November is Long-Term Care Awareness Month. The fact that healthcare is expensive is not exactly breaking news and it’s understandable that long-term care is stressful to even think about.
Costs for caring for the elderly in need are rising rapidly. This is making planning for long-term care difficult and confusing. As Consumer’s Reports points out, according to Genworth’s 2016 Cost of Care Survey, the nationwide median cost for a semi-private nursing home room is over $82,000 per year while assisted living will set you back over $43,000. While keeping a senior in need of long-term care in their home may be preferred, a home health aid will still cost $20 per hour and home health care costs can add up quickly. When you look at the numbers, it becomes clear that long-term care can quickly drain an individual’s retirement savings.
Long-Term Care Insurance
If you’re trying to plan ahead and create a financial plan to cover your long-term care costs, long-term care insurance seems like the most obvious solution. It’s obvious until one looks at the price. According to Forbes Magazine, average premiums cost around $2500 and the insurance may not cover all long-term care costs. Policies may only cover 3 years of care which for some patients won’t be long enough. The longer the coverage period, the more expensive the premiums will be. Moreover, the daily benefit will vary. The higher the benefit, the more expensive the plan. For those that try to save money on the premiums but then need the coverage later, they may find that their plan will not pay out enough as a benefit to cover the cost of their preferred nursing home or assisted living center. Unfortunately, with the high costs of long-term care insurance, the middle class is quickly being priced out of this type of insurance.
What other options exist?
Short-Term Care Insurance
This type of insurance typically covers people for up to a year of care with less expensive premiums that are more affordable than long-term care insurance. Consumer Reports broke down the pros and cons of this type of insurance. According to the American Association of Long-Term Care Insurance, 41% of long-term care insurance claims run out before a year so a shorter term plan may make more sense for many. Because the benefit is shorter and more predictable, rates tend to be more stable than those for long-term care. Moreover, with some plans, if you don’t spend the daily maximum benefit, you may be able to carry the insurance forward longer than a year. Short-term care insurance also might help a patient get into a nursing home that won’t accept Medicaid. However, this type of insurance won’t cover catastrophic illness, injury, or disability that is more long-term so it merely delays the financial drain for people who need long-term care for more than a year. It also may not cover the wide array of needs long-term care insurance will cover so be sure to understand the limitations of any policy you might be considering.
Asset Based Long-Term Care Insurance
In July of this year, we blogged about Asset Based Long Term Care Insurance. This type of plan pays out a benefit for as long as you need it. Moreover, if you don’t use it, it doesn’t go to waste. It continues to earn a guaranteed, modest return that can be inherited by your heirs. You also have flexibility in how you fund this type of insurance. Costs will vary so check with your financial professional if this type of plan may be affordable and reasonable for you.
Health Savings Accounts
For those eligible to take advantage of a health savings account, this option can be used to not only pay for current health insurance deductibles and costs, it can also be used to pay long-term care insurance premiums. This option is subject to limits based on age and is adjusted annually. Not everybody has access to a health savings account. You must be covered under a high deductible health plan among other requirements so check with your employer or financial planner for more information.
Additional Sources of Income
U.S News and World Report broke down a list of long-term care solutions that included tapping into additional sources of income and investments. Do you own equity in real estate? Paying off your house may offer hundreds of thousands of dollars of available cash in equity to put towards long-term care needs.
Do you have multiple sources of income set aside for retirement including social security, a pension, and other income producing investments? Consider what your financial picture would look like if you set aside some of that income towards long-term care. Would you have enough to cover the daily costs you might need for an extended period of time?
Finally, for those who might tap all of their savings and assets to cover needed care, Medicaid will take over to cover nursing home care and, in many states, home health care. Medicaid will not cover assisted living. However, as U.S News points out, keep in mind that any potential inheritance may be used to pay back the government for long-term care expenses. For example, if real estate is sold, it may go to the government before the estate if Medicaid costs have not been recouped.
If you’re thinking about long-term care costs, take into account your portfolio, taxes, debts, and current and future health care costs when making a plan. In can be complicated and stressful. Talk with a financial professional who can help you navigate your options and help you sleep at night.