You can read and hear a variety of opinions about long-term health care. Understanding the facts will help you prepare for the costs and consequences that future declining health and aging will have on you and your family.
You will most likely experience chronic health problems or frailty due to aging. The U.S. Department of Health and Human Services reports that about half of us who reach age 65 will need enough long-term care to trigger benefits from a tax-qualified Long-Term Care Insurance policy.
What that means is the reality of needing enough care that is meaningful enough to impact your family or finances is a flip of a coin. Most long-term health care is no longer in a nursing home. Most care is delivered at home, where most people want to be.
People require long-term care services for a variety of reasons. These reasons include chronic illness, mobility problems, dementia, and the frailty of aging. Aging happens, and when it does, will you and your family be prepared?
Long-Term Health Care is Costly - That is Not Changing
Long-term health care services are pricey. The costs are increasing rapidly nationwide. Although the cost of care varies depending on where you live, it is not cheap anywhere.
Medicaid is the largest payer of long-term health care, but it requires you to have little or no income and assets to qualify for those benefits. Traditional health insurance, including Medicare and supplements, pays little toward long-term care.
Long-Term Care Insurance will pay for long-term health care, but you must have a policy ahead of time since these policies are medically underwritten. However, if you do have an LTC policy, it provides comprehensive benefits, including care for Alzheimer's, Parkinson's, and in-home care.
Unless you plan on depending on your family to become your future caregiver (not a good idea), you will have to find a way to pay for this expensive care.
Even someone who is relatively well off can find it challenging to afford long-term health care services. The concern about the cost is even greater if it goes on for several years or includes nursing home care which is very expensive. Wealthy individuals often have their assets tied up, making it harder to liquidate to pay for care.
Not Just About Money - It is About Family
Whether you are wealthy or not, most of us have a family we care about, and protecting them is of utmost concern. Remember to consider the impact on the family. There are ways to pay for the ever-increasing cost of long-term care services without draining assets or creating a burden on those you love.
Family caregivers are usually untrained and unprepared for the job. Additionally, balancing family obligations with those of being a caretaker is difficult. When you purchase Long-Term Care Insurance, you give your loved ones more time to spend with you rather than taking care of you.
Ways to Pay for Future Long-Term Health Care
Among the principal ways to pay for future long-term care services include:
Uncle Sam and the States/Medicaid and Medicare
Medicaid will pay for long-term health care for anyone with little or no income and assets. The individual must require long-term health care and meet the financial requirements. To qualify, you must be a citizen of the United States (or an eligible non-citizen) and fulfilling the residency requirements in the state where the individual plans to apply are the basic rules one must meet to qualify for Medicaid.
The state will analyze the individual's financial statements for the last five years to determine eligibility. An applicant will be disqualified and subject to a penalty term if there is any evidence that the applicant transferred assets for less than fair market value within five years before the application date.
Medicare is health insurance primarily for those age 65 and older. This is a federal tax-supported program. Medicare will pay for 20 days of skilled long-term care. These days are once per diagnosis, not once in a lifetime. Most people have a Medicare Supplement (or Medigap), which will pay the deductibles and days 21 through 100 of skilled care.
Remember, most long-term health care is considered custodial care - meaning help with daily living activities or supervision due to dementia. Custodial care is not covered by Medicare or supplements.
Veteran's Long-Term Care Benefits (VA)
You must meet financial and service requirements to qualify for any VA benefits for long-term care. To be eligible for long-term care benefits, you must have served a minimum of 90 days on active duty with at least one time during qualifying wartime.
The VA requires a veteran to have a net worth below $138,489 to qualify for these VA benefits unless a service-related injury has caused the need for long-term health care.
Private Health Insurance
Like Medicare, traditional health insurance will only pay for a short period of skilled care. Like Medicare, custodial care is not covered.
Long-Term Care Insurance
Private or employer-sponsored Long-Term Care Insurance provides the most comprehensive benefits for long-term health care. LTC Insurance is affordable for many people, especially those who are younger and in good health.
LTC Insurance pays for all levels of types of care, including:
Skilled care (at home or in a facility)
Assisted living facility
Adult day care center
Equipment and monitoring
However, you cannot purchase Long-Term Care Insurance when you need care; it must be done when you are reasonably healthy. Most people obtain coverage in their 50s.
There are several types of policies available. You can find hybrid policies that combine life insurance or annuities, including a qualified rider for long-term health care. These plans are more expensive but include a death benefit. Underwriting criteria might be more relaxed in some situations.
Be sure the plan you are considering meets federal guidelines under Section 7702(b).
If someone currently needs long-term health care and owns a life insurance policy, a life settlement might help. The care recipient can convert part of the policy's death benefit to an FDIC-insured long-term care benefit account.
The account's trustee will pay for all levels and types of qualified long-term health care services (like a Long-Term Care Insurance policy would). If the care recipient dies before exhausting the account, the remaining funds will be paid to the beneficiary.
The life insurance policy would have to have a large enough death benefit to provide someone with enough funds to pay for long-term care. However, in some situations, it might be the only option to take care of the current need for long-term care.
Perhaps not actually a plan, but most people end up paying for long-term health care from their income and assets. This can be very expensive. Since you cannot time the markets or the time you will need care, you might be selling off assets at a loss. Don't forget there are tax implications when you use your money to pay for your care.
In addition, self-funding means someone else will make decisions. Someone else, usually one of your children, will decide which asset to liquidate and what type of care you will receive. This requires your family to put in a lot of time, which is time-consuming and emotionally stressful. You become dependent on them.
Lastly, the price of care is considerable - LTC NEWS Cost of Care Calculator. You didn't put all that money in your 401(k) to use on long-term health care, and the costs are rising quickly due to higher demand, inflation, and increasing labor costs.
Health Savings Accounts (HSA)
Some people are aware that you can use these accounts to use pre-tax funds that have been accumulating tax-deferred within the account to reimburse the cost of Long-Term Care Insurance premiums.
You could, however, use the tax-advantaged savings to pay for the care itself. This could be a good option if you already know you are uninsurable for Long-Term Care Insurance due to pre-existing health or family history.
You are generally better off using the pre-tax money to pay for Long-Term Care Insurance, but if you have accumulated a lot of money in an HSA, it could be an option.
Reverse Mortgages /Home Equity Loans
When people think of reverse mortgages, they often think of older programs that were not that advantageous. Today's reverse mortgages are different and allow some people to eliminate their mortgage and use tax-free money to pay for in-home care or purchase Long-Term Care Insurance.
Since many people have most of their money tied up in their homes, this could be an option. Be sure to see an expert's help to ensure you get the right advice - Reverse Mortgages | LTC News.
You could use a home equity loan to either pay for care or purchase Long-Term Care Insurance. It is another way to tap this value to pay for long-term care.
Older Americans Act (OAA)
In 1965, the Older Americans Act (OAA) was enacted by Congress in response to politicians' worries about the lack of community social services for the elderly.
It approves numerous service initiatives via a national network that includes: 618 area agencies on aging,
Nearly 20,000 service providers
281 Tribal organizations, and 1 Native Hawaiian organization representing 400 Tribes
The Supporting Older Americans Act of 2020 reauthorizes programs through 2024.
OAA offers funding to assist states in planning and funding nutrition services and a wide range of social services. These services include support for family caregivers, information and referral support, illness prevention, and health promotion.
All people who are 60 or older are eligible to enroll, but since funding levels limit the number of people who may be serviced, the states must focus services on those with the "highest social or economic need."
The OAA can be helpful for some low-income seniors with chronic health and other age-related problems. It would not be beneficial to the wide population and not be considered a long-term care solution.
Nursing Home Use is Down - It Does Not Mean Long-Term Care Risk is Less
You might read articles that suggest that since nursing home use is down, you don't need a plan for long-term care. They fail to explain that the need for long-term care has not diminished; what has changed is how it is delivered.
Most long-term health care starts at home and ends at home. Long-Term Care Insurance delivers tax-free resources to pay for quality care at home, in adult day care centers, assisted living, memory care, and nursing homes.
Those with Long-Term Care Insurance will try to avoid a nursing home and rely on other types of care. However, the COVID-19 virus crisis helped force many nursing homes to close.
American Health Care Association and the National Center for Assisted Living reported that more than 300 nursing homes have closed during the pandemic; another 400+ are expected to close in 2022. Finance woes and staffing problems are part of the problem.
Nobody wants to be in a nursing home. Some people will indeed need a nursing home, but there are many options for quality care available that help people avoid a nursing home. Those with substantial personal funds or Long-Term Care Insurance have the most control over their care choices.
Use Professional Help
There are many options to plan for the costs and burdens of aging. This means this decision is best made with the assistance of an experienced and qualified Long-Term Care Insurance specialist.
Specialists generally work with the top insurance companies that offer a variety of products that are available today.
Premiums vary dramatically for the same coverage, and underwriting criteria vary between insurance companies. Specialists will provide accurate quotes and match your age, health, and family history with the right insurance company to save you money.
The consequences of long-term care are real, and the solutions are varied. However, you must take advantage of one of these solutions to protect your income and assets and ease the stress otherwise placed on those you love.
Most people plan in their 50s.
About the Author
An LTC News author focusing on long-term care and aging.
Contributor since August 21st, 2017
People require long-term health care due to chronic illness, mobility problems, dementia, and the frailty of aging. It is hard to escape getting old. No matter how healthy you are today, at some point, you will likely need help with ordinary living activities we take for granted today.
You can't place the obligation of caregiving on family members. They have their lives, including careers and family responsibilities. It is tough juggling these responsibilities with being your future caregiver.
Long-Term Care Insurance will offer you with guaranteed tax-free funds to pay for your choice of quality care services, including in-home care. Your 401(k) and other assets are secured, and your loved ones will have the time to be family instead of your caregivers.
Available Resources & Tools on LTC NEWS
LTC NEWS offers a wealth of information and services to assist you in learning about your options for preparing for the financial costs and difficulties of aging. The objective is to safeguard your 401(k) and other savings from the increasing costs of long-term health care. The other consideration is to allow your loved ones the time to be family instead of becoming your future caregiver.
You can compare the major insurance companies that offer Long-Term Care Insurance products here - Top Insurers for Long-Term Care Insurance.
The Ultimate Long-Term Care Guide is an outstanding read to help you get a good overview of the topic.
There are also available tax incentives. See if these are helpful by reviewing the Long-Term Care Tax Benefits Guide.
Be sure to work with qualified Long-Term Care Insurance specialists who can help navigate all the available options. They will help you understand underwriting and provide accurate quotes from all the top companies, along with professional recommendations.
Find all the resources on LTC NEWS - Resources for Long-Term Care Planning.
Looking for Quality Caregivers? Need Help Filing an LTC Insurance Claim?
If a loved one already needs in-home care or owns a Long-Term Care Insurance policy and needs assistance filing the claim, LTC NEWS is here to help. LTC NEWS provides free assistance with no obligation - Filing a Long-Term Care Insurance Claim. You can also help find caregivers and get recommendations for a proper care plan, whether a person has a policy or not.
Benefits of Reverse Mortgages
Many people today have much of their savings invested in their homes. With today's reverse mortgages, you can use the money in your home to fund a Long-Term Care Insurance policy, add retirement income, or even pay for in-home care if you need care now.
You can ask questions to LTC NEWS columnist and host of the TV Show 62 Who Knew in the LTC NEWS feature "Ask Mike." His expertise in caregiving, aging, health, retirement planning, long-term care, and reverse mortgages can be a valuable resource - Reverse Mortgages.
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