If you’re someone turning age 65 today, you have almost a 70 percent chance of needing some kind of long-term care or support services in your remaining years.* Long-term care involves a variety of services designed to meet your health or personal care needs during a short or long period of time, which can help you live as independently and safely as possible when you can no longer perform everyday activities on your own.
Yet despite this overwhelming need, only about 7.2 million older Americans have long-term insurance, according to AARP.
Is There Really a Sticker Shock That Comes Along with Long Term Care?
As you’ve probably surmised, long-term care isn’t cheap. According to a report from Genworth Financial, a one-year stay in a nursing home, the most expensive type of care, can cost as much as $89,000 for a semi-private room and $100,000 for a private room. Assisted living facilities are pricey too, costing around $48,000 a year (national median cost in 2018). And if you’re hoping to save money with in-home care, sadly, the study found that full-time, in-home assistance (a home health aide) is every bit as costly as an assisted living facility.
Dementia sufferers face even greater potential long-term care costs. It’s not uncommon for those afflicted to be in good physical health even though they need help with daily activities they are no longer able to perform for themselves. According to the Journal of the American Geriatrics Society, the average lifetime cost of dementia care is $322,000.
Moreover because of their increased longevity, women often find themselves needing long-term care for even longer periods. For the many women who outlive their spouse, often after caring for them in their final years, they suddenly find themselves with fewer available resources to care for their own needs.
Many people erroneously believe that Medicare, the health insurance program for seniors, will pay for their long-term care. In most cases, it does not. The program will only pay for long-term care in very specific circumstances, such as a stay in a rehab facility while you recover from hip surgery. That’s not the kind of care that people generally require toward the ends of their lives. They need what’s known as custodial care, which isn’t covered by Medicare.
Paying for Long Term Care
Despite the fact that nearly 80 percent of seniors have no financial resources set aside to pay for their long-term care in retirement, according to Bankers Life Center for a Secure Retirement, there are actions you can take now to put a stronger, more financially sound foundation under your long-term care needs.
Self-Insuring Long Term Care
The most straightforward way is simply to pay out of pocket, what’s known as self-insuring. Depending on your finances, you can set aside a chunk of money, either in a highly liquid account like a money market account or a checking account and draw on the money as needed. Of course, if not adequately funded and managed, you could run out of money.
Get Help From Your Family
Many people lean on family for assistance, at least initially. While your children, grandchildren, nieces and nephews may not be able to provide around-the-clock care, they might be able to do their part for a while, perhaps helping out with light house cleaning, shopping, and meal prep. Some families feel it’s their duty to be much more hands on and they take on caregiving full time. In fact, families provide about 80 percent of the long-term care in the United States.
Can Medicaid help pay for Long Term Care?
Another option is Medicaid, the government health insurance program for low-income people, which does cover long-term care. Even if you don’t qualify for the coverage today, you might be eligible in the future after you have spent down most of your other assets. Bear in mind, though, Medicaid only covers nursing home care, not care in your own home. What’s more, not all facilities accept Medicaid, so you might not be able to pick the exact nursing home you want or need.
Can a reverse mortgage help?
If staying in your own home is your first choice, the funds from a reverse mortgage loan may be another way to help you pay for the in-home care you need. If you have an existing mortgage on your home, a reverse mortgage will first pay it off, after which you can use your remaining proceeds to help pay for your ongoing healthcare needs and other living expenses. You pay back your reverse mortgage only when you move, sell your home or pass away. You, however, remain responsible for maintaining your home and the payment of your property taxes and homeowners insurance.
Consider purchasing a long-term care insurance policy
Long-term care insurance is an insurance policy that will pay for care in your home or a nursing home if you are unable to perform at least two of five daily living activities. For most policies, these activities are defined as bathing, dressing, feeding, toileting, and transferring (getting up and down and moving throughout the home on your own).
Even this kind of policy, however, isn’t a blank check for long-term care. Instead, the plan typically pays a certain dollar amount per day for long-term care for a set period. For example, you might have a plan that pays up to $200 a day for three years. Of course, the more coverage you want, the more the policy will cost.
As a result, long-term care may not cover the full cost of care, but it can help with a significant portion so you are not forced to liquidate all your savings.
Like other types of insurance, the younger and healthier you are when you first buy the coverage, the less it will cost. For this reason, financial experts recommend that you purchase a policy when you are in your 50s. According to the American Association for Long-Term Insurance, (AALTI) a 55-year old couple in excellent health pays between $2,085 and $3,970 a year for a policy that pays a maximum benefit of $150 a day for up to three years.
Delaying coverage will result in more expensive premiums or even a denial of coverage. While just 11 percent of 55-year olds are denied, that number jumps to 45 percent for people in their 70s, according to AALTI.
Bear in mind that rates are not guaranteed and are also subject to rate hikes. However, the younger you are when you first buy the coverage, the lower your base for future increases will be.
Is long-term care insurance worth it?
While many retirees acknowledge the need for long-term care insurance, many are also put off by the price tag. At a few thousand dollars a year, it’s the equivalent of a European vacation for two—every year.
But some are willing to make that trade-off for the peace of mind they receive from knowing that provisions have been made to cover a potential financially-draining, long-term care situation.
There may be a middle ground between an expensive policy and no coverage at all. Some financial experts recommend getting more bang for your buck with a policy that’s “short and fat,” buying a high-dollar amount per day with inflation protection for just a three-year window since that’s the average amount of time that people need coverage.
Of course, if you or your spouse suffer from dementia, that kind of policy likely won’t be enough. That’s where a so-called “partnership policy” might help. A partnership policy lets you keep a sizable portion of your assets after your benefit runs out and still qualify for Medicaid. For example, you buy a long-term care insurance policy that pays out $150,000 worth of benefits. If you need care that exceeds that benefit limit, you will be able to apply for Medicaid coverage for additional care without spending down $150,000 of your assets to qualify. State plans may vary, so check the unique requirements for the state where you live.
Long Term Care Summary
If you are 65 or older, there’s a good chance you will require some form of long-term care assistance. The statistics speak for themselves. But you can also speak to the quality of care you want to receive by making plans and taking actions now.
Put all your options on the table and discuss them openly and honestly with your loved ones: Self-insurance? Family assistance? Medicaid? Funds from a reverse mortgage loan? A long-term care policy? Or maybe a combination of strategies?
By addressing and finally removing the cloud of how you’re going to deal with your long-term care needs, you can start tackling even more important life decisions, such as whether you’re going to play nine or 18 holes of golf today or how you’re going to spoil your grandchildren!
* https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
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