At least 70% of people over age 65 will require some type of long-term care service in their lifetime, according to the National Medicare Handbook. About half of us who reach age 65 will need more substantial help with everyday living activities. Costs of long-term care can be high, and may not be covered by other forms of insurance (including Medicare), so this is one expense you definitely need to prepare for in order to protect your retirement savings.
Long-term care cost have become expensive. According to a survey by Genworth Financial, costs of the major types of long-term care have all grown significantly over the past five years.
Long-Term Care Costs Vary Depending on Location
Bear in mind that the costs in the chart can vary considerably based on the particular care provider and the geographic location. According to the Genworth 2019 Cost of Care Survey the national average cost of a skilled nursing home is over $100,000 a year. Care at home, based on a 44-hour week, runs over $52,000 a year as a national average. Base assisted living cost now averages almost $49,000 a year. Yet, depending on where you live, this cost can be greater or a little lower. This is why advance planning is essential.
What does my health insurance and Medicare cover? The short answer is "not much" when it comes to long-term care. Medicare, private health insurance, and Medicare Supplemental Insurance all have little long-term coverage.
Don't Depend on Health Insurance or Medicare
Health insurance and Medicare will typically only pay for "skilled, short-term, and medically necessary" care, according to the U.S. Department of Health and Human Services. Coverage is limited to the first 100 days, and a skilled nursing stay is only covered if it follows a hospitalization for the same condition.
Medicare Supplement Insurance, or "Medigap," isn't much help either. While this form of insurance is designed to enhance the benefits you get from Medicare by covering co-payments and deductibles, it is not intended to meet long-term care needs. Even disability insurance won't do you any good. Not only does disability insurance not cover medical care or long-term care services, but it also doesn't provide any benefits once you're past age 65.
Affordable Long-Term Care Insurance Could Be Your Planning Solution
Long-Term Care Insurance? Fortunately, there is a way to prepare for the the financial costs and burdens that come with aging.
Long-Term Care Insurance is designed to cover the costs of long-term services and supports including skilled nursing care, help with personal care activities, and various types of therapy (occupational, speech, physical, rehabilitation). Benefits can be used for care in several settings, including:
- In your home
- Adult day care centers
- Hospice care
- Respite care
- Assisted living facilities
- Alzheimer's facilities
- Nursing homes
How Do Policies Work?
Long-Term Care Insurance policies are based on two main factors -- the monthly or daily benefit and the benefit period, which combine to produce a lifetime maximum benefit or "pool of money". For example, if your long-term care policy reimburses $150 per day for three years, it has a lifetime maximum benefit of $164,250 ($150 times 365 days/year times three years). Many LTC policies also protect against inflation -- that is, as the cost of living rises over time, the policy's benefits increase accordingly.
In most states, special partnership policies exist which provide additional dollar-for-dollar asset protection. This allows you to safeguard assets and obtain Medicaid benefits even if you exhaust all your insurance benefits. In other word, you can receive the Medicaid Long-Term Care benefit without exhausting all your assets.
In order to receive benefits from a Long-Term Care Insurance policy, two criteria must be met. The first is known as the "benefit trigger," which refers to the symptoms requiring long-term care. This is usually defined in terms of the policy holder's ability to perform activities of daily living, or ADLs, which is assessed by a healthcare professional. Once that requirement is met, the second thing you'll need to do is satisfy the elimination period, which is the time you need to cover the costs of care before insurance kicks in. Typical elimination periods last 30-90 days, and depend on your policy's terms.
The sooner the better as far as planning goes. One common mistake people make is waiting until retirement to apply for LTC insurance. This is a bad idea for two reasons.
The first is that as you get older, you have a higher chance of being rejected for LTC insurance. Only 17% of applicants between the ages of 50-59 were declined for coverage in a recent year, but this increases dramatically to 45% for those between 70-79.
Percentage of Long-Term Care Insurance Applications Declined Based on Age Group:
Under 50 is 11%, ages 50-59 is 17%, ages 60-69 is 24% and ages 70-79 almost half of all applications get declined at 45%
Insurance companies consider a variety of health factors when deciding whether or not to approve applicants, and other than some obvious factors (such as already having Alzheimer's disease or requiring LTC services), being in poor overall health can result in rejection. So, it's better not to wait until your health potentially declines.
Additionally, Long-Term Care Insurance policies can be significantly cheaper if you apply earlier. According to the American Association for Long-Term Care Insurance, a 60-year-old couple can expect to pay 26% more than a 55-year-old couple for the exact same LTC policy.
In 2019, a healthy 55-year-old man and woman can expect to pay about $95 a month and $156 a month respectively, per year for $165,000 each in potential benefits starting at $4000 a month each growing 3% compounded. Married couples can usually get a discount for buying one combined policy, and there can be a huge cost difference between different insurer's policies, so it pays to shop around. Premiums can vary over 100% for the same benefits.
This is a small price to pay for peace of mind. While it may seem like a burden to add a few thousand dollars to your annual expense now, long-term care costs could erode your retirement savings rather quickly. If you're in the pre-retirement stage (say, 50 years old or older), it might be a good idea to start looking into your options before you're older and costs start climbing out of reach.
Original article by Matthew Frankel published on Motley Fool Website with updated information for 2019.
About the Author
An LTC News author focusing on long-term care and aging.
Contributor since August 21st, 2017
There are several ways to plan for the financial costs and burdens of aging. No matter which type of plan you purchase, Long-Term Care Insurance is easy, affordable and rate stable income and asset protection. These policies are custom designed. Be careful, however, since premiums can vary over 100% between companies for the exact same coverage. This is why you should seek the help of a qualified Long-Term Care Insurance specialist. Find a specialist by clicking here.
Items to Discuss with a Long-Term Care Specialist:
- Partnership – Most states offer special policies that provide dollar-for-dollar asset protection. The Long-Term Care Insurance Partnership Program might be one of the best-kept secrets in retirement planning. Make sure the specialist explains this program and how it might help you.
- Tax incentives – There are federal tax incentives available for some people. If you own your own business be sure to ask.
- Health Savings Accounts – If you have an HSA you can use the pre-tax money in your account to pay for the premium.
- Asset-Based or Hybrid policies – These are life insurance or annuities with a rider for long-term care. Careful, only a handful are actually a long-term care benefit. However, one of these policies can provide you with the flexibility of both a long-term care benefit or a death benefit. They are expensive but can be paid with a single premium.
- Health and Family History - Make sure the specialist asks you detailed questions about your health, family history, and retirement plans. Underwriting criteria varies with each insurance company. If they are not asking you detailed questions then find another specialist.
Find Current and Future Cost of Care
Take a moment and find the current and future costs of long-term care in the area you live in. This will help you decide the amount of coverage is appropriate for you in your situation. For example, if you have a defined pension when you retire the amount of benefits you would need for long-term care would be less than an individual who will fund their future retirement with earnings off investments. In that case, protecting the principal is essential since that will produce your future income.
Find your state and use the LTC NEWS cost of care calculator by clicking here.
It is always best to start planning before you retire. Once you have your plan in place you will enjoy peace-of-mind and your family will thank you decades from now.