Finding A Solution For Long-Term Care

Americans are seriously misinformed about Medicare’s coverage of long-term health care. The oldest Americans – those most likely to need long term medical care – are the most misinformed. In a recent survey by Carequest, Inc., 63% of respondents age 65 and older either didn’t know or gave the wrong answer to a basic question about Medicare’s coverage of nursing home care.

This is understandable. Long-term care coverage is complicated and expensive. Most people don’t want to discuss it. The subject brings up unpleasant possibilities for the future, especially lack of independence. Also, long-term care and the ways of paying for it are changing rapidly.

Most people think of long-term health care primarily as nursing home care for the very elderly. That’s no longer true. The very elderly tend to be healthier than in the past, and the average age of nursing home residents is declining. About 40% of people who need long-term care are aged 18 to 64. Long-term care needs can arise from accidents or chronic diseases. Half of strokes occur in those under 65.

In addition, there are options to nursing homes such as home care and assisted living. Only 1.5 million people are in nursing homes, and many of them are in for short-term rehabilitative care. Today, some estimate, that only about 20% of long-term care is given in nursing homes.

Medicare covers very little long-term health care. Medicare’s nursing home coverage is only for short-term and skilled care, such as rehabilitation after an injury or illness. Medicare will not cover more than 100 days of long-term care per benefit period. A benefit period starts the day you enter a hospital for at least three days of covered care and ends when you have been out of a hospital or skilled nursing facility for 60 consecutive days. A new benefit period does not begin until you have entered a hospital again for at least three days of covered care.

Medicare does not pay for long-term maintenance care – that’s the extended, expensive care that worries most people – whether it is provided at home, in an assisted living facility, or in a nursing home.

Medicaid, the program for the poor, will cover long-term maintenance care. But to qualify, you must give away most of your assets or sell them and buy an annuity. Congress restricted your ability to give away assets and qualify for Medicaid, but it still is possible if you start ahead of time.

You might not want to qualify for Medicaid even if you are able. The coverage is very restricted. You won’t get a private room in a nursing home and are limited in the choice of facilities. You can only go to a nursing home that accepts Medicaid and that has a Medicaid-designated bed available. Because Medicaid’s reimbursements to nursing homes are less than the cost of providing quality care, you won’t get into the best facilities if Medicaid pays for your care. Medicaid also covers very little home care.

That leaves family assets and long-term care insurance as the main options for financing possible long-term health care needs. There are a few other options I’ll discuss shortly.

Long-term care policies have improved in recent years. You can get inflation protection. In addition, the policies are designed to help you stay out of a nursing home. They generally pay for long-term health care whether it is provided at home, in an assisted living facility, or in a nursing home. Alzheimer’s usually is routinely covered, unlike in the past. And you shouldn’t need a hospital stay or skilled care before the policy benefits kick in.

But a long-term care policy can be expensive. A 40-year-old pays on average around $850 in annual premiums. At 50, the average cost rises to $1,100; at 60 it is $1,800; and at 70 the premium is $3,500. That’s per person. You double that cost to cover a married couple. That can be a big part of a family’s budget.

But compare the premiums with the cost of a nursing home. The average daily cost nationally is about $130 dollars. That puts the annual cost of a stay at over $47,000. If you live in a high-cost metropolitan area, the cost is more like $150 to $200 per day.

That daily fee doesn’t cover all costs. There are additional charges for items such as prescription drugs, physical therapy, and special diets, which can increase the daily cost by about 20%. Some of these costs might be covered by other insurance; some won’t be. Now you are looking at about $160 per day or close to $60,000 annually. Assisted living facilities and home care will be less expensive, but they still won’t be cheap.

The cost of long-term care is rising almost 6% annually. So a $60,000 annual cost would be almost $108,000 in 10 years or $192,000 in 20 years if costs continue to increase at current rates.

While the length of the average stay in a nursing home is declining, the average stay that is not for short-term rehabilitative care is over two years. Nonrehabilitative home care lasts an average of over four years.

Those with relatively low income and assets don’t have much choice. They rely on family and Medicaid for any long-term care needs that arise.

The rest of us have to balance the certainty of expensive annual long-term care insurance premiums with the uncertainty of possibly paying much more for long-term health care sometime in the future. If you never need the long-term care, your only benefit from the insurance premiums would be peace of mind. But if you eventually need long-term care, you’ll come out way ahead by buying the insurance.

Those with substantial assets, say $3 million to $5 million and more, might want to rely on their own assets. But keep in mind that the cost of long-term care probably is growing faster than your net worth. If you are 10 to 20 years away from a likely long-term care need, the cost of care might end up taking a higher percentage of your estate than you expect today.

Others have to seriously consider a long-term care policy. But there are some other options to consider. One option is to buy a long-term care policy that will cover part of the potential cost and self-insure for the rest. Another option is to let the cost of long-term care come out of your assets. But keep that from affecting your heirs by purchasing permanent life insurance. Life insurance generally is less expensive than long-term care insurance and is certain to pay off. Long-term care insurance pays only if you actually need the care. But consider if this option is viable if you have a spouse who might need to live off your remaining assets while you are in a nursing home.

Some people get their children to pay for or share the cost of long-term care insurance, because one of the purposes of the insurance is to preserve assets for the children to inherit. Some adult children even initiate the purchase of policies.

In next month’s visit I’ll cover the five key decisions you have to make when purchasing a long-term care policy and explain how they can reduce the cost of your premiums.