Long-Term Care

What is Long-Term Care?  Long-term care is the service provided by someone helping you manage your day to day routine.  Typically this would occur if you could not perform several activities of daily living (commonly referred to as ADLs) on your own.  These ADLs could include eating, dressing, bathing, toileting, or ambulating.  Cognitive impairments such as Alzheimer's or Parkinson's could also warrant long-term care.  Those receiving this care could reside at home, an assisted living facility, or a nursing home.

What are the Costs?  Several factors affecting the population today make long-term care and the costs associated with this care a growing concern.  According to a study by the U.S. Department of Health and Human Services, approximately 40% of those aged 65 and over will need some form of long-term care during their lives.  A recent study from Genworth estimates that private nursing home costs average nearly $84,000 per year and that stays last longer than 2½ years.  You can see the potential for your retirement assets to suffer greatly if you required nursing home care.  Worse yet, the costs could escalate should you require in home or assisting living care prior to or after your stay in a nursing home.

What are Your Options?  Depending on the level of your assets and income, you may elect to self-insure, spend down your assets and rely on Medicaid, or purchase long-term care insurance.  For those who have a higher net worth, you may be planning on using those assets for your long-term care needs.  If you are single and not planning on leaving an inheritance, you may also decide to spend down your assets to provide for your care.  Using your own assets and income for long-term care provides you with the greatest flexibility on when to begin care, what type of care you receive, who provides the care, and where the care is administered.  The downside to self insuring is that you may wind up using most or all of your assets to provide for your care.

Often people with more limited assets and income may rely on Medicaid to cover their long-term care expenses.  Medicaid will require that you spend down your assets and leave you with minimal income should you require their benefits.  Medicaid does allow a spouse to maintain some income and assets while his/her spouse is receiving Medicaid paid long-term care.

If you want to protect your assets, your income, and your right to choose your options for care, you may want to look into long-term care insurance.  When purchasing insurance, you often have the ability to choose your elimination period (length of time before benefits begin), length of coverage, benefit amount, inflation protection, and level of home care (other benefit options may also be available).  By adjusting the options, you may create a policy that helps to meet your protection needs while fitting into your budget.

If you decide to look into insurance, make sure you compare "apples to apples."  All too frequently policies proposed by insurance agents and group policies appear to cover all of your needs at a discounted rate.  Insurance agents will often show you insurance estimates that include discounts for which you may or may not qualify.  Group policies often provide reduced benefits to minimize their costs. 

Since I have been in the industry, I've noticed a distinct trend with regard to long-term care insurance.  The benefits seem to be decreasing while the cost of coverage increases.  In some cases insurance companies have been increasing premiums for people who already have policies in place.  If you are deciding whether or not to get insurance, you may want to make your decision sooner rather than later.  I also suggest leaving room in your budget for possible future rate increases.

If you have a higher net worth and want to protect some of your assets yet don't like the idea of annual premiums that could increase, you could look to a life insurance policy that contains a long-term care benefit.  Often these policies allow a single, upfront premium to cover the cost of the insurance.  In exchange, the insurance company will provide a benefit payable at your death (usually higher than your initial premium payment), long-term care coverage, or the ability to withdraw some or all of your initial premium and cancel the policy.

I suggest finding a trustworthy advisor who can thoroughly explain all of your options.  Your advisor should offer coverage through at least one reputable company, present proposals without health discounts (hopefully you will qualify for those later), and who can compare his/her policy against your other private and group policies.  Most importantly, you should trust that this advisor will let you know if another company's policy is better for you.

Woody Derricks, CFP®, ADPA(sm)