It’s hard to think about, but long-term care is an important need for which you should prepare.
How much care might you need? On average, women will need 3.7 years of care, and men will need an average of 2.2 years.
Approximately half of people turning age 65 will require some type of paid long-term care in their lifetimes, according to Morningstar.
About 60% of us will need assistance with things like getting dressed, driving to appointments, or making meals, according to the Administration for Community Living (ACL), a division of the U.S. Department of Health and Human Services. Not all of these activities will require paid assistance.
Some of us may require home care, which would include those who need minimal assistance with health-related tasks. Others might benefit from adult daycare, which offers daytime supervision, including meals, recreational and therapeutic activities. It occurs in a community setting.
The ACL defines long-term care as “a range of services and supports you may need to meet your personal care needs. Most long-term care is not medical care, but rather assistance with the basic personal tasks of everyday life, sometimes called Activities of Daily Living (ADLs).”
The definition seems a bit on the dry side, so let’s take a more practical approach.
Shopping for groceries or clothes
Caring for pets
Using the bathroom
Planning is critical, but many people are not sure what is covered by insurance, and others are often misinformed about what is covered by Medicare. Here are six steps to help you think—and begin planning for—your possible long-term care needs.
1. Gauge the likelihood of needing care.
2. Review potential costs.
3. Assess available resources.
4. Create a long-term care fund.
5. If insurance is the answer, investigate whether a stand-alone or hybrid policy makes sense.
6. If government-funded care is part of the solution, think through the ramifications.
Medicare and most health insurance plans, including Medicare Supplement Insurance (a Medigap policy), do not pay for long-term care.
What does Medicare cover?
Medicare covers up to 100 days of nursing home care. For many, that may not be enough.
Medicare can help with costs for skilled-home health or other skilled in-home services. What is skilled-home health? It is a wide range of health care services that can be provided in your home for an illness or injury. These might include monitoring a serious injury or illness, injections, patient and caregiver education and nutrition therapy. The goal is to help you recover, regain independence, become more self-sufficient, or slow any decline in health.
Generally speaking, long-term care services by Medicare are provided for a short period of time.
Medicare does not pay for non-skilled assistance with ADLs, which make up most long-term care services.
If needed, you will have to pay for long-term care services that are not covered by a public or private insurance program.
What about Medicaid? Medicaid is available to those who meet strict income and asset guidelines. Unlike Medicare, which is health insurance, Medicaid is public assistance.
Medicaid will count wages, Social Security benefits, pension, veteran benefits, bank and investment accounts, trusts and annuities and your property.
In most states, Medicaid looks at your income over the last five years, according to the American Council on Aging. California reviews your data going back 30 months.
Assets that were transferred or gifted during that period may count against you. So, we would advise that you not try to transfer financial assets to qualify for Medicaid.
Medicaid eligibility occurs on a rolling basis. You could make just $1 over the monthly income limit and end up on the hook for the cost.
Developing financial strategies
Which option is best will depend on various factors, including age, health status, the likelihood of needing care and your financial situation.
Some people use their own assets to pay for care. Be advised you may have tax consequences for drawing on an IRA, 401k or qualified plan. Discuss this with your tax advisor.
A reverse mortgage, long-term care insurance, hybrid life insurance policies, and annuities can provide much-needed flexibility.
Let’s look at these potential resources.
A reverse mortgage can be complicated, but it may offer you the cash needed to help with long-term care. Other borrowing options may be available, too, including a home equity loan.
Long-term care insurance is an alternative. The cost will vary depending on the benefits. Younger, healthy people who are at low risk of needing long-term care in the next 25 years may benefit from a long-term care policy.
Costs will rise for those who are older or have health problems. You may not qualify if your health is compromised or you are already receiving end-of-life care services.
Typically, you become eligible for benefits when you can no longer perform two ADLs. Most policies have a waiting period before you receive benefits.
However, many insurance companies no longer offer traditional policies. Those that do may raise premiums annually, and the cost may be high.
Hybrid life insurance offers unique features that may offer financial assistance. What is a hybrid policy? It combines life insurance with long-term care insurance. The policy may pay for long-term care or a death benefit if the policy isn’t used to pay for care.
Another option is a long-term care annuity, which provides a benefit based on your investment. However, it has become challenging for insurers to provide these policies due to today’s interest-rate environment.
Some states offer PACE (Program of All-Inclusive Care for the Elderly), which is a combined Medicare and Medicaid program. It may pay for some or all the long-term care needs of a person with Alzheimer’s disease.
SHIP, the State Health Insurance Assistance Program, is a national program offered in each state that provides one-on-one counseling and assistance with Medicaid and Medicare.
How you should approach long-term care will depend on your circumstances. I’ve offered a basic outline of various options. If you have additional questions or concerns, I encourage you to reach out to me.