to ordinary income taxes, so taking sizable withdrawals from them to pay for long-term care expenses might increase your income taxes significantly. On the other hand, if your LTC insurance is tax qualified (as most policies are), then benefits paid from the policy for care are generally not subject to income taxes.

On January 28, 2008, President Bush signed into law H.R. 4986, the National Defense Authorization Act for Fiscal Year 2008. Among other things, the Act amends the Family and Medical Leave Act of 1993 (FMLA) (for the first time in almost 15 years) to permit a "spouse, son, daughter, parent, or next of kin to take up to 26 weeks of leave to care for a member of the Armed Forces (including a member of the National Guard or Reserves) who is undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness."

Specifically, the law permits (1) up to 26 weeks of leave in a one-time 12-month period to care for a service member with a "serious illness" who is injured in the line of active duty (effective immediately), and (2) up to 12 weeks of leave in any 12-month period for a "qualifying exigency" related to a service member's call to active duty. What constitutes a "qualifying exigency" will be defined shortly by the Department of Labor.

Concierge health care is a primary-care arrangement that requires you, the patient, to pay your physician an annual retainer fee (often over and above your health insurance premiums) in exchange for improved access and services.

Such retainer fees may range from a low of $1,500 to as much as $20,000 per year. (The more you pay, the more services you get.) In exchange, you receive same- or next-day appointments (with no reception-room waiting), extended office visits, 24/7 telephone and/or e-mail access to your doctor, an annual intensive physical, and (if you pay the higher fees) house calls, home delivery of prescribed medications, and continuous personalized care. Your primary care doctor may even accompany you to appointments with specialists, and will coordinate your care even during hospital stays, rather than handing you over to the hospital's staff physicians.

In a concierge health-care plan, your doctor sees fewer patients (the average caseload is 300, compared to 2,500 for doctors in managed-care plans). While some concierge plans don't accept health insurance, most do. Whenever possible, your doctor will bill your health insurance provider (or Medicare) for payment for services provided.

However, most health insurance plans require participating doctors to accept the plan's rates as payment in full for the covered services, and Medicare generally prohibits doctors from charging Medicare recipients anything more than what Medicare pays. As a result, concierge health-care providers who participate in Medicare must be careful to charge annual retainer fees only for services health insurance or Medicare won't normally cover.

While concierge health care obviously has its perks, you should make sure you understand exactly what is covered by the annual retainer fee before you sign up for it.

When deciding if you can afford to retire early, the cost of health insurance will be a key factor in the financial equation. Unless you're lucky enough to have retiree health benefits through your employer, or are entitled to coverage through your spouse's plan, you may need to obtain individual health coverage and pay the entire premium cost--which can be high--until you become eligible for Medicare at age 65. If you're looking to bridge the gap between the time you retire and the time you enroll in Medicare, one option worth considering is a health savings account (HSA).

HSA basics

An HSA is a tax-favored account that can be opened in conjunction with a high-deductible health plan (HDHP) to pay for current health costs and save for future ones. The HSA/HDHP option may be attractive to healthy retirees under age 65 who want more flexibility and potentially lower health insurance premiums than traditional individual health insurance offers.

An HDHP begins to pay benefits only after you've satisfied a high annual deductible (at least $1,100 for individual coverage in 2007), although some preventative care may be covered in full immediately. Because you're shouldering a greater portion of your health-care costs, you'll usually pay a lower premium for an HDHP than for traditional health insurance, and you can contribute your premium savings to your HSA. In 2007, you can contribute up to $2,850 if you have individual coverage, and if you're 55 or older, you can make an extra "catch-up contribution" of up to $800. Your HSA contributions are tax deductible, and accumulate tax deferred (along with any earnings) until withdrawn. You can use your HSA funds to pay qualified health-care expenses that aren't covered by your plan. Before age 65, you can withdraw money and use it for nonqualified expenses, but you'll generally pay a 10% penalty, and you'll owe income taxes on the amount you withdraw.

What happens at age 65?

Once you reach age 65 and enroll in Medicare Part A or B, you're no longer eligible for a high-deductible health plan, and that means you can no longer contribute to your HSA. However, any money remaining in the account is yours to keep.

Reaching age 65 gives you a little more flexibility when it comes to using your HSA funds, since at age 65 the 10% penalty on nonqualified withdrawals no longer applies. But before you use your account funds for something other than health-care expenses, keep in mind that you'll still owe income taxes on money used for nonqualified expenses.

The only way to avoid paying taxes on your HSA funds (at any age) is to use them for qualified health-care expenses. Fortunately, the list of qualified expenses is long, and includes items such as prescription drugs, eyeglasses, and Medicare-related expenses such as premiums, deductibles, and co-payments. If you have health benefits through your former employer, you can use your HSA funds to pay your share of your retiree health insurance premium. And, if you decide to buy a tax-qualified long-term care insurance policy, you can also use your HSA funds to pay the premiums (though dollar limits apply). One thing you're not allowed to use your HSA dollars for is the premium cost of a Medigap policy to supplement your Medicare coverage. For a list of other qualified expenses, see IRS Publication 502, Medical and Dental Expenses.

Disability insurance pays benefits when you are unable to earn a living because you are sick or injured. Like all insurance, disability insurance is designed to help protect you against financial disaster. Most disability policies pay you a benefit that replaces part of your earned income (usually 50 to 70 percent) when you can't work.

Why would you need disability insurance?

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Are health insurance premiums taking too big of a bite out of your budget? Do you wish you had better control over how you spend your health-care dollars? If so, you may be interested in an alternative to traditional health insurance called a health savings account (HSA).

How does this health-care option work?

An HSA is a tax-advantaged account that's paired with a high-deductible health plan (HDHP). Let's look at how an HSA works with an HDHP to enable you to cover your current health-care costs and also save for your future needs.

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If a disabling illness or injury were to prevent you from working for weeks, months, or even years, how would you support yourself and your family? If disability strikes, you may discover that your most valuable asset isn't your home or your savings--it's your ability to earn a living. Fortunately, group disability insurance can help protect you. Whether it's offered through your employer, school, trade group, or another association to which you belong, group disability insurance is an affordable solution to your need for income protection.

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What is long-term care?

Long-term care refers to the ongoing services and support needed by people who have chronic health conditions or disabilities. There are three levels of long-term care:

• Skilled care: Generally round-the- clock care that's given by professional health care providers such as nurses, therapists, or aides under a doctor's supervision.
• Intermediate care: Also provided by professional health care providers but on a less frequent basis than skilled care.
• Custodial care: Personal care that's often given by family caregivers, nurses' aides, or home health workers who provide assistance with what are called "activities of daily living" such as bathing, eating, and dressing.

Long-term care is not just provided in nursing homes--in fact, the most common type of long-term care is home-based care. Long-term care services may also be provided in a variety of other settings, such as assisted living facilities and adult day care centers. (more...)

With the wide variety of stocks in the market, figuring out which ones you want to invest in can be a daunting task. Many investors feel it's useful to have a system for finding stocks that are worth buying, deciding what price to pay, and realizing when a stock should be sold. Bull markets--periods in which prices as a group tend to rise--and bear markets--periods of declining prices--can lead investors to make irrational choices. Having objective criteria for buying and selling can help you avoid emotional decision-making.

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