Did you ever think the day would come that you would have to think about long-term care for yourself? Let’s face it, if you’re lucky enough to live long enough, this will be concern of yours. I know you don’t like to talk about it, but it’s a fact of life. Speaking about facts, a study from the Urban Institute and the U.S. Department of Health and Human Services states that about 70 percent of Americans who reach age 65 will need some long-term care during their remaining years. So what exactly are we talking about? Things like basic daily activities such as bathing, dressing and eating. The environment could be your own home, an adult day care facility, an assisted living residence or in a nursing home. Okay, so now that you see that long-term care is something you might need, how do you go about obtaining it?
Like many things in life, procrastination is not an option when making the decision to get long-term care insurance. Long-term care costs are an important part of any long-range financial plan, especially in your 50s and beyond. You won’t qualify for long-term care insurance if you already have a debilitating condition. Most people with long-term care insurance buy it in their mid-50s to mid-60s. This is an important conversation to have with your family and wealth management team. Many will be lucky and have family members and others who will provide unpaid care, however roughly a quarter of those over 65 will require more than two years of paid care, and approximately 15 percent will spend over 2 years in a nursing home, according to AARP. Regular health insurance doesn’t cover long-term care, and Medicare won’t come to the rescue, either. Even Medicare supplement plans are limited to very short and basic coverage. It doesn’t pay for custodial care, which includes supervision and help with day-to-day tasks.
Let’s take a look at the costs of long-term care and financial plans to help pay for it.
ANNUAL MEDIAN COSTS OF LONG-TERM CARE IN 2020
| Home health aide | Homemaker services | Adult day health care | Assisted living facility | Nursing home care |
|---|---|---|---|---|
| $54,912 | $53,772 | $19,236 | $51,600 for a private one-bedroom | $93,072 for a semiprivate room
$105,852 for a private room |
Source: Genworth 2020 Cost of Care Survey
As you can see in the data above the costs of long-term care are high and range from adult day care to private nursing home rooms. The largest single source of funding for such care is Medicaid, which is a joint federal and state program that provides coverage for low income Americans (and recently undocumented illegal aliens as well in several states). But don’t get too excited about the prospects for using Medicaid, especially those with high net worth’s. You typically can’t get Medicaid unless you exhaust most of your savings and other assets beyond your primary home and vehicle. As we mentioned in the first part of this series on insurance, a trust can be considered in these circumstances to avoid having to deplete your assets in order to get the Medicaid coverage. This pertains to most Americans, not just those of high net worth. So there are really only two options for Medicaid coverage for long-term care, you either deplete your assets to the eligible amount or set up a trust to legally shelter your assets. This is important. Talk to your financial planner.
So how exactly does long-term care work? Traditional long-term care policies work much like policies for auto or home insurance. You pay premiums, usually for as long as the policy is in effect, and make claims if you ever need the covered services. Again, like other insurances, you will fill out paper work and may be asked for various medical records. Policies will vary based upon your needs and what you are willing to spend in premiums. For example, you can have a policy where benefits kick in after 30 days, or one that has a 180 day waiting period. Obviously you will spend more on the quicker benefit policy. Likewise, you can adjust your daily care payout. One that pays out $100 a day will cost less than one that pays out $200 a day, and so forth. Once you’re approved for the policy of your choice, eligibility for payout is generally when you cannot do two of the following:
- Bathing.
- Caring for incontinence.
- Dressing.
- Eating.
- Toileting (getting on or off the toilet).
- Transferring (getting in or out of a bed or a chair).
The premiums on a long-term care policy will vary depending upon such things as your age, health, gender, and the amount of coverage you desire. This is much like any life insurance policy. Let’s take a look at the cost of a policy. According to the American Association for Long-Term Care Insurance, “A single 55-year-old man in good health buying new coverage can expect to pay an average of $1,700 a year for a long-term care policy with an initial pool of benefits of $164,000. For the same policy, a single 55-year-old woman can expect to pay an average of $2,675 a year.” There are tax advantages to the long-term care policy. If you itemize you can typically count your premium payments toward your medical expenses thus reducing your taxable income. As you can see, there is a lot involved in determining how to handle your long-term care, so certainly check with your financial planner before embarking on this endeavor.
