Long-Term Care: The Elephant in the Room!

So what is that “nagging” issue that those over 55 should be planning for? Long- term care! Long-term care encompasses a variety of services including custodial care, assisted living, and skilled nursing care. We long to believe that we won’t need this type of care but the fact is that we are all living longer (79 years is the average life expectancy), making the need for long-term care likelier. It is estimated that 70% of those over 65 years of age will need some form of long-term care.

Since the odds are that we will need long-term care, how do we plan for it? First we need to know the cost. The cost for assisted living is currently estimated at $44,000 per year and almost $90,000 annually for a semi private room in a skilled nursing home facility. (See Genworth.com for costs per state.) Medical costs continue to increase at a rate of at least 4% per year. A patient’s typical length of stay in a facility is three years, resulting in a hefty bill ranging anywhere from $130,000 to $270,000.

What are our options for funding this cost? Many will rely on family and savings. Both are viable short-term solutions. However, the average 65 year old has at most $100,000 in savings, which barely covers the cost of long-term care provided it is supplemented by Social Security payments. Relying on family also comes at a cost. Many family members lose time at work, have reduced earnings, or lose their job and future Social Security benefits by taking care of family members.

Many believe that Medicare will pay for their long-term care needs. Medicare does not cover long term care except in cases in which the doctor orders the need for skilled nursing care, the patient has been admitted to a hospital for three days or more, and the patient is admitted to a nursing facility within 30 days from being discharged from the hospital. Even if you are eligible for Medicare, it only pays for the first 20 days in a facility. On the 21st day, the patient is required to pay a co-pay of $157.50/day until the 100th day at which time Medicare pays NOTHING. (This is per benefit period. If a person stays out of care for a period of 60 days or more a new benefit period begins.)

Medicaid is the default payer of long-term care for many people. Medicaid is the government health insurance program for the poor. To qualify for Medicaid, persons must meet certain eligibility requirements; such as being medically needy, meaning they need this type of care, meet the income requirements and have “countable” assets of $2,000 or less if single. (“Countable assets” are generally all assets owned other than your house, one car, and personal belongings.) A person who is married must consider his or her spouse’s assets in determining eligibility. Any gifting made by the person in the five years prior to applying for Medicaid is also considered and will delay eligibility for Medicaid. While it is a financial relief once the patient qualifies for Medicaid, Medicaid will seek to recover the cost of providing long-term care once the patient and the spouse dies.

Reverse mortgages may also be a viable source of funding for those who own a home. A reverse mortgage provides a loan against the equity of your home, the loan proceeds of which can be taken out in a lump sum, monthly payment or as a line of credit. To get a reverse mortgage you must be 62 years of age or older, not have an existing mortgage or plan on paying off the mortgage with the loan proceeds. Bad credit and/or bad health do not affect your ability to obtain a reverse mortgage because it is based on the value of your home. Title to the residence should be in the name of both spouses because a reverse mortgage becomes due and payable when the person who took out the reverse mortgage moves out of the residence. Insurance is the best funding source for long-term care needs; however it is expensive.

Insurance companies have been losing money on existing policies so rates have been increasing steadily. The average cost of long term care insurance for men age 55 is $1,060/year and for women age 55, $1,390/year. According to the long-term care price index, long term care coverage has increased by 8.6% from last year so expect to pay more for coverage the longer you wait.

The cost of long-term care can destroy any sound financial plan so plan early. For more information see longtermcare.gov.​

- L. Victoria Meier

 

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