How to Pay for Long Term Care when Long Term Care Insurance Cost is Too High
Retirement should mean living comfortably on the savings you’ve spent a lifetime to build. But aging and unexpected health issues can derail your retirement aspirations and bleed savings accounts dry if you’re not prepared financially to face what life might throw at you.
Will You Need Long Term Care?
Even if you’re physically in good health now, factoring in the costs of long-term care is a must for any retiree.
This becomes especially important when considering at least 70% of people over age 65 will need long-term care services and supports at some point in their lifetime, according to the Centers for Medicare & Medicaid Services.
“As we age, usually our medical or long-term care expenses increase, sometimes depleting our assets to a level of crisis,” says financial advisor Jake Lowrey, president of Beverly, Massachusetts-based Lowrey Financial Group.
Though already costly, the price of long-term care services, particularly assisted living and nursing care, continue to increase with little signs of slowing down.
Long Term Care Insurance Cost is Rising – Could You Afford This?
Long term care insurance costs are rising — across all categories of service.
Compiled each year, Genworth’s Cost of Care Survey is meant to give consumers an idea of various long-term care expenses on national, as well as state-by-state basis. The survey also provides a picture of the pace at which costs have risen.
- Assisted Living Rises 1.45%: In 2014, the national median monthly rate for assisted living care was $3,500—an increase of 1.45% over 2013, according to the most recent Cost of Care Survey from long-term care and life insurance company Genworth. At that rate, a year in assisted living would cost roughly $42,000.
- Skilled Nursing Rises 2.62-4.35%: Skilled nursing care found in a nursing home is is nearly twice as expensive, ranging from $77,380 per year for a semi-private room to $87,600 for private accommodations, according to the Genworth data. Compared to 2013, the costs for nursing care rose 2.62% and 4.35%, respectively.
- Home Based Services Rise 1.59-4.11%: Even less costly care options like homemaker and home health aide services are also on the rise, increasing 4.11% to $19 per hour, on average, and 1.59% to $20 an hour.
As the American population ages and requires these services, it is vital to become aware of the associated costs in order to build a better long-term care plan for your retirement, especially within the context of rising costs year after year.
Medicare Does Not Cover Long Term Care
Medicare offers very limited long term care. In fact, it is really just short term assisted living. And, Medicare only covers certain benefits and conditions.
For example, Medicare may pay for up to 100 days of care in a skilled nursing facility. If this skilled nursing treatment follows after at least a three-day hospital stay, Medicare will pay 100% for the first 20 days. After that, for days 21-100, you’ll be required to copay for the care.
As such Medicare is not really considered an option for the most common reasons people need long term care.
Long Term Care Planning: How to Pay for Long Term Care?
There are a number of ways to pay for long-term care, whether it’s out-of-pocket using personal savings, federal assistance programs, or relying on any retirement assets you might have. As a result, it’s critical to explore all of them to find which strategy fits best into your retirement plan. Depending on your personal needs and finances, some of these methods might be more effective than others.
“It’s important for retirees, and anyone planning for retirement, to become educated about what the pitfalls are and what they need to do to avoid losing their life savings,” says Lowrey.
Here are six options for long term care planning:
1. Medicaid: Medicaid generally pays for certain health care services for people with low incomes and limited resources. This program sets limitations on the amount of assets you may own and the amount of income you may receive each month before you can be eligible for benefits.
The pros of Medicaid is that it is available as a safety net if you have run out of all other resources. However, the amount of money available will only cover a very basic level of service. And it can sometimes be difficult to find a facility that will accept Medicaid patients.
If your long term care plan is to just hope you qualify for Medicaid if you require services, you might want to first explore exactly what those services look like and if both you and your family will be comfortable with those options.
2. Use of Personal Monetary Assets: But say you have considerable savings and financial resources from which to draw upon, some people simply pay out of pocket for long term care.
This can be an easy way to cover long term care, but it may not be the most efficient use of funds and there is a significant risk that you will outlive those assets.
3. Use of Your Home: Other people explore selling their home to fund long term care. However, like using your own savings, these methods involve a fair amount of risk that you will outlive the value of your home.
Many households now also get a reverse mortgage to fund home-based care.
4. Long Term Care Insurance: Long-term care insurance can help you offset costs and protect you from depleting your savings.
Depending on the type of policy you choose, long-term care insurance can pay for a variety of home, community-based and facility care services, including assisted living and nursing care. The amount of coverage depends on how much funds you put into your policy and the monthly premium you’ll be required to pay is based on your age, health and the type of coverage policy.
5. Other Government Programs: Other strategies retirees can use to lessen the impact of expenses brought on by long-term care needs include tapping into VA benefits or using Medicaid-compliant SPIAs, if eligible, suggests Lowrey.
Provided by the U.S. Department of Veteran Affairs, VA benefits’ eligibility for long-term care services would be determined based on a person’s need for ongoing treatment, personal care and assistance, as well as the availability of the service in the area where the person lives.
- A Medicaid-compliant SIPA is a single-premium immediate annuity. These are typically a contract with an insurance company where you pay the company a sum of money upfront, and the company promises to pay you a certain amount of funds periodically for the rest of your life. A couple that puts money in a Medicaid annuity is able to avoid having the income from that annuity count against the financial assistance a spouse receives for nursing home care, says Lowrey.
- Putting money into a deferred annuity — now or around the time you retire — can also be an efficient way to fund long term care. With this strategy, you invest an amount of money to be paid out as monthly income to start at a date in the future. So, if you are 63 right now, you might invest $100,000 to be paid out starting at an age when you think you might require long term care — maybe age 85. When you turn 85, you will start receiving monthly payments which can be used to fund care or anything else you might need or want at that time.
Start the conversation
Despite the serious implications long-term care costs can have on both your physical and financial well-being, the reality is not many people want to broach the subject of aging and their future health care needs.
In a separate survey in November 2014, Genworth found more than 60% of respondents have a negative emotion associated with discussing their long-term care needs.
The survey also revealed that a majority of adults are vastly unprepared even when it comes to simply having a conversation—with less than 30% of adults saying they’ve already discussed planning for their long-term care or aging needs.
“Planning today can save consumers from facing a crisis tomorrow,” said Genworth in a statement on its 2014 Cost of Care Survey. “Having the right talk, the right way, at the right time, can ease the emotional and legal pressures of planning for long-term care needs.”
If you need help with the conversation, you might consider meeting with a financial advisor. They can help you identify risks and potential solutions that would be best for you. You might also try a retirement calculator.