There seems to be a lot of confusion over the right way to fund Long Term Care (LTC) or elderly care. I’m not a fan of confusion so let’s explore the top 6 options; their key benefit and their key downside risk.
Instead of confused or misled, you can be informed of the options. When you’re ready, select one or two and take a deeper look. Then, an informed decision can be made of what is right for you. Each option may not be right for every situation.
Long Term Care refers to extended in-home or in-facility care of elderly or totally disabled people. Of that, there are three main types:
- Skilled Nursing Facility (SNF) – for those who need round-the-clock care due to their medical condition.
- Assisted Living – for those who need help with 2 of the 6 activities of daily living.
- In-home care – for those who need help but want to stay in their own homes. For the purposes of this blog, we are not referring to specialized in-home care such as private duty 24 hour nursing.
Long term care does not include a brief stay for rehabilitation such as after joint replacement surgery or trauma surgery. That is usually called Rehab.
It is very important to note: Medicare and Medical Insurance does NOT cover long term care. Too many people plan to use Medicare for LTC, when Medicare does not include LTC.
Let’s look at the choices now:
Self-Pay
Self pay is when you use your savings, investments, annuities, or other funds/resources to pay the entire LTC bill out of pocket. This is the most expensive option since you pay 100% of the bill. A three year stay could top $300,000.
The benefit of self pay is that you only pay if you need LTC.
Approximately 7 out of 10 Americans end up needing LTC, so the downside risk of this choice is that 7 out of 10 will be spending a lot of money and depleting valuable assets which may be needed elsewhere in their financial plan.
Long Term Care Insurance (LTCi)
LTCi is insurance you purchase that covers all, or a portion of, the LTC bill. The remainder is paid out of pocket. This insurance can save tens of thousands per year for a nursing home resident. LTCi includes choices as to coverage amounts, timelines, inflation protection, and if in-home care is also covered.
The benefit of LTCi is that it protects valuable assets, reduces the out-of-pocket expenditures, and protects the person’s choice of care center. LTCi can reduce the out of pocket expenditure by 1/3 to ½ with the cost of premiums included in the calculation.
The downside risk is that 3 out of 10 people may be buying insurance they won’t use. If this concerns you, explore the option of premium refund in the event the insurance is not used.
Hybrid LTCi
Hybrid LTCi is insurance you purchase that combines life insurance with LTCi. This is designed to mitigate the downside risk of not using the LTCi prior to passing. It also includes many choices as to coverage amounts.
The benefit is life insurance remains after the policy holder has used the LTC benefit, or a larger life insurance payout if the LTC benefit isn’t used.
The downside risk of these is that the LTC benefit may be smaller and they don’t qualify as LTCi in what are known as ‘partnership’ states.
Home Care Insurance
This insurance covers in-home care. Some policies allow for payouts to family or friends acting as care-givers.
The benefit of this insurance is it is typically less expensive than LTCi.
The downside risk is that the payouts are not nearly as much as LTCi. And, of course, it doesn’t cover LTC facility care.
State Mandated LTCi
If you live in certain states, they have a law which will tax your income if you don’t have LTCi. I’m sure they are trying to offset the millions spent on LTC for those who go the Medicaid route.
The benefit of this is that you’d have LTCi if you needed it.
The downside risk is that the programs are new & untested; and, that the coverage may not be your choice. The location of your care may not be your choice either; but, that remains to be seen.
Time will tell if this program will be more hype and red tape or a good thing, won’t it?
Medicaid
Formerly seen as the last resort, there are now people who recommend that you plan to utilize Medicaid for LTC.
The key benefit of Medicaid is that it seems like it is free care because the state pays for it.
The downside risk is that it is NOT free at all: they make the choice of location for you, they take all your assets (including life insurance, pension, and Social Security income), and they assign a doctor to your case. Upon your passing, in many states, your former house now belongs to the state (or the portion of it which you used to own does).
While this isn’t the final word in LTC, it is enough to get you started on your LTC planning journey.
If you think LTCi will be a primary part of that plan, it is best to purchase that while you are young, healthy, and asymptomatic. The underwriting is thorough for LTCi and the premiums are much less for the young and healthy candidate, while the benefits keep pace with inflation based on options selected at enrollment.
As always, if you have a concern or question, we are here to assist. If not us, please choose a professional who is LTCi licensed in your state and offers the options available while working in your best interest.
©2023 Ronda Cobb, the Money Coach