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There's a lot of fear surrounding long-term care. Quoted statistics fuel the angst about this unknown. When articulated, the horror involves living out one's last days abandoned and suffering in a poorly-run nursing home. Alternative dreads include spending down family assets to pay for quality care or leaching the joie de vivre from family members by asking them to provide care.
A frequently promoted solution to relieving this anxiety is long-term care insurance. There are many variables to living and dying, along with changeable elements in the cost and nature of insurance and care. I won't predict what might happen or cover all aspects of long-term care and insurance today. But I'll offer insights into the basics of planning for long-term care.
Statistics about Long-Term Care
Let's start with the statistics. The scary and oft-quoted one is that approximately 70% of people who reach 65 years of age will need some form of long-term care in their lifetimes. This percentage, coupled with the notion of long-term care being, well, long term, would indicate that I'm very likely to spend my last days in a nursing facility.
What's missing from this discussion is that long-term care is often not long term at all. According to 5 Things You Should Know about Long-Term Care Insurance published by AARP, about half of those who are expected to need long-term care will only such care for less than one year.
Here's a breakdown of what a 65-year-old could expect over his or her lifetime in terms of being treated in long-term care facilities:
- Less than one year: 48%
- One year to less than two years: 19%
- Two years to less than five years: 21%
- More than five years: 13%
As an example, someone in her 70s may receive rehabilitative services in a long-term care facility to recover from surgery. The prospect of living in a skilled nursing facility while undergoing rehab is scary but real. Still, it's the longer time frame, the prospect of developing a debilitating illness at a young age and spending years in a long-term care facility that may be most concerning. Planning considerations could cover short stays as well as potentially extended debilitation.
Cost of Long-Term Care
Staying in a long-term care facility isn't cheap. Conversations with friends and acquaintances indicate that fees for the nicer nursing homes in my area average about $5,000 per month.
How much is long-term care elsewhere? According to LongTermCare.gov, the national average daily cost for private room in a nursing facility is $253 per day or over $7,000 per month. Assisted living is less expensive, running $119 per day or about $3,600 monthly. The difference revolves around the amount of hands-on support and medical support required by a patient or resident.
To pin down costs in your area, Genworth Financial offers this interactive tool. Not only does this tool provide information by state and cities within each state, it also indicates the cost of various types of care:
- private room in a nursing facility
- semi-private room in a nursing facility
- one-bedroom unit in an assisted-living facility
- adult day care (such as group care offered to adults with dementia who don't require extensive medical care)
- home health care (such as nursing care provided in home)
In addition to considering current costs, it's helpful to think about how much care might cost in thirty years or whenever you might need services. Again, Genworth provides these calculations. For example, a private room in a nursing home may run about $20,000 per month in 2048 if inflation paces at three percent each year.
Types of Insurance Coverage for Long-Term Care
There are various types of insurance that may cover long-term care. These include Medicare, Medicaid, Health Savings Accounts (HSA), and long-term care insurance.
When conditions for coverage are met, Medicare may provide coverage for up to 100 days in a skilled nursing facility following hospitalization for surgery or injury. This coverage doesn't mean that a stay will be free, but that the insured won't carry the full load for those first few months. There's still a co-pay amount though certain Medigap or similar supplemental policies purchased by the insured may cover these charges.
Medicaid may cover long-term care for those who lack other resources to pay for care. This coverage and its eligibility vary by state.
If you own an HSA, you may be able to tap funds in this account to pay for long-term care expenses that are classified as qualified medical expenses. My impression is that the HSA can fund not only long-term care insurance premiums but also long-term care expenses paid out of pocket. In addition, home modifications designed to support in-home care, such as wheelchair ramps or bathroom safety features, can be classified as medical expenses. Check IRS guidelines associated with Medical and Dental Expenses as well as your tax professional to determine what works best for your situation.
Long-term care insurance can also cover the cost of long-term care in a nursing facility or even at home, depending on the policy specifications.
Aspects of Long-Term Care Insurance Policies
Long-term care policies have varying designs and accompanying costs. Here are some of the elements:
- length of coverage aka “benefit duration” or “benefit period”: policies may cover unlimited time frames or they may cover specified periods, such as three years, five years, and ten years known as the benefit period; this time frame may cover precisely three years, for example, or cover a certain dollar amount that's equal to a daily benefit for three years.
- benefits: benefits paid on claims may be expressed as a “daily benefit” or “weekly benefit”; they may be offered on a per diem aka indemnity basis (policyholders receive a certain amount on a daily or monthly basis as long as services are being received), paid only as expenses are incurred for services, or triggered and paid by disability period (in which benefits are received after a qualifying event whether or not services are needed on a day-to-day basis)
- benefit account value: insurance companies may limit the amount paid to an insured (you, the patient or consumer), which is calculated using the benefit period and daily or weekly benefit; read more about this calculation here
- deductible or elimination period: there may be a waiting period or amounts that need to be paid by the policyholder before claims are paid, similar to a health insurance or disability policy
- types of services covered: skilled nursing facilities may be covered only or a broader range of services could be covered to include in-home care
- inflation protection riders: increases benefits with inflation
- tax-qualified vs. non tax-qualified: some policies may offer tax benefits; here's a tax guide on credits or deductions by state
- features and riders: there are a wide range of policy features and riders, such as third-party notification if a premium isn't paid on time (to help avoid policy lapses or cancellations) and discounts for coverage of both spouses
Here are some resources on policy design:
- Shopper's Guide to Buying Long-Term Care Insurance by the National Association of Insurance Commissioners (large PDF)
- A Shopper's Guide to Long-Term Care Insurance by the Texas Department of Insurance
- Long-Term Care Insurance Policy Comparison Form – North Carolina Department of Insurance
- Long-Term Care Insurance Costs and Benefits from A Place for Mom, Inc.
Buying a long-term care insurance policy that suits individual needs, wants, and circumstances — and budgets — requires diligence and attentiveness.
Ways to Handle Long-Term Care Needs
There are many ways to deal with long-term care needs. Just buying a policy doesn't mean planning ends there. It's likely that the policy won't cover all expenses or anticipate every development associated with long-term care needs.
Consider a multi-faceted approach that includes:
- Setting aside money, building an investment account, and/or buying supplemental insurance to cover cost of rehabilitation services not paid by Medicare as well as nursing facility costs not covered by long-term care insurance
- Making home modifications, such as installing safety features in bathrooms or purchasing a new home that's easier to navigate, such as moving from a multi-level home to a single-level home with extra-wide hallways that accommodate wheelchairs
- Making lifestyle modifications, such as arranging for meal delivery rather than cooking at home
- Hiring at-home help to provide household services or nursing care
Using ideas here or drawing on your own ingenuity, you could find ways to stretch the dollars available to you from an insurance company or your own savings. For example, you may be able to engage in-home nursing care rather than reside in a skilled nursing facility. Following trends in care for aging, chronically ill, and more could help you to deal with the future more effectively and inexpensively.
How are you planning for long-term care expenses?