So How Can You Pay For Long-term Care?
It is very important you have a long-term care plan in place. According to the U.S. Dept. of Health and Human Services, most Americans turning 65 will need some form of long-term care as they get older.
So ask yourself this question, “How would I pay for a long-term care event?”
If you don’t have an answer to this question or you are not sure, we’ll take a look at some ways to pay for long-term care services.
Personal Funding For Long-Term Care
Personal funding for long-term care is exactly what the term implies. It is you (or your family member) taking your personal assets and money to pay for long-term care services. The expenses for care are being paid out of pocket with no reimbursement from an insurance company or government assistance to subsidize the cost.
According to a recent study, the annual median cost of long-term care in America is $100,000 a year. In addition, the the average duration of a long-term care event is 36 months. When you put these factors together, a long-term care event can become quite costly. Therefore paying for your own care can easily send you into a financial downwards spiral.
Unfortunately, many Americans find themselves with no choice but to pay for long-term care services out of pocket. We see this happen often times due to a lack of planning. It also occurs when you plan too late like right when you need long-term care services.
Personal funding for long-term care services should only be done when you have no other viable option. Unless your last name ends with “Gates” or “Buffet” ( as in Microsoft Bill Gates or Berkshire Hathway Warren Buffet) you should consider exhausting all other available options before paying out of pocket for long-term care.
From my experience, it is not a pleasant feeling to spend all your hard-earned savings and investments, sell your valuable assets (such as your home or car), and take out a second mortgage just to pay for your long-term care needs.
Medicare & Long-Term Care
(You may be wondering why Medicare is on our list but crossed out. This will be answered shortly. However, let’s consider what Medicare is to see if it is a long-term care payment option.)
Medicare is a federal program that provides hospital and medical insurance to people ages 65 and older. If you are new to Medicare, you might wonder if it covers long-term care. This question generally arises because people don’t always have a clear definition on long-term care.
As stated in our post, “What is Long-term Care,” long-term care focuses on helping you live your daily life when you are “chronically ill.” It does not focus on treating your medical conditions. So does Medicare cover long-term care? Here is the answer:
Medicare does NOT cover long-term care (also called custodial care) if that is the only care you need.Medicare.gov
Yes, as some readers might know, Medicare does have a skilled nursing facility benefit. However, it only pays the cost of your skilled care if certain requirements are met. For example, you must have an inpatient hospital stay for three days before going to a Medicare certified skilled nursing facility. Also, it will only cover up to 100 days of skilled care and after the first 20 days you are required to pay a coinsurance fee.
Medicare does not cover the following:
- Assisted living facilities,
- Homemaker services, or
- Pay for home health aides to give you custodial care unless it is related to treating an illness or injury (you must be receiving skilled care at that time).
Therefore, Medicare should NOT be counted on to pay for your long term care services. Medicare does not cover true long-term care expenses that may occur. Whatever coverage you may try to get for skilled care would only be minimal at best.
Medicaid & Long-Term Care
Medicaid is a joint federal and state program that pays for health care services for those with low incomes. It also pays for health care services for those with very high medical bills relative to income and assets. It can pay for nursing home care as well as home and community based services.
Medicaid pays for nearly a third of all nursing home care in the U.S. However, many people who may need long-term care will not qualify for Medicaid. In order to qualify, you must meet federal and state guidelines for income and assets.
In order to qualify for Medicaid, some individuals will do what is called a “Medicaid spend down.” A Medicaid spend down is when you spend down your assets that exceed Medicaid eligibility limits. People also try to qualify by transferring ownership of wealth or assets to a family member such as their child. Often times you would hire an estate planning attorney to help with this process.
Now states vary on the amount of assets you can retain and still be eligible for Medicaid. The average amount most states allow a single applicant to retain is $2,000 in countable assets. Countable assets include:
- cash savings/checking
- property above primary residence
- retirement accounts,
- CDs, Mutual funds, & stocks.
Assets that are exempt from “the spend down” are your primary home, one vehicle, life insurance with a cash value under $1500, and household items.
Medicaid is a viable option if you are not able to afford or qualify for long-term care insurance. Remember to keep in mind that you may have to spend down or transfer ownership of your assets in order to qualify. Let’s say you have $20,000 in a savings account with no other assets. You may have to spend $18,000 of that on long-term care expenses or give it to your child before you can be eligible for Medicaid. Consider all of this before you pursue this option.
Traditional Long-Term Care Insurance
Traditional long-term care insurance is one of the most notable ways to pay for long-term care services. This insurance normally pays or reimburses you for some or all of your long-term care expenses. Individuals who don’t want to rely on their family, the government, or use up their assets to pay for long-term care generally select this option.
Long-term care insurance policies normally pay benefits by the day, week, or month (i.e. a nursing home benefit of up to $250 a day or $1750 a week). In addition, these policies allow you to select your benefit amount, the length of your elimination period (the amount of days you wait before benefits start), as well as inflation protection (an added feature to protect against the inflation of long-term care costs).
Traditional long-term care insurance is a more viable option than self-funding or Medicaid if you can afford the premiums. Recently however, there has been a significant decline in the purchasing of these types of policies. This is particularly due to major premium increases. Traditional long-term care policies typically do not offer guaranteed premiums. Over the last few years for example, we have seen insurance providers ask for rate hikes as high as 77% for their in-force policies.
Despite this occurrence, insurance providers have restructured their long-term care products to better protect against the need for future rate hikes. Unfortunately however, many traditional long-term care policies still remain without any premium guarantees.
Hybrid Long-Term Care Life Insurance
As stated in our previous blogpost, “What is Hybrid LTC-Life Insurance,” hybrid long-term care life insurance combines the benefits of long-term care insurance and life insurance into a single policy. This insurance is a permanent life insurance policy that uses the death benefit while you are alive to pay for long-term care expenses. In addition, these policies typically have long-term care riders that allow for an extension of LTC benefits in the event you exceed the accelerated death benefit.
Like traditional long-term care insurance, these policies do offer inflation protection and have an elimination period as well. What makes hybrid long-term care life insurance standout is its added benefits:
- Premium payment amounts guaranteed;
- A death benefit in the event you don’t need long-term care;
- A return of premium if you ever change your mind.
Hybrid Long-term Care Life insurance is highly recommended above self-funding, Medicaid, and even traditional LTC insurance if you can meet premium requirements. This insurance has grown in popularity in that last few years. This is due to its benefits that combat the rate hike dilemma we’ve seen with traditional long-term care insurance. These policies also address the “use it or lose it” concern individuals often times have about traditional long-term care insurance.
All things being equal, when considering how to pay for long-term care expenses, it is in your best interest to make sure you have the plan that is right for you.
If a Hybrid Long-term Care Life insurance policy seems interesting, I encourage you to read our post “What is Hybrid LTC-Life Insurance?” In it we break down how a Hybrid Long-term Care life insurance policy works. In addition, we also discuss the type of benefits it provides you.
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Feel free to call me today to find out more about your long-term care planning options.
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