- 5-Minute Article
- Mar 15, 2019
Paying for Long-Term Care: Your Options
Help protect yourself and your family by planning how you’ll cover potential long-term care costs.
Planning ahead for healthcare costs – including long-term care expenses – in retirement can offer the peace of mind that you and your family are prepared for whatever needs may arise.
Of Americans age 65 or older, 1 in 2 will need long-term care services at some point.1 Long-term care is a general term for a wide range of services that you may need if you’re chronically ill, making you unable to independently perform at least two of the six activities of daily living: bathing, continence, dressing, eating, toileting, and transferring (for example, getting in and out of a chair or a bed).
When it comes to paying for long-term care, health insurance and government programs, such as Medicaid and Medicare, can be limiting. That means that for most, there are really only three viable options for paying for long-term care: paying out of pocket, relying on your family’s finances, or having long-term care coverage. Here’s a closer look at all payment options.
Medicaid: Consider income restrictions
Plan source: Government
What it is: Medicaid is a joint federal and state program that pays for nursing 数字货币钱包app下载_合约交home care and some 数字货币钱包app下载_合约交home and community-based services for people who meet certain income and asset limits.2
States have different financial requirements for Medicaid eligibility, but most use the guidelines set by the Supplemental Security Income program.
Medicare: Understand limitations on care services
Plan source: Government
What it is: Medicare is the federal health insurance program for:
- People who are 65 or older
- Certain younger people with disabilities
- People with certain diseases
Medicare Part A may pay a portion of costs for someone staying in a rehabilitation center or “skilled” nursing facility – which is where certain procedures can be performed only by a registered nurse or doctor – but only for a limited number of days.3
Health insurance: Evaluate availability and coverage limitations
Plan source: Insurance company
What it is: Most health insurance plans don’t pay for long-term care, but if they do, they typically cover only skilled, short-term, and medically necessary care.4
Paying out of pocket: Anticipate potential costs
Plan source: Your financial resources
What it is: Paying for long-term care out of pocket, known as self-insuring, may require setting aside a portion of your retirement assets to pay for future care.
The costs are substantial. In 2017, one year of skilled nursing 数字货币钱包app下载_合约交home care averaged $82,855. Skilled nursing residences offer around-the-clock care by licensed health professionals, including housekeeping, medical, and social needs.5
If you’re considering paying out of pocket, it’s key to understand the costs involved.
“With paying out of your own assets, if you have a certain wealth status, that probably is doable,” said Brian Gordon, president of an Illinois-based, family-owned insurance firm that has specialized in long-term care planning since 1975.6 “But what’s the reality of doing that out of your own assets?”
Gordon recalled someone who went through nearly $3 million in assets over a 19-year period – something that person wasn’t expecting.
“So now the family pays for the care,” he said. “They’re fortunate that they can afford it.”
The key is having a well-thought-out and documented plan in place if you decide to self-insure.
Gordon recommends working with a financial advisor regarding any plans to liquidate assets.
Family income and assets: Discuss what is possible
Plan source: Others’ financial resources
What it is: Relying on your family’s income and assets to pay for long-term care is similar to self-insuring. It may be another option for some, but it does pose some challenges, Gordon said.
“You always want to have these conversations with your family first to make sure that they could provide for you,” Gordon said. “You may think your family’s doing wonderful and saving all this money, but the reality is different. It could turn out they really don't have the money to help their parent or sibling.”
Long-term care insurance: Evaluate if the options are a good fit for you
Plan source: Insurance company
Another option is purchasing a long-term care insurance policy, which can help avoid tapping into money you may have set aside for passions and pursuits such as travel.
You have two main options for long-term care insurance: hybrid or traditional policies.
What it is: Hybrid life insurance with long-term care benefits
A hybrid life insurance policy provides long-term care coverage if you need it. Even if you don’t use the long-term care coverage, loved ones can get a death benefit.
Gordon described that as a reason some of his clients are favoring hybrid life insurance policies: They get value from the policy no matter what.
This option has grown increasingly popular in recent years. Sales of hybrid life insurance policies with long-term care coverage rose from $210 million in 2012 to $480 million in 2016 (the latest available data), according to LIMRA, an insurance industry marketing research firm.7
What it is: Traditional long-term care insurance
With traditional long-term care insurance, you typically pay an annual premium, and if you need long-term care, you can claim benefits. Although it depends on the insurance company, you can also choose the amount of coverage you want and specify the period you want the benefits to be in effect.8
Premiums, however, may not be guaranteed to stay the same. Even now, traditional long-term care insurance rates continue to rise regularly.9
The bottom line is that one size doesn’t fit all when it comes to paying for long-term care, Gordon said.
As people plan, “They have to look at the financial side of what makes the most sense for them.”
Download our full questionnaire to help prepare for meeting with your financial advisor. It contains basic information on hybrid life insurance with long-term care policies and questions to ask to help determine what best suits your needs.