Planning for Long-Term Care

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by Chuck Yanikoski

Many people assume that Medicare will cover any long-term care needs they might have when they are older. But they are wrong.

Medicare covers up to 100 days of nursing home care, and covers some home-based care, but does not cover nursing home care after 100 days, and does not cover assisted living.

Yet the risk of needing such help is fairly high. About 30% of men and about 50% of women will need some kind of home health care, assisted living, or nursing care before they die. About 20% of men and about 40% of women will need one year's worth of care, or longer. Given that assisted living usually costs between three and five thousand dollars a month, and nursing homes cost even more, this is a significant financial risk.

Medicaid programs (which provide medical benefits for the poor, as opposed to Medicare, which provides for the elderly) differ somewhat from state to state, but in general, they do not kick in until you have spent virtually all of your own assets, including your house. The good news is that you have a safety net, at least for nursing home needs: you will not be out on the street needing care. The bad news is that you will have nothing left over for yourself or your heirs. (One exception: in many states, if you own designated levels of long-term care insurance, Medicaid will cover you when those benefits run out, and/or you will be protected from having to sell your house. Even without such insurance, your house may be protected if you have a spouse, minor children, or a permanently disabled adult child living there. But again, state rules vary.)

Will the new Federal universal health care law improve this picture? It might, some day, but for now it does not, and there is no assurance that it ever will.

So unless you are wealthy enough so that you don't need to worry about covering the costs, or unless you already have a top-of-the-line long-term care insurance policy, you are exposed.

This does not mean that you should necessarily buy long-term care insurance, however.

There are many issues to consider:

  • If you have family you can count on to help you, you may have less need. Care from family members can often delay the necessity for professional care, can make less expensive options (such as home care supplemented by visiting nurses) more feasible, and sometimes can completely substitute for long-term institutional care. That's the main reason why men tend to have less need for professional long-term care - they tend to die sooner, and the wife gets to be the caregiver. Women, by contrast, are more likely to live into old age by themselves, and therefore to end up in institutional care. But while gender matters, what matters more is your own family situation.
  • You might not want to impose too much on family. You might also prefer to have trained strangers helping you with your toileting and bathing, rather than family, if you end up needing that kind of help. You might also feel that paid helpers will be more reliable than family (though you might instead feel the opposite). Or you might be concerned that, regardless of the presence today of a spouse or children who say that they will help, things can change in the future, and you might still end up needing paid assistance you can't afford.
  • Could you even pay for several years of long-term care, if you needed to? And what would be the consequences to other family members if you did? We're talking about a six-figure risk, but taking everything into account, including the value of your house (if you own one), you maybe still could cover such a cost, and have something left over.
  • Or maybe you don't care that much. Especially if you have no dependents (or won't in old age), the idea of ending up sharing a room in a Medicaid-funded nursing home might not be that much scarier then ending up paying for the same thing, or a maybe a slightly upscale version of the same thing. In that situation, you're probably not going back home anyway, so there's not necessarily a big problem if you have to sell your house before Medicaid kicks in. But of course, if you do have dependents, you are then putting some of the risk onto them.
  • Which is part of the reason some people want to have the insurance just for the "peace of mind" factor - their own peace of mind, and that of their spouses, their children, and maybe others. It's not just peace of mind about the finances, but also about the burden of having to be caregivers themselves some day, which is very difficult at best, and at worst is simply beyond the physical, emotional, or time limits of what many people can provide (especially over a period of months or years).
  • But can you afford the insurance? Long-term care coverage is pretty cheap if you are young, but in your fifties, sixties, and beyond it gets quite expensive. Expect to have to pay a few thousand dollars a year for coverage. If you are already financially stretched, or expect to be when you retire, you need to be realistic about whether you can continue to pay the premiums - which can, by the way, be raised later, even if they are "level" initially. State insurance departments will grant insurers the right to increase premiums if the costs of care go up enough, and the solvency of the insurance companies is potentially at risk.

These are just the highlights. There are lots of additional details that need to be considered, and much more you need to know and to think about before you make any decisions. But it is a subject everyone really ought to think about. And because premiums go up with age, the sooner you think about it (and talk it over with your financial adviser, if you have one), the better.