Long-Term Care Aware
Long-term care is defined as the need for assistance with normal activities of daily living for a period of greater than 100 days. Additionally, when long-term care is needed, it is not a one-time need, but rather is a “continuum of care” that starts at home and advances to an assisted living community or nursing home. No matter where one falls on this continuum of care, the costs can be significant. Many financial experts agree that long-term care is one of the most significant financial strains you or your family may face as you age. In this piece, we explore this topic by sharing our thoughts on a few of the most common questions regarding long-term care.
What are the odds of needing long-term care? The reality is that the answer is different depending on which study you reference. One reliable study conducted by the Center for Retirement Research at Boston College estimated that 44% of men and 58% of women will need nursing home care at some point in their life.1
How much does long-term care cost? The factors determining the costs of long-term care include geographic location, the type of care received, and the person’s condition who is receiving the care. In 2016, the average annual cost of a private room in a nursing home was about $92,000, and $82,000 for a shared room.2 The annual inflation rate for long-term care is between 4% and 7% but could increase dramatically as Baby Boomers start to use long-term care facilities.3 Another factor that makes long-term care complex is the uncertainty about how much care you or your loved one may require before receiving a specific health diagnosis. With so many variables affecting long-term care cost, it’s important to start thinking about developing a long-term care plan before you’re faced with an adverse health diagnosis.
How may one pay for long-term care costs, if needed? There are four primary ways to pay for long-term care. They include relying on family, relying on Medicare, using personal assets, and utilizing long-term care insurance.
- Relying on Family: In past decades, family members often took on the role of caregivers when a person needed long-term care. However, as society has changed, the opportunity to rely on family members to meet long-term care needs has decreased. As families have become smaller, more geographically separated, and have come to rely on two incomes, the ability and opportunity of family members to provide care has decreased. As a result, in the future, paid caregivers will likely be the most common providers of long-term care services.
- Relying on Medicare: Contrary to popular belief, government-funded health insurance programs such as Medicare and Medicaid do not pay for long-term care, unless your assets or income are below a certain threshold specified by the states. This misconception stems from the fact that these programs will pay for acute care, which is defined as the first 20 days in a skilled nursing home and another 80 days of care on a co-payment basis following a three day stay in a hospital. If a person requires additional long-term care after 100 days, the cost will be borne by the individual.4 Finally, standard health insurance does not provide long-term care benefits. Health insurance plans are designed to provide 100 days of “short-term” care or less following an illness or accident.
- Using Personal Assets: Paying for long-term care from personal assets is known as self-insuring. Personal assets used to pay for long-term care are typically withdrawn from one (or more) of three places. These include individual savings, retirement accounts, and home equity. There are some advantages to paying for long-term care from personal assets, particularly regarding the quality and location of care received. The disadvantage of self-insuring is that even a short stay in a long-term care facility can have a significant impact on a person’s financial security.
- Utilizing Long-Term Care Insurance: Long-term care insurance will pay for a nursing home, assisted living, at-home care, and adult daycare. There are many factors to consider when purchasing long-term care insurance. These include the optimal age to purchase insurance, determining whether or not you have enough assets to self-insure, covering other, potentially more pressing, insurance needs first such as health, disability, and life insurance, and determining whether or not you are in good enough health to pass the underwriting process.
What is the optimal age to purchase long-term care insurance? Since your ability to obtain long-term care insurance is a function of your health, the younger you are, the cheaper and more likely you are to be able to purchase a policy. As a general rule, the earlier you purchase long-term care insurance, the cheaper the cumulative cost will be. For example, an individual who buys long-term care insurance at age fifty-five will pay less, over the course their lifetime, than a person who purchases the same coverage at age sixty-five, even though someone at age a sixty-five will theoretically pay fewer premium payments than someone at age fifty-five.3 This is because the cost of long-term care insurance premiums rise as one ages and long-term care insurance is outpacing the rate of inflation.
When should you consider purchasing long-term care insurance? At Yeske Buie, we feel that someone under the age of fifty does not need to consider purchasing long-term care insurance. Individuals between the ages of fifty and sixty, however, should carefully analyze the costs and benefits of buying long-term care insurance. We also encourage individuals in this age group to prioritize additional savings and expenses verse the premium costs of the long-term care insurance. For individuals over the age of seventy-five, it gets much harder to pass the underwriting process, and long-term care insurance becomes prohibitively expensive.3 Unfortunately, insurance companies view older individuals as part of an increased risk pool and are very reluctant to sell long-term care policies to people they consider at a high risk of filing a claim.
What can you do to plan for the possibility of needing long-term care? The following are four considerations to reflect on as you begin planning for your potential long-term care needs.
- Educate yourself on the topic of long-term care.
- This includes gathering information on the statistics, demographics, types of care available, and costs in your local area.
- Evaluate your situation and assess the risk factors you face.
- This might include realistically assessing whether you have a high longevity risk, or if your family situation prohibits you from relying on care from family members.
- You should also consider if other family members have needed long-term care for a genetically predisposed condition such as Alzheimer’s or Dementia.
- Consider the cost of modifying your home so you can age in place safely.
- When thinking about this cost, you will want to evaluate whether or not you qualify for Medicaid or other government benefits such as Veteran Administration services.
- Assess your ability to self-insure verse purchasing a long-term care policy.
- Begin by evaluating the types, cost, and merits of long-term care insurance.
After reflecting on the above considerations, it is important to then discuss your situation with your family, trusted friends, and a Financial Planner. These individuals can help you to write your long-term care plan down and review the plan at least annually.
How can we as Financial Planners help you plan for your long-term care needs? As planners, we’re in a unique position to assist you with planning for long-term care costs. If you or your loved one has been diagnosed with an illness which will likely result in a long-term care need or if you simply want to make a long-term care plan, our team at Yeske Buie is available to assist you in any of the following ways:
- Supporting you in walking through all the options available to you and evaluating your situation as you walk through your long-term plan development process.
- Helping you gather the information on long-term options, running cost projections, and assessing your financial situation so you can make informed decisions.
- Determining your risk tolerance and exploring options for paying for long-term care cost.
- Projecting the impact of savings and investing in accounting for long-term care cost.
- Referring you to health experts who can be there to coach you through all the details of setting up long-term care and assist you in avoiding potential pitfalls.
- Referring you to a reputable long-term care insurance provider, and help you evaluate long-care insurance policies.
Financial Planners are in a unique position to understand your goals, values, and resources and help you find the best solution to address your needs, including your individual long-term care planning needs. Please do not hesitate to contact our team if you have any questions about long-term care insurance or creating a plan that’s right for you.
- Costs and Incidence of Long-Term Care1
- Long-Term Services and Supports2
- Hamm, A. (2015). How to Plan For Long-Term Care. Plan Ahead, Inc.3
- How Long Does Medicare Cover Care in a Skilled Nursing Facility?4