There’s a great deal of talk today about the “graying of America.” Thanks to advances in medical technology, many people are now living 20 or more years beyond normal retirement age. However, quite a few of these people must deal with poor health during those years. And, the increased longevity, coupled with expanded health care needs, can place enormous social and financial strain on these individuals and their loved ones.
Long-term care or the need for assisted living doesn’t just affect the elderly though. While nearly two-thirds of people over age 65 will need some type of care, either in a facility or at home, forty percent of the people receiving long-term care services are actually between the ages of 18 and 64. Even more people in this age bracket are affected by long-term care because they may be bearing the financial burden of supporting an elderly family member.
Families often go to great lengths to provide for their loved ones who, because of physical and mental impairments can no longer care for themselves. Often, when a family is unable to care for their loved one, they must rely on formal institutions, such as nursing homes or assisted care living facilities, to provide care and other services. This care can be extremely costly and not always easy to find.
How Much Does Long-Term Care Cost?
The median national monthly rate for a nursing home is $3,185. That’s over $38,000 per year. But this is just an average. The cost can run well into six figures per year in some areas of the country and for specialized care needs.
The good news is that many of those who need care are not sick enough to need skilled nursing home care. Often they can get by at home with the assistance of a home health care provider. However, with the average hourly cost of a home care provider at $19, this too can add up rather quickly. In fact, for someone needing round-the-clock care in their home, the tab can potentially run to over $160,000 per year.
What About Medicare and Medicaid?
Many are under the misconception that programs such as Medicare or Medicaid will pay for long-term care services. However, this is only partially true. In order to qualify for Medicaid long-term care coverage, one must be at the poverty level. The qualification amount differs from state to state. But on average, a single individual must have financial assets of no more than $20,000.
While Medicare does not require a financial asset test, it has several criteria of its own in terms of what qualifies a person for long term care services. For example, in order for Medicare to pay for nursing home expenses, a person must meet all of the following criteria:
- You must require daily skilled care which, as a practical matter, can only be provided in a skilled nursing facility on an inpatient basis
- You must have been in the hospital for three consecutive days, not including the day of discharge, before entering a skilled nursing facility that is certified by Medicare
- You must then be admitted to the skilled nursing facility for the same condition for which you were treated in the hospital
- You must also be admitted to the skilled nursing facility within 30 days of your discharge from the hospital, and
- A medical professional must certify that they need skilled nursing or rehabilitation services on a daily basis
Then, if all of these criteria are met, Medicare will pay for the first 20 days of facility care. For the next 80 days, Medicare will pay all charges except a daily co-insurance amount. That daily co-insurance amount required by the patient is $137.50. And, if more than 100 days of care is needed, the patient must pay all charges after day 100. Therefore, even if a patient meets Medicare’s requirements for nursing home coverage, they must still pay $11,000 out of pocket within the first 100 days.
How to Pay for Long-Term Care Services
With many families already financially stretched by every day bills, how can you prepare for the cost of a long-term care need?
One way is through the purchase of a long-term care insurance policy. Long-term care insurance protects assets, avoids dependency on government programs, and allows the insured to retain the freedom of choice in terms of where they receive care.
Long-term care insurance plans can cover care in a facility as well as care at the recipient’s home. This not only allows financial independence by having some or all of the costs paid for by the insurance, but also physical independence in that the recipient can remain in the comfort of their own home.
Tax Treatment: Premiums for long-term care policies will be treated as a medical expense and will be deductible to the extent that they, along with other non reimbursable medical expenses, exceed 7.5 percent of the insured’s adjusted gross income.
Once insured under a long-term care insurance policy, the care recipient is covered for a certain pre-set dollar amount of care expenses, for a certain period of time. Some policies even offer a lifetime coverage option, meaning that care costs will be insured for as long as the recipient needs it.
There are many ways to design a plan, making long-term care insurance affordable for most people. In fact, the policy premium could even be viewed as an investment that protects hard-earned savings dollars, and allowing those dollars to be used for other things such as basic living expenses, food, or travel.
Many people who have spent a lifetime building up savings are now being forced to drain those dollars to pay for the high cost of long-term care. But with long-term care insurance, individuals can be provided an instant payment source and an alternative to liquidating a lifetime of savings. So in addition to auto, home and life insurance; long-term car insurance is worth considering because a couple of hundred dollars a month is better than paying $100 to $200 per day when you get older and have a much smaller income.
5 thoughts on “Buying Long-Term Care Insurance To Save For The High Cost of Assisted Living”
The WSJ has some pretty damning numbers about the rising cost of long term care insurance. It’s amazing how these companies are trying to make so much money off poor seniors:
– John Hancock Financial said it would ask state regulators for an average 40% increase for about 850,000 of its 1.1 million policyholders. American International Group Inc., MetLife Inc. and Lincoln National Corp. have applied for or received approval in one or more states for rate rises ranging from 10% to 40%.
Nearly 8 million Americans have a long-term-care policy, and the average buyer is 57 years old and pays $2,150 in annual premiums!!! So any increase in this economy is painful when budgets are already stretched to the max!
My thoughts are similar to what Gerald said. It seems wiser to wait until you are older before buying the insurance. If you pay for years but can’t afford the premium when you are old you are out of luck.
This is in response to both folks that commented on Long Term Care Insurance. I work in the insurance industry and sell LTC often. I have seen people who are in situations like yourself who bought it when they were younger because it is less expensive. I am sorry that the agent who set you up with your plan was dishonest in telling you your premiums would never go up. I chose to be in the insurance industry because I have seen how it helps people. I have seen families loose loved one’s who are also the “bread winner” and seen the effects it has had on them. Loosing their home because they can no longer afford the mortgage. Loosing vehicles and having to spend all their investments just to make it by. That is just one of the many reasons I am so passionate about what I do. If that family would have had a Life Insurance policy, life would have been dramatically different. I am extremely passionate about helping people protect their assets and more importantly their families. That is also the reason I provide LTC insurance to the folks I meet with everyday. It is designed to protect your hard earned assets you have spent so long saving. It is designed to protect your family as well. Who has children that can not work to take care of them? No one I know. The point I am trying to make is that insurance is for the What If in life and to protect you and your loved one’s. Say what you want about people in the insurance industry but I know that there are people like me who are in this business to help people have the peace of mind we all deserve. Thank you for reading this and I hope you don’t write off insurance as a whole. Also for those of you who’s LTC premiums have gone up, do some research on newer plans. I would recommend John Hancock’s LTC policies as a place to start.
Another important point to note is that a public program is in the works, part of the health-care legislation (Obama-care) that was approved earlier this year. It is known as the Community Living Assistance Services and Supports, or CLASS, Act, it’s designed to help people plan ahead for when they’re disabled or frail and need assistance so they can stay independent as long as possible. And it’s meant to supplement other funding sources, such as personal savings, family caregiving and private long-term-care insurance.
The program — which will be funded by premiums, not tax dollars — is expected to work like this (according to the WSJ): If a company agrees to participate, workers will be automatically enrolled in the program unless they opt out. People who are self-employed or whose employers choose not to participate will be able to enroll through a different mechanism. All participants will have to pay monthly premiums for five years, have some employment for three of those first five years and have a qualifying disability in order to be eligible to receive the benefit.
The benefit amount is expected to be no less than an average of $50 a day and will depend on the degree of a recipient’s impairment. The money can be used for a variety of home-based services, technology and home retrofitting, respite care, assisted living and nursing-home care. No medical underwriting will be required and there will be no lifetime benefit limits.
The Congressional Budget Office estimates that monthly premiums will average $123, or about $1,500 a year. The Secretary of Health and Human Services is expected to set regulations by October 2012, with enrollment beginning shortly thereafter.
The other item is when to buy the insurance policy. When I was looking around I found that it actually made sense to wait until one is 55+ before buying a policy, even factoring into the cost the fact that the younger you are when you take out the policy, the lower your premium will be. However, since it is very rare for anyone under 60 to need nursing home care, there is no need to pay for the coverage you won’t need. So buying around 55 – still gives you a competitive premimum without the years of money down the drain. On the other hand, the longer you wait, the higher your premium will be so don’t procrastinate once you reach 60. The other thing to remember is to factor in inflation and get a rider in your policy to cover this. The coverage you buy today may not be needed for years. Assuming 5% inflation, monthly care expense of $4000 will escalate to over $12,000 in 20 years.