FINANCIAL LIFE | SPRING 2010 EFFECTDo You Have a Financial Plan for Long-Term Care?
by Lynn F. ClarkAbout 70 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime, and more than 40 percent will need care in a nursing home, according to the U.S. Department of Health and Human Services (HHS). Long-term care is different from medical care. Where medical care is treatment to improve or correct heath problems, long-term care deals with one’s current situation and activities of daily living (ADLs), such as bathing, eating, dressing, toileting, and transferring.
The demand for these services can vary. One patient may need assistance with ADLs for a short period while recovering from an illness or injury, while someone else might require ongoing services due to a debilitating disease or illness, such as a severe stroke. And when more extensive health care or supervision is required, a move to a nursing home or similar facility may be necessary. In addition to ADLs, people with cognitive impairments also need specialized care.
Long-term care can be expensive. According to the 2009 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services and Home Care Costs, in 2009, the national average cost for an assisted living facility was $37,572 per year and $72,270 per year for a nursing home with a semi-private room. The costs for in-home care ranged from $19 to $21 per hour, reported the study. If you need services, how will you pay for them?
Troubles with relying on Medicare and Medicaid
Often people look to Medicare to pay for long-term care, but the services are limited. For example, the skilled nursing facility (SNF) benefit does not cover most nursing home care, and it only pays for certain care needed after a hospital stay. Because of these restrictions, Medicare should not be relied upon to pay for long-term care.
While Medicaid is an option, you must meet federal and state guidelines for income and assets. State laws differ, but you may have to spend down most of your wealth before Medicaid is able to help. For example, to qualify for the Arizona Long Term Care System (ALTCS) Medicaid program, a person must meet both medical and financial criteria. An unmarried applicant can have a home, an automobile, household items (such as furniture), prepaid burial benefits, and a few other items. But his or her total assets must not exceed $2,000 in value.
State laws differ,
but you may have to
spend down most of
your wealth before
Medicaid is able
to help.
Consider insurance
Many people use personal savings and investments to pay for their care, often by making significant financial decisions like selling a home or taking a reverse mortgage. Another option is to obtain one of the many different types of long-term care insurance (LTCI) policies, which can help pay for some or all of your medical costs. But this route may not be right for everyone.
Protecting your assets
Many people who own long-term care insurance policies purchased them to help protect their estate in the event of a long stay at a nursing home or a catastrophic illness. If you have assets you wish to pass on to the next generation, you may decide to purchase a policy to protect them. Or you may choose LTCI because you wish to take care of yourself as long as possible and not be a burden on your children.
Possible deductions
Some long-term care policies are “qualified,” which means if they meet certain criteria established by the federal government, the premiums may qualify for a medical expense itemized deduction. The deductible amount each year is limited, so check with your tax advisor. In addition, the benefits received from a “qualified” long-term care policy are generally excluded from income (see IRC Sec. 7702B).
Protecting against inflation
Another important feature of long-term care policies is inflation protection. Let’s say you selected a contract with a 5 percent inflation rider; each year the monthly benefit is increased by 5 percent, so it grows over time to keep up with inflation. This protection is important as medical costs increase year after year. Also, a policy may be guaranteed renewable, which means the insurance company cannot cancel your policy as long as you pay your premiums on time and were truthful about your health on the application. However, even if you have a guaranteed renewable policy, the premiums can be increased—but they would be raised for an entire class of policyholders, not just one person.
Some may not qualify
If you are in good health and currently do not need assistance with ADLs, you will likely qualify to buy long-term care insurance. Nevertheless, there are conditions that may prevent you from obtaining insurance, such as Alzheimer’s or rheumatoid arthritis. In addition, a policy may limit coverage of pre-existing conditions. If you don’t qualify for this type of insurance, other options may still be available.
Make a plan now for a smoother future
Remember that each person’s situation is unique so this information should not be used as advice to purchase or not to purchase long-term care insurance. If you decide that it is worth your consideration, it is important to work with an experienced insurance professional to help sort through different policies, premiums, and features, and discuss any conditions that may be of concern.
No matter what you decide, you should have a plan and that plan should be in writing. Knowing how you will pay for long-term care as you age will put your mind at ease and ensure your family knows your wishes.
One should not rely on this information for the primary basis of investment, tax or financial planning. General market information does not take into account such factors as an individual’s goals, objectives, risk tolerance, tax situation, age, or time frame. We believe the information obtained from third-party sources to be reliable, but neither LarsonAllen Financial, LLC nor its affiliates guarantee its accuracy, timeliness, or completeness. The views, opinions, and estimates herein are subject to change without notice at any time in reaction to shifting market conditions. Tax laws change and investments in the stock market entail risk and potential loss of principal. Past performance is no guarantee of future results. This material may not be republished in any format without prior consent.