Understanding Long-Term Care: Part 3 – Costs & Paying for It

Preventive Services Covered by MedicareWelcome to the third and final installment in our three-part series on long-term care (LTC). In this segment we’ll take a look at some of the costs and ways to pay for LTC. Here are a few statistics about LTC to keep in mind as you read this article.

  • The probability of needing help with at least two activities of daily living (ADLs) or becoming cognitively impaired is about 68% if you are over 65.
  • Up to 70% of people will need LTC at some point in their life.
  • The average nursing home stay for someone over 65 is less than 1.5 years, and 80% of people over 75 stay in a nursing home for less than one year.
  • Most people who need LTC will need it for about three years on average, and most of that will be in home care.

 

How much does long-term care cost?

The cost of LTC depends on several factors including the type and amount of care you need, and how long you need it. If you only need minimal help with a few activities of daily living (ADL), perhaps with help from a family member, your cost of care would be relatively low. If you need 24/7 nursing care it could be very expensive. To get an idea of the costs associated with LTC here are some national median averages*:

  • Home health aid services for ADL (licensed) $19 per hour
  • Adult day care $60 per day
  • Assisted living facility (one bedroom/Single Occupancy) $3,261 per month
  • Nursing home (Semi-private room) $193 per day
  • Nursing home (private room) $213 per day

 

Since costs vary across the country you’ll need to find out what they are in your area. To get this information contact your state’s insurance department or insurance counseling program. You can find a directory in the NAIC document A Shoppers’ Guide to Long-term Care Insurance.

Unfortunately, health care costs continue to increase. The median annual rate for staying in a private nursing home in 2005 was just over $60,000. In 2011 that cost increased to nearly $78,000. Depending on your location and care needs you could spend much more than this. As you prepare your LTC plan make sure you factor inflation into your cost estimates. To get an idea of how much you’ll need to save for LTC there are online calculators that can help you. Here are two examples.

http://www.longtermcare.gov/LTC/Main_Site/Tools/Savings_Calculator.aspx

http://cgi.money.cnn.com/tools/elder_care/elder_care_cost_finder.html

 

How to pay for long-term care

There are many ways to pay for long term care. A few common methods include savings, income, investments, insurance, annuities, trusts, pensions, family and friends. And there’s nothing that says you have to pick just one. The best solution for you may be a combination of methods. As you create your LTC plan, choose the payment method or methods that best fit your unique needs and situation.

Savings, Income and Investments

One way to pay for LTC cost, often called “self-insuring,” involves using savings, income, pensions, 401K accounts or other investments like stocks or bonds.

Life Insurance and Annuities

Life insurance is another resource that you can use to help pay for LTC costs. Depending on your coverage, you may be able to benefit from:

  • Accelerated death benefit – allows you to receive an advance on your death benefit while you are still living.
  • Life settlement – allows you to sell your life insurance policy to raise cash.
  • Viatical settlement – allows you to sell your life insurance policy if you are terminally ill.

 

An annuity is a type of insurance product for which you pay a lump sum in return for guaranteed monthly payments in the future. In general, annuities are considered to be a relatively safe form of income, but you should research them carefully and talk with a professional advisor before purchasing one.

Family and friends

Your family can be a tremendous help to you in many ways. Even if they are not able to provide financial assistance they can be extremely important in helping you afford long-term care. Since most long-term care involves help with daily activities at home, your family can help you save a lot of money if they are able to help provide some care.

Long-term Care Insurance

Since its introduction in the 1980s, LTC insurance has grown in popularity. While it has helped many people, insurance regulators and consumer advocates advise caution as it may not be right for everyone. Long-term care insurance policies can be confusing. Terms and benefits vary and insurance regulators field a lot of consumer complaints over premium increases and denials of coverage. Since we are just scratching the surface here, you should do your research and consult with an expert to make sure you fully understand all of the details before purchasing LTC insurance.

According to the NAIC’s A Shopper’s Guide to Long-Term Care Insurance, here is how to tell if LTC insurance might be right for you.

  • You have significant assets and income.
  • You want to protect some of your assets and income.
  • You can pay premiums, including possible premium increases, without financial difficulty.
  • You want to stay independent of the support of others.
  • You want to have the flexibility of choosing care in the setting you prefer or will be most comfortable in.

 

LTC insurance may not be right for you if . . .

  • You cannot afford the premiums.
  • You have limited assets.
  • Your only source of income is a Social Security benefit or Supplemental Security Income (SSI).
  • You often have trouble paying for utilities, food, medicine, or other important needs.
  • You are on Medicaid.

 

If you decide LTC insurance is right for you, shop and compare policies and make sure you understand exactly what the policy covers as well as any and all conditions and restrictions. Read the policy carefully, ask questions, and don’t get forced into making a decision until you are ready.

The premium is the amount you pay for your policy. It is based on many factors including the following:

  • Daily benefit — the dollar amount the policy will pay per day for care. The trick here is to estimate what that daily rate will be by the time you need care. If you’re middle aged now, you could be paying premiums for 20 to 30 years before you need LTC. A higher daily benefit will increase your premium.
  • Length of coverage – the length of time benefits will be paid. This could be 3 years, 5 years, lifetime or some other length. Three years of coverage would be adequate for most people, since those needing LTC typically only need it for three years. However, your situation and risk factors may dictate choosing a longer length of coverage.
  • Elimination period – the time you must wait before your policy starts paying claims. Choosing a longer elimination period can reduce your premiums.
  • Inflation protection – because you are buying protection that you may not need for years, the cost of care may be much more by the time you require it. Inflation protection can help you cover increases in the cost of care, but it will also increase your premium.

 

Most claims are made when people reach their seventies or eighties. That means you could be paying for LTC insurance for many years. When evaluating premiums consider how much you’ll be able to afford now and in the future. If you get to a point where you can no longer afford the premiums and cancel your policy, everything you’ve paid into it is gone.  A non-forfeiture clause would help you get some of your money back if you cancel your policy, but it could significantly increase your premium.

The cost of LTC insurance varies by insurer. In addition to the factors we discussed above (daily benefit, length of coverage, etc.), the cost of LTC insurance also depends on your age and whether you are buying if for just yourself or for you and your spouse.  The following example  provides cost estimates** for a LTC insurance policy that offers a three-year benefit period, $150 daily benefit, 90 waiting period and 3% inflation coverage. To determine exactly what you’ll have to pay for coverage contact an insurance company or agent for a quote.

Age

Single
(annual premium)

Couple
(annual premium)

45

$1,195

$1,553

50

$1,294

$1,682

55

$1,451

$1,886

60

$1,754

$2,281

65

$2,553

$3,319

Benefit Pool  (today)

$164,240

$164,240

Benefit Pool (in 30 years)

$398,678

$398,678

 

There are several ways to buy LTC insurance

  • Individual policy from an insurance agent or company
  • Group policy through your employer or association
  • Federal long-term care insurance program for federal employees, U.S. Postal Service employees and members of the uniformed services among others.
  • State government programs for state employees
  • Policies sponsored by Continuing Care Retirement Communities

 

If you’re still working your employer may offer a group policy at a discount. This can be very advantageous and save you money, especially if you can lock in the rate at your current age. In most cases, the insurance company must let you keep your coverage if you leave the company. If you convert your coverage to another insurance policy your premium and benefits may change.

According to Long-Term Care: How to Plan and Pay for It, LTC insurance can be a gamble. Good policies are expensive, contain conditions and restrictions limit care, and the odds are high that you won’t collect much from your policy, “…because most people will never need a long stretch of intensive, paid long-term care.” If you’re not sure LTC insurance is right for you here are some alternatives that you may want to consider.

  • Consider catastrophic long-term care insurance that offers lower premiums yet still protects you if you need a multi-year stay in an expensive nursing facility.
  • Purchase a joint policy that can pay for either you or your spouse.
  • Combine insurance with other strategies like saving, etc.
  • Check with your state, county and local government to see if they have programs to help pay for in-home care.

 

Home Equity:

Like long-term care insurance, a reverse mortgage may work for some, but may not be right for everyone. A reverse mortgage is a loan against the equity you have in your home. You retain ownership, and usually don’t have to pay off the loan as long as you are living in the home and continue to pay for taxes, insurance and repairs. Generally, a reverse mortgage is a last resort if you’ve run out of other options. You can learn more about reverse mortgages online at HUD and the National Council on Aging. Kiplinger also offers good information on the basics of reverse mortgages.

If you only have a short-term need for cash you may want to look at other alternatives like a home equity loan or a home equity line of credit. You might consider selling your home, realizing the profits and finding a less expensive place to live. You could put the profits into savings or other investments that would allow you to draw out cash as needed to pay for your LTC expenses.

Government Programs:

  • Veterans benefits – if you are an eligible veteran, the VA provides care in VA nursing facilities and offers some at-home care. Check with the VA to confirm benefits.
  • Medicare – as discussed previously, Medicare does not pay for LTC.
  • Medicaid – may require you to spend down your assets, and you may not like the facility you have to stay in.
  • PACE – Program of All-inclusive Care for the Elderly provides medical, social and LTC for frail people. It is only available in states that offer it under Medicaid, and you must meet eligibility requirements. To learn more about PACE visit Medicaid.gov.

 

LTC can be very expensive, but with good planning and preparation not everyone will have extreme difficulty paying for it. The solution that’s right for you may include one or many of the things we’ve discussed, or something entirely different. As you research what’s right for you, you may find unique way’s to either reduce the cost of LTC or ways to help pay for it. If you do, I hope you’ll post them here in the comments section so others can learn about them too.

 

Resources:

For more on paying for long-term care I recommend visiting Medicare.gov

A Shoppers’ Guide to Long-term Care Insurance by the NAIC

Long-Term Care: How to Plan and Pay for It, by Joseph L. Matthews

* Genworth’s Cost of Care Survey 2011

** longtermcareinsuranceinfo.com http://longtermcareinsuranceinfo.com/long-term-care-insurance-costs/

 

One Response to “Understanding Long-Term Care: Part 3 – Costs & Paying for It”
  1. Don Kowalski said:

    Even without an increase in benefits compnies are rasing the premium on policies. They garantee renewability as long as the premiums are paid , but thety do not garantee premiums won’t go up.

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