BY: Jane Young, certified financial planner
As your retirement grows closer, the decision on how to pay for potential long-term care expenses becomes a serious concern. Unfortunately, with the high cost of long-term care (LTC) and the high cost of long term-care insurance, there is no easy solution.
LTC refers to services or support to help you with medical or nonmedical personal care needs. LTC can provide assistance with cognitive impairment and activities of daily living such as eating, bathing, dressing, using the toilet and assistance with incontinence. About 80 percent of LTC is provided in the home.
LTC expenses can be paid with a combination of personal or family savings, LTC insurance and government assistance. Generally, Medicaredoes not cover long-term care. Medicarewill provide 100 days of nursing home care after a three-day stay in a hospital. Medicaid will pay for LTC after most of your assets have been depleted, but Medicaid is usually limited to nursing home care.
Deciding whether to purchase LTC insurance is straightforward for the affluent who can self-insure and for those with little or no assets who must rely on Medicaid for their LTC expenses. The decision is more complicated for those who can't afford to self-insure but want to protect their assets to provide a livelihood to a surviving spouse, an inheritance to children or want to avoid being a burden to family.
Individuals who are at the greatest risk for needing LTC are those with a history of a chronic condition such as high blood pressure or diabetes or have family members with a history of a chronic condition. You may also have a higher risk if you are in poor health or have poor diet and exercise habits. Women are at greater risk for needing long-term care than men because, on average, they live five years longer.
According to a 2005 study by Peter Kemper, a Pennsylvania State University professor, Harriet Komisar, a Georgetown University professor, and Lisa Alecxih, vice president of Virginia health care consulting firm The Lewin Group, on average people turning 65 will need LTC for three years. The study found that three out of 10 people will rely on family for their care for more than two of these years. The study also found that two out of 10 people will need care for over five years. Overall, the analysis in the study indicated that 50 percent will have no out-of-pocket expenditures for LTC, 25 percent will spend less than $10,000, and 6 percent will spend over $100,000.
Additionally, based on information from leading insurance actuaries, the Association for Long-Term Care Insurance reported that a 60-year-old who buys an LTC insurance policy, with a 90-day delay before coverage begins, has a 35 percent chance of using it before they die. The association also reported that the average stay in a nursing home is 2.3 years for men and 2.6 years for women. Most care is provided at home, but statistics on this are limited.