Long-Term Care Options

November is long-term care awareness month, so we’re revisiting this challenging subject. 

• The national average cost for a private room in a nursing care facility costs over $102,000 per year.
• Depending on the level of your assets and income, you may elect to self-insure, spend down your assets and rely on Medicaid, or purchase long-term care insurance. 
• Traditional long-term care insurance benefits seem to be decreasing while the cost of coverage increases.
• Often people with more limited assets and income may rely on Medicaid to cover their long-term care expenses.

Whether you are single or in a committed relationship, it is hard enough to take care of the challenges of day-to-day living without having to worry about planning for the future.  Despite your hectic life, you may have already taken the time necessary to plan for retirement and for your life insurance needs.  However, not enough people have taken the time to evaluate the need for long-term care.

What is Long-Term Care? Long-term care is the service provided by someone helping you manage your day-to-day routine.  Typically, this would occur if you could not perform several activities of daily living (commonly referred to as ADLs) on your own.  These ADLs could include eating, dressing, bathing, toileting, or ambulating.  Cognitive impairments such as Alzheimer’s or Parkinson’s could also warrant long-term care.  Those receiving this care could reside at home, an assisted living, or a nursing care facility.

What are the Costs?  Several factors affecting the population today make long-term care and the costs associated with this care a growing concern.  According to a study by the U.S. Department of Health and Human Services, nearly 70% of those aged 65 and over will need some form of long-term care during their lives¹.  A 2019 study from Genworth estimates that the national average cost for a private room in a nursing care facility costs over $102,000 per year².  You can see the potential for your retirement assets to suffer greatly if you required nursing care.  Worse yet, the costs could escalate should you require in home or assisting living care prior to or after your stay in nursing care.

When it comes to costs, many gay and lesbian individuals and couples are at a disadvantage regarding long-term care.  Historically, children provide the first line of care when a parent requires assistance around the home or with the cost of a nursing home.  Estimates by Medicare state that 70% of the care offered to the elderly community comes from family.  Because many gay and lesbian couples do not have children, they must plan on paying for their care.

What are Your Options?  Depending on the level of your assets and income, you may elect to self-insure, spend down your assets and rely on Medicaid, or purchase long-term care insurance.  For those who have a higher net worth, you may be planning on using those assets for your long-term care needs.  If you are single and not planning on leaving an inheritance, you may also decide to spend down your assets to provide for your care.  Using your own assets and income for long-term care provides you with the greatest flexibility on when to begin care, what type of care you receive, who provides the care, and where the care is administered.  The downside to self-insuring is that you may wind up using most or all of your assets to provide for your care.

Often people with more limited assets and income may rely on Medicaid to cover their long-term care expenses.  Medicaid will require that you spend down your assets and leave you with minimal income should you require their benefits.  Medicaid does allow a spouse to maintain some income and assets while his/her spouse is receiving Medicaid payments.

If you are an unmarried couple, Medicaid will not exempt any of your income (including your pension) or investments to provide for your partner.  Additionally, if you own your home jointly, Medicaid may require that sell your home.  This could force your partner out on the street with minimal assets.  As you can see, if you are not married and need to rely on Medicaid, you must take steps to protect your assets for your partner.

If you want to protect your assets, your income, and your right to choose your options for care, you may want to look into long-term care insurance.  When purchasing insurance, you often have the ability to choose your elimination period (length of time before benefits begin), length of coverage, benefit amount, inflation protection, and level of home care (other benefit options may also be available).  By adjusting the options, you may create a policy that helps to meet your protection needs while fitting into your budget.

Since I have been in the industry, I’ve noticed a distinct trend with regard to long-term care insurance:  the benefits seem to be decreasing while the cost of coverage increases.  In some cases, insurance companies have been increasing premiums for people who already have policies in place; and I don’t believe that this trend will stop anytime soon.  As a result, you’ll need to consider what’s best and most affordable for you now as well as to prepare yourself for the likelihood of a future rate increase.

Planning for a long-term care need is a must.  Deciding if that’s traditional insurance, hybrid life insurance, or self-insurance varies based on needs and resources.  I typically view long-term care insurance (or self-insurance) as a need for couples.  Couples need to protect income and assets for each other should one of them require some sort of care for an extended period of time.  Individuals more often don’t need coverage unless they’re looking to preserve their choice-of-care options.

If you’re single, you’re likely more focused on preserving choice.  Evaluate your pension and Social Security income as well as potential income from your investments to determine how much long-term care insurance (or self-insurance) you may need.  Keep in mind that if you require care, you won’t have many of your current daily expenses and could sell your home in order to help meet assisted-living or nursing-care costs.

If you have a higher net worth and want to protect some of your assets yet don’t like the idea of annual premiums that could increase, you can look to a life insurance policy that contains a long-term care benefit.  Often these policies allow a single, upfront premium to cover the cost of the insurance.  In exchange, the insurance company will provide a benefit payable at your death (usually higher than your initial premium payment), long-term care coverage, and/or the ability to withdraw some or all of your initial premium and cancel the policy.

 

When we look at long-term care for clients, we help clients understand their choices and help them make a decision that fits their current budget, health concerns, and future goals.

The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual.  Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.

Long-term care insurance policies contain exclusions, limitations, reductions of benefits, and terms for keeping them in force. Your financial professional can provide you with costs and complete details. All policy guarantees are based upon the claims paying ability of the issuer.

¹ http://longtermcare.gov/the-basics/

² Genworth 2019 Cost of Care Survey, conducted by CareScout^®

https://www.genworth.com/aging-and-you/finances/cost-of-care.html