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Paying for Long Term Care
By Mark Selkowitz
What is Long-Term Care?
Long-term care is the type of care you will need if a chronic illness, injury, or frailty makes it difficult for you to function independently. It comprises a variety of out-of hospital health and social services that are provided to people who are having difficulty taking care of themselves. While over 70% of these services are provided at home, we often associate long-term care with assisted living facilities and nursing homes. A wide range of individuals including registered nurses, nurse’s aides, therapists, home health aides, companions and homemakers provide these services.
Can it happen to me?
Hopefully you will not need long-term care. Certainly it is convenient to think about it always happening to the "other" person. Your bottom line issue may be "can it happen to me and is it worth betting my financial future on it?" The popularity on long-term care insurance has increased dramatically as people are confronting the realities of how they will take care of themselves.
How much does long-term care cost?
Unfortunately, long-term care costs in our region are quite high. For example, in 2001 the average annual nursing home cost in Massachusetts was $76,000. Assisted Living Facility costs vary, depending upon the level of services required. Assisted Living Facilities can cost as little as $36,000 annually, to $75,000 and more. Costs for care at home fluctuate, again depending upon levels of care and services required. Homemakers, home health aides, nurses, physical therapists, live-in companions and 24-hour skilled nursing are all providers in this continuum. While home care costs may average $30,000 annually, they can exceed $120,000. Most people receiving long-term care want to stay at home for as long as possible.
From a planning perspective, what should be of most concern to you is not what care costs today, but what care will cost in the future. From 1988 through 2001, nursing home costs in Massachusetts increased, on average, 6.4% annually. If a more conservative rate of 5% is assumed, nursing home costs can be expected to surpass $170,000 annually in 15 years, and $350,000 annually in 30 years. While the average length of care is 2.5 years, some individuals with debilitating injuries need care indefinitely.
Who pays the bill?
Your health insurance is designed to pay for expenses associated with acute medical care. It was never designed to pay for extended home care, adult day care, care in assisted living facilities and custodial nursing home confinement. Ninety-five percent of long-term care services are custodial in nature, and are not paid by health insurance.
Medicare provides coverage for acute medical care to people over age 65. Nursing home benefits reimbursed by Medicare are for a short period of time, usually less than 100 days. This reimbursement will only be made after a minimum three-day stay in a hospital, and only if care is deemed medically necessary.
Medicaid pays for most of the nation’s long-term care bill. In order to qualify for Medicaid your assets will have to be depleted to welfare levels. It is important to note that Medicaid was not originally designed as a middle class entitlement program, and many of the legal means individuals have used in the past to impoverish themselves to qualify for Medicaid will be more difficult to take advantage of in the future. Do you really want to give your money and your home away? How will that make you feel? Do you need to make such a sacrifice?
If health insurance, Medicare and Medicaid will not pay, who will? Most likely, you will need to use your own assets and income to pay for long-term care should the need arise. In fifteen years, when annual costs may exceed $170,000 how much of an impact may these costs have on your retirement assets? Will there be enough money left for your spouse and other family members? Will there be assets left for other loved ones, or your favorite charity?
Clearly a major financial issue for most of us is one of outliving our assets.
How does long-term care insurance work?
When you qualify for benefits, long-term care insurance creates a pool of money that can be used to pay for your care, regardless of when or where care is needed. The choice can be yours. When you enroll, you choose the size of the pool of money available to you over your lifetime. This can be called your maximum lifetime benefit. Sometimes insurance companies express this in the number of years the benefit can be paid. The maximum lifetime benefit may be as small as $75,000 – or it can be virtually unlimited.
To qualify for benefits you must have a cognitive impairment, such as Alzheimer’s disease, which involves being dangerous to yourself or others. Or you must need assistance with two out of six Activities of Daily Living that are: bathing, dressing, eating, toileting, transferring and continence. In most situations, bathing and dressing are the first activities we need assistance with in long-term care situations. Your age and health when you enroll and the size of the benefit you select determines your monthly premium.
Who should consider long-term care insurance?
People who have:
Sufficient assets and income to pay the premium
Want to protect their income and assets
Want to pay for their own care without being forced to turn to family or friends
Want to be able to choose the type of care and the places it is given
Want to maintain independence
Assets over $250,000
People who:
Cannot afford the premium
Only source of income is social security
Have often had trouble paying for basic living needs such as rent, utilities, food and medicine
Income is less than $30,000
When you’re shopping for long-term care coverage, take all the time you need. Ask questions and make sure you understand all the provisions. Marketing or sales literature is helpful, but see the actual policy for a summary of benefits or an outline of coverage and read it before you buy. Ask about the insurance company’s strength and financial ratings. Even after you purchase a policy, in most instances, you have 30 days to read through it and decide if you made the right choice. If not, you may return your policy within the 30 days and get your money back. Policy features can vary dramatically from one company to another. Be sure you carefully compare like features and decide which benefits are most important to your situation. It is equally important to carefully evaluate the company that is offering the policy itself. A licensed insurance agent who has experience with long-term care insurance can help you.
Mark Selkowitz is the president of Mark Selkowitz Insurance Agency LLC located at 107 South Street in Pittsfield, MA. He specializes in long-term care insurance and retirement and estate planning.