According to the department of Health and Human Services, 70% of people over age 65 will need some type of long-term care services and support during their lives, and 20% of those will need it for longer than five years.
For a married couple, this means that there is a 91% that one of them will need long-term care. These odds are simply too significant to ignore. Let’s talk about what you need to know about long-term care.
What is long-term care?
Long-term care is the care and service provided when a person is unable to perform activities of daily living (ADLs), has a severe cognitive impairment, or requires custodial, not skilled, care. This care can be provided in a variety of settings – at home, in a skilled nursing facility, at an adult day-care center, in an assisted living facility, etc.
A person who needs long-term care is generally unable to perform at least two of the six “activities of daily living”:
- Maintaining continence
- Dressing, and
Another common situation where a need for long-term care arises is when a person suffers from some form of cognitive impairment, such as dementia, senility, or Alzheimer’s disease.
Planning for a Long-term Care Need
If you don’t have a plan in place, your spouse or adult children may become responsible for providing care—financially, physically, or both. This is not an easy task, especially for members of the “sandwich generation”—those who are taking care of their own children as well as their aging or sick parents.
Having a plan in place before the need arises will help reduce the strain at a time when stress levels are high. It’s critical to sit down now—while you’re still healthy enough to take advantage of multiple options—and decide how you can best handle this issue. Waiting until your health changes may cause you to become ineligible for certain solutions.
A good place to start is to look at what type of care you would prefer and the associated costs. The 2017 Genworth Cost of Care Survey found that the average monthly costs across the U.S. are:
- Home Health Aide - $4,099
- Assisted Living Facility - $3,750
- Private Room in Nursing Home - $8,121
A common misconception is that Medicare covers the costs of long-term care. Unfortunately, this is not true. Medicare will pay in full for 20 days of skilled nursing care and a copay is required for an additional 100 days, but beyond that, the expense is entirely yours.
How do you cover the costs of long-term care?
You may look to Medicaid as a potential option. Medicaid is a federal (and state) funded program that pays for some LTC for those who qualify under the state’s welfare guidelines. Care is mostly limited to skilled nursing facilities and, because Medicaid has been the largest payer for LTC services, the system has become overburdened.
For someone to qualify for Medicaid, they must have substantially depleted (“spent down”) their assets to the point where their own resources can no longer support them. You also lose a lot of control over your care. For instance, if there were no room available in nursing homes in your local area, you might be required to be housed in a facility in a town many miles away, be put on a waiting list longer than your life expectancy, and/or share a room with another patient.
You can certainly look to your savings and investments as resources. Some choose to view the equity in their home as the “emergency fund” for a long-term care need, which may mean a spouse is forced to sell the family home if the need arises. For many, their home is intended to be left as a legacy to their children, and a long-term care need puts this plan at risk.
When preparing a financial plan, you can incorporate the cost of care into your retirement budget just like you plan on the cost of property tax and homeowner’s insurance. Unfortunately, this requires knowing for how long you will need the care, and how much it will cost - which can vary widely.
Are you planning for needing a home health aide for 2 years ($98,376) or a private room in a nursing home for 10 years ($974,520)? These are wildly differing scenarios. Does it make sense to plan for the worst, which may mean putting off retirement to save for a need that may never arise?
Insurance provides a way to “pool the risk” of the potential effect of a long-term care need. Since you don’t know whether you might need to spend $98,376 or $974,520 on long-term care (potentially double that for a married couple), shifting that risk to an insurance company may provide peace-of-mind and security.
There are a variety of types of insurance to consider – traditional long-term care insurance with annual premiums that may increase over time, hybrid or linked-benefit policies with a single premium or annual fixed premiums that have a death benefit and/or cash value, and annuity options for those who may not qualify for other types of insurance.
Long-term care insurance and annuities can help protect your retirement portfolio so that it can provide for its intended purpose - retirement expenses. Even if you can self-fund the expense of long-term care, insurance may make sense to protect what you’ve built and want to leave as a legacy.
Often, there isn’t just one “right” solution to coming up with a plan for how to handle a long-term care need. A combination of strategies and solutions may make the most sense. Your plan can be as unique as you are, but it is important to have a plan in place - for you and your loved ones.
Please contact Lauren Robbins (CA Insurance Lic. # 0K57671) if you would like to discuss further.