Today, people are living longer and are consequently needing more assistance as they age. However, personal and health assistance services can be quite expensive, so it’s important to explore the options available to help pay for long-term care.
While health insurance covers expenses related to acute care, such as a trip to the hospital, it does not cover the cost of assistance over a long period of time, i.e. the rest of your life. Long-term care must be paid for out of pocket unless you qualify for government benefits or purchase some form of long-term care insurance.
While fees vary based on location and other criteria, long-term care can be pricey. To give you a general idea of the cost, the following are national medians for various types of long-term care services (Genworth’s 2017 Cost of Care Survey).(1)
Long-term care insurance can help protect a household’s assets so that the care of one family member does not devastate a lifetime of savings and the financial future of other members. The following is an overview of some of the options available to help pay for long-term care.
Medicaid and Medicare
Until recently, Medicaid was the only government-sponsored plan that paid for long-term care. It requires that beneficiaries first spend down their own assets to no more than $2,000 in order to qualify for coverage. Medicaid only provides coverage at traditional nursing homes, and not all facilities accept Medicaid patients.(2)
On the other hand, Medicare may pay for up to 100 days in a skilled nursing facility per benefit period and the first 20 days are paid up to 100%; days 21-100 required a co-payment.(3) Although in March of this year, the Centers for Medicare and Medicaid Services (CMS) issued a final rule giving Medicare Advantage (MA) plans the option to pay for certain long-term care services starting in 2019. Coverage specifics will be decided by individual insurers, but they may include home aides to help with daily living activities, such as dressing and eating amongst other personal care needs, as deemed medically appropriate by a licensed health care provider. Note that this new rule pertains only to MA plans, not original Medicare.(3)
“Medicare Advantage beneficiaries will have more supplemental benefits, making it easier for them to lead healthier, more independent lives.” (4)
– CMS Administrator Seema Verma
Veterans who served at least 90 days in the military during a time of war may qualify for long-term care benefits from the Veterans Aid and Attendance program. This lesser-known VA benefit provides up to $1,830 per month for long-term care assistance to a qualifying veteran and up to $1,176 for a surviving spouse. Note that the veteran must meet specific income and asset limit requirements.(5)
Qualifying veterans who do not need daily assistance, but have a permanent disability that leaves them isolated at home, may qualify for the Housebound benefit. This is an additional stipend paid to veterans who receive a monthly pension.(6)
Long-Term Care Insurance
Long-term care (LTC) insurance generally pays for daily assistance due to chronic illness, disability, or conditions associated with aging. Coverage is issued either as an indemnity policy, a fixed sum paid regularly for any use, or as a reimbursement policy for payments made to a long-term care facility, in coherence to contractual limits.
The criteria that determines when a policyholder qualifies for LTC benefits is based on specific “activities of daily living” (ADLs). To qualify, the policyholder must need help with at least two of the following ADLs(7):
- Personal hygiene — bathing, grooming, oral, nail and hair care
- Continence management — physical ability to properly use the bathroom n Dressing — select and wear the proper clothes for different occasions
- Feeding — food preparation and the ability to feed oneself
- Mobility — the ability to transfer from one position to another and walk independently
An LTC policy typically pays a fixed per diem for a nursing home, assisted living facility, home health care or some combination thereof. It may feature a waiting period before coverage kicks in, e.g. 90 days, and there is generally a limit to how long coverage lasts, typically three years.
Non-Traditional Insurance Options
Certain types of life insurance policies have evolved to include long-term care coverage options. LTC payouts may be available through a variety of plan models:
- Asset-based Long-Term Care: This type of insurance product combines a life insurance contract with a long-term care policy providing benefits for a long-term care need, and if not needed, then a death benefit will be paid out upon the insured’s death.
- Long-term-care rider: This may be added to a whole or universal life insurance policy for an additional fee and subject to separate underwriting. This coverage enables the policyholder to utilize the death benefit to help cover costs associated with long-term care should certain requirements be met.
- Chronic Illness Rider: This coverage can be purchased as optional protection to provide additional coverage should a chronic/non-recoverable illness occur.
- Terminal illness/Accelerated death benefits: These pay out a portion of the policy’s death if the policyholder is diagnosed with a terminal illness or cognitive impairment.
In all instances, the riders will reduce the death benefit, meaning that anything paid out for long-term care is deducted from the amount given to beneficiaries after the policyholder passes away. A rider for accelerated benefits generally adds 5% to 10% to the life insurance policy’s premium; although some insurers have begun to include this as a standard benefit.(8) It is also important to note that most life insurance proceeds are paid out on an income tax-free basis. Please check individual carriers and policies for full details.
Over the years, annuity contracts have also evolved to allow distributions to help with the expenses associated with long-term care, either from the cash account value or income account value benefits. Some may offer a provision referred to as a Long-Term Care Doubler or a Home Health Care Doubler. This feature permits the lifetime income benefit to be doubled and paid out for a limited time or for the duration of the long-term care stay.
Be aware that insurance policy guarantees are backed by the financial strength of the issuer. Life insurance and annuity contracts may include conditions and penalty fees, such as surrender charges, that can impact policy values. Also note that some insurance contracts may require medical underwriting for LTC benefits, possibly including but not limited to a health questionnaire and/or physical examination. To help stabilize prices, some insurers limit eligibility criteria to exclude people with multiple chronic health conditions or cognitive impairments.
The way we use a traditional long-term care insurance plan is similar to how we use auto insurance. You pay a premium and either use the coverage or not. If you do not use it, that money is lost. If you do use it, you could save quite a bit of money.
Today, there are plans that combine insurance goals, such as coverage for long-term care expenses, a steady stream of retirement income, and/or a death benefit for heirs. Good chances are that we’ll need one to all three benefits, so many people find there is less risk of paying for something they do not use. However, generally the more benefits offered, the higher the cost, so it’s important to work with an experienced professional to select an affordable solution that meets your specific needs.
1 Genworth. 2017. “Compare Long Term Care Costs Across the United States.” https://www.genworth.com/aging-and-you/finances/cost-of-care.html. Accessed July 11, 2018.
2 Maryalene LaPonsie. U.S. News & World Report. April 13, 2018. “6 Ways to Pay for Long-Term Care if You Can’t Afford Insurance.” https://money.usnews.com/money/personal-finance/saving-and-budgeting/articles/2 018-04-13/6-ways-to-pay-for-long-term-care-if-you-cant-afford-insurance. Accessed July 11, 2018.
3 Medicare, Medicare.gov, “Your Medicare Coverage” Accessed September 7, 2018 https://www.medicare.gov/coverage/skilled-nursing-facility-care.html
4 Susan Jaffe. Kaiser Health News. April 3, 2018. “Medicare Advantage Plans Cleared To Go Beyond Medical Coverage – Even Groceries.” https://khn.org/news/medicare-advantage-plans-cleared-to-go-beyond-medical-coverage-even-groceries/. Accessed July 11, 2018..
6 KerriFivecoat-Campbell.Forbes.May16,2018.“9WaysToPayForLong-TermCareWithoutBuyingInsurance.” https://www.forbes.com/sites/nextavenue/2018/05/16/9-ways-to-pay-for-long-term-care-without-buying- insurance/#1defe1f64bb7. Accessed July 11, 2018.
7 U.S.DepartmentofVeteransAffairs.“Pension.” https://www.benefits.va.gov/pension/aid_attendance_housebound.asp. Accessed July 11, 2018.
8 KindlyCare.com.“ADLsandIADLs:CompleteGuideToActivitiesofDailyLiving.” https://www.kindlycare.com/activities-of-daily-living/. Accessed July 11, 2018.
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