Proactive Trust Planning with Short-Term Care Insurance
An irrevocable asset protection trust is one of the most effective tools available for protecting a client’s assets from the Medicaid spend-down. As the strategy goes, they fund the trust, the five-year lookback clock starts, and they emerge on the other side with their assets protected and their Medicaid eligibility intact. That is, assuming they don’t need care during those five years. Unfortunately, most clients don’t have a plan in place to cover that window. That’s where short-term care insurance (STC) comes in.
How Short-Term Care Insurance Helps
If the client requires care during the five-year lookback window and seeks Medicaid eligibility, they will likely incur a penalty period, causing them to be ineligible for Medicaid and left paying out of pocket for significant care costs.
Short-term care insurance is a cash indemnity product that pays a daily or weekly benefit directly to the policyholder when they require covered care. Benefits are non-taxable, paid in addition to Medicare and all other coverage, and not subject to coordination of benefits restrictions. Policies are guaranteed renewable for life.
STC is not long-term care insurance. It is not designed to cover years of chronic care needs. It covers defined periods (up to 360 days for facility care), which is likely sufficient for the lookback window. After all, the coverage does not need to last forever. It needs to last long enough for the lookback to clear and Medicaid eligibility to be established.
Read More: Understanding the Medicaid Lookback Period and Its Impact on Asset Transfers
How STC Is Structured
STC policies are built around two independent coverage pools: one for facility care and one for home care. These pools operate completely separately from each other, so using facility benefits does not reduce available home care coverage, and vice versa.
Facility coverage pays a daily indemnity for a nursing home, assisted living facility, or memory care setting. No prior hospital stay is required, and the benefit trigger is the same standard used in traditional long-term care insurance: inability to perform two or more activities of daily living or documented cognitive impairment. However, STC does eliminate the elimination period, meaning benefits begin when care begins.
Home care coverage operates as an entirely separate pool with its own benefit period and lifetime maximum. The benefit trigger is the same (two or more ADLs or cognitive impairment), and no prior hospital stay is required.
STC vs. Traditional Long-Term Care Insurance
For clients who have heard about long-term care insurance (LTCI) and are wondering why STC is the better fit in this context, the differences are meaningful.
Traditional LTCI requires full health underwriting, including a build chart, a comprehensive health questionnaire, and in most cases a medical records review. Declination rates for applicants over 65 are significant, and premiums can run high.
STC underwriting is substantially simpler: no build chart, five to six knockout questions, and many managed conditions that would disqualify an applicant from traditional LTCI are acceptable. Premiums are more affordable, and coverage is better designed for a finite lookback window.
Common Disqualifiers for Short-Term Care Insurance
STC underwriting is more accessible than traditional LTCI, but it is not open enrollment. Common disqualifiers include:
- Currently receiving paid care in any setting
- Hospitalized within the past six months
- Alzheimer’s, dementia, or cognitive disorder diagnosis
- Using a wheelchair or receiving hands-on ADL assistance
- Terminal illness diagnosis
- Active treatment for cancer, stroke, or heart disease
Conditions that are generally acceptable include controlled hypertension on medication, managed diabetes without significant complications, cancer in remission, prior orthopedic procedures with full recovery, and many other managed conditions that would trigger a declination under traditional LTCI.
When STC Isn’t Available: Standalone Home Health Care
For clients who cannot qualify for standard STC, a standalone home health care policy may still be an option, provided the client is not currently receiving paid care services.
Standalone home health care policies use a medically necessary benefit trigger rather than an ADL-based trigger and have no facility component. Benefits require documented medical necessity and a physician-directed plan of care. Many of these products include a pre-existing condition waiting period, typically six months, after which the condition is fully covered.
Integrating STC Into Your Practice
The optimal moment to raise STC is at trust formation, when the client is in planning mode, engaged with their attorney, and most likely still healthy enough to qualify. Referrals made after a care need begins have significantly lower qualification rates. The evaluation process is straightforward and does not add meaningful burden to the client or the legal engagement.
The process is simple: evaluate for full STC first. If the client does not qualify, evaluate for standalone home health care. If neither is available, communicate that clearly to the client. One referral made at the right moment can meaningfully complete the planning package and protect both the client’s assets and the legal work done on their behalf.
A note on state availability: STC is available in most states but not all. Notable states where the product is currently unavailable include California, Florida, New York, New Jersey, Washington, Massachusetts, and Minnesota, among others. Confirm availability in your state before integrating this into your process.
As Senior Content Specialist, Katie drafts and edits content across multiple platforms, including blogs, guides, emails, white papers, videos, brochures, website pages, and more. She conducts research and gathers up-to-date information to keep our clients well-informed.
