Long-term Care And Financial Considerations

As you’ve seen, long-term care is expensive. Even a temporary stay in an assisted living facility can derail years of careful financial planning. Although costs may vary significantly depending upon where you live, a family’s assets can be quickly depleted.

According to the U.S. Department of Health and Human Services, one year of care in a nursing home (based on the 2006 national average) will cost over $62,000 for a semi-private room. One year of care at home, assuming someone needs periodic personal care help from a home health aide (the average is about three times a week), could cost almost $16,000 a year. I’ve seen folks spend close to $100,000 per year on 24-hour in-home care.

When my father died in 1989, my mom invested what he left her and did well. She thought she had planned for everything, including adjusting her expenses to be comfortable for many years. The one thing she didn’t plan for was an illness that required long-term care, where all expenses are paid privately. While she was fortunate that my father planned for her, the growing expenses continue to be a growing burden. Each year, the financial-related stress increases.

I’ve spoken to many people in similar situations. Those who don’t have the financial ability to pay for their assisted living solution, through asset allocation or long-term care insurance may find themselves forced to depend on their family to pay their bills – and that can be devastating.

It is imperative that you assess where the money can be found to implement any forthcoming decision regarding a specific assisted living location and I urge you to do so early on in the process.

What are the costs of long-term care?

And costs for long-term residential care services vary greatly depending on the type and amount of care, the provider, and in which state your loved one resides.

It is a surprise to some that ordinary health insurance policies and Medicare usually do not pay for long-term care expenses. I repeat: ordinary health insurance policies and Medicare do not pay for long-term care expenses.

Medicare pays only about 2% of all nursing facility costs, and nothing at all for residential care. Medicaid, a federal/ state health insurance program, will only pay for long-term care if the person has already spent most of their savings or other assets, and Medicaid pays nothing at all for assisted living or residential care facilities.

The average stay in a long-term care facility, according to the government findings, is about three years.

Private Long-Term Care Insurance

According to the U.S. Department of Health and Human Services (2007), at least 60 percent of people over age 65 will require some long-term care services at some point in their lives. The Department estimates that about 12 million Americans over the age of 65 will need long-term care services by the year 2020. This same study found a person may need long-term care services at any age: Forty percent of people currently receiving long-term care are adults 18 to 64 years old.

At costs ranging from $60-100,000 a year, you can easily see why Long Term Care insurance is of interest to many Americans – but as you age, it can become prohibitively expensive. According to Dianne Duva, Certified Financial Planner and Senior Financial Advisor for the JWS Group, Merrill Lynch, there’s a ‘sweet spot’ for purchasing this coverage: that optimal age where you’re not so old that such coverage is prohibitively expensive, and not so young that you’re paying needlessly for insurance you won’t use for many years.

Policy Parameters

Benefit Amounts: Policy benefits may be paid on a daily, weekly, monthly, annual or other basis. For example, a policyholder may receive $100 per day to cover their nursing home costs or $350 per week for home health care. It is important to know the average cost for nursing home care in the area before selecting a benefit amount for your loved one’s policy.

The Elimination Period: Most policies include an elimination period of 20, 30, 60, 90 or 100 days. This means that a policyholder will not receive benefits until after the elimination period has passed. Policies with longer elimination periods cost less than policies with shorter elimination periods.

The Benefit Period: This is the length of time that benefits will be received from the policy. Benefit periods can range from one year to life.

Lifetime Maximum Benefits: Most plans have a total maximum benefit paid over the length of the policy’s duration.

Inflation Protection Rider: Without inflation protection, policy benefits may be much lower than what is actually needed down the road to maintain your loved one’s standard of living.

Naturally, your loved one may not have had the opportunity to purchase such a policy. After all, we’re talking about “at-need” situations, not “pre-need.” If your loved one needs assisted living right now; paying for it has become a major issue in the present.

What’s next?

It’s time to look closely at your loved one’s assets and income. When families get together to talk about money, emotions can run rather high; it may prove useful to bring in the family attorney, accountant, or other objective third party to assist you.

You’ll quickly discover (unless your loved one has been extremely attentive to these details) that the financial and ownership records you’ll need are to be found in different places: safety deposit boxes, checking or savings accounts in different banks, stock portfolios held by different brokers; pension records, mortgage documents, deeds of trust. It’s time to get them all organized and accounted for.

Photo Credit: Images_of_Money

Long Term Care Series – Part 4: Preserve Your Choices

Patrick Cloyd has already shared with us the financial importance of long-term care (LTC) and illustrated the gamble one takes by not having it. As I mentioned in a previous post, my family has scars on our backs from not having this important protection.

In the final part of our series on LTC insurance, Patrick asks you to consider some critical questions as you decide whether or not LTC insurance is right for you.

Preserve Your Choices with Long-term Care Insurance

By Patrick Cloyd
State Farm® agent
(410) 766-4488

Choices. Most people value the ability to make choices. Whether choosing the car you drive or where you live, choices mean flexibility. You probably want that same flexibility when making choices about your future – especially when it comes to health care. Having long-term care insurance will help preserve your ability to make these important choices.

[Read more...]

Long Term Care Series – Part 3: Gambling on LTC

In the third part of our series on long-term care (LTC) insurance, Patrick Cloyd shares with us a real-world example of the gamble one takes by not having long-term care insurance.

Here’s Patrick’s article:

Gambling on Long-Term Care:
Study shows many not prepared for likely need

Patrick Cloyd
State Farm® agent

(410) 766-4488

A 48-year-old father of two is left with permanent injuries after an auto accident. A 66-year-old recent retiree suffers a serious stroke. An otherwise healthy 75-year-old grandfather falls and breaks his hip. These people have one thing in common. Quite unexpectedly they’re each likely to need some form of long-term care, through nursing care at home, in a nursing home or at an assisted living facility.

[Read more...]

Long Term Care Series – Part 2: Costly Misconceptions

As you all know, I’ve been running a survey to investigate, among other things, assisted living preparedness.  One of the most frequently cited issues is that of long-term care insurance and the ability to afford assisted living.

Most People Mistakenly Believe Long-Term Care is Covered

In the second part of our series on long-term care (LTC), my good friend Patrick Cloyd has shared a number of misconceptions about LTC.  While the statistics may be startling, I’m glad he’s shared these common misconceptions so we can address them with proper coverage.

Here’s Patrick’s article in its entirety:

Costly Misconceptions:
Most People Mistakenly Believe Long-Term Care is Covered

By Patrick Cloyd, State Farm® agent
(410) 766-4488
Have you failed to get insurance for long term care in a nursing home because you think you already have coverage? If so, you’re like a lot of other people, according to a Roper survey of Americans 45 years of age and over, recently released by the American Society on Aging (ASA).

That misconception can become costly when you consider long-term care in a nursing home currently averages $56,000(i) a year, according to the US Government, and is expected to quadruple by 2030(ii). People could easily find their assets depleted, their choices limited and their independence gone if they need long-term care but have made no plans to pay for it.
And chances are good they will need long-term care. Statistics released by the Health Insurance Association of America say that after age 65, Americans have more than a 70 percent chance of needing some form of long-term care, whether it’s an aide coming to their home, a stay in an assisted care facility or an extended stay in a nursing home.(iii) Younger people may also need long-term care if they’ve had a stroke, for example, or been in an accident.
“This survey confirms that Americans need to wake-up to the realities of long-term care,” said Jim Emerman, senior vice president of the ASA. “All it takes is a phone call to a financial services professional to find out the truth behind the misconceptions so many have about long-term care.”
Some of the common misconceptions uncovered in the Roper study(iv) are these:

  • Forty-two percent were not aware
  • Medicare only covers long-term care expenses for a short time, and only after someone is released from the hospital.
  • Thirty percent were not aware Medicaid coverage for long-term care is only available after someone’s financial resources are exhausted.
  • Almost half (46 percent) are under the impression their health insurance will automatically cover long-term care.

It’s dangerous to assume you’re covered for long-term care. When the need for a nursing home stay or other long-term care arises, you may discover you’re not covered and have waited too long to buy insurance. Long-term care insurance is an important part of a financial plan. I urge people to speak with a financial services professional about their need for long-term care insurance now, before it’s too late to get coverage.

(i) Estimates from: Health Care Financing Administration, Office of the Actuary, National Health Statistics Group. As presented in, “Nursing Homes.” AARP Public Policy Institute Fact Sheet. February 2001: pg. 3.
(ii) Can Aging Baby Boomers Avoid the Nursing Home? Long-term Care Insurance for Aging in Place.” American Council of Life Insurers. March 2000: pg. 15.
(iii) Lewin Group estimates based on the Brookings-ICF Long-term Care Financing Model, 1992. As cited in, “Long-term Care: Knowing the Risk, Paying the Price.” Health Insurance Association of America (HIAA). 1997: pg. 12. The level of coverage provided by long-term care insurance depends on the type of policy you purchase. Some types of care received may not be covered by long-term care insurance.
(iv) Study conducted by Roper ASW, August 2002. Released by State Farm Mutual Automobile Insurance Company and the American Society on Agency (ASA), April 2003.
State Farm Mutual Automobile Insurance Company Home Office: Bloomington, Illinois – statefarm.com®. The American Society on Aging is not an affiliate of State Farm®. The Long-Term Care Insurance policy 97058 is underwritten by State Farm Mutual Automobile Insurance Company.

Long-Term Care Series: Few Are Planning For Long-Term Care…A Mistake – Part 1

Another tool underutilized by many families is long-term care (LTC) insurance. This author unfortunately has

Long Term Care Insurance is Underutilized

Long Term Care Insurance is Underutilized

scars on his back due to not having LTC insurance, so I want to ensure that we spend adequate time addressing it from a variety of different angles.

What is LTC insurance? In the event your loved one requires long-term care – assisted living, nursing home or others — LTC pays a benefit to offset the cost. As with many life event insurance policies, LTC insurance is easier to get and less expensive if you get it earlier in life.

Understanding Long-Term Care Insurance

The most logical place to start is from the viewpoint of a major insurance company. A dear friend of mine for over 15 years, Patrick Cloyd is an agent for State Farm. He agreed to provide me some introductory materials so that you learn some of the basics about LTC insurance.

This post is not intended to be a pitch for State Farm. Rather, I thought it would be useful to understand the need for LTC insurance from the perspective of an insurance company. Since these articles were written by Patrick, I am posting them in their entirety.

[Read more...]