Long-Term Care Planning, Part 2
Posted on Mar 14, 2014 1:15pm PDT
Your Funding Options
The first part of planning for long-term care is realizing that, a) most
of us will need this kind of care for at least some time before we die
and b) the cost of this care can be financially devastating for a family
if it is not planned for in advance. This was covered in
Long-Term Care Planning, Part 1.
The next part is determining how you will pay for long-term care that may
be needed for you, your spouse or another family member.
The Key Takeaways
- Long-term care is not covered by health insurance, disability insurance
or Medicare.
- You have limited options when considering how these expenses could be paid.
- The best way to plan for the possible expense of long-term care is to accept
it as a central requirement in your overall financial planning and seek
professional assistance.
Who Pays for Long-Term Care?
Many people are surprised to learn that long-term care is not covered by
health insurance, disability income insurance or Medicare. Health insurance
plans cover nursing home expenses only for a short period of time while
you are recovering from an illness or injury. Disability income insurance
will replace part of your income if you are not able to work after a specified
time, but does not pay for long-term care. Medicare, which covers most
people over age 65, provides limited coverage for skilled care for up
to 100 days immediately following hospitalization. After that, you're
on your own.
How Will You Pay for Long-Term Care if Needed?
-
Use your own assets. This is called self-insuring. If you need long-term care, you will pay
for it from your own assets. If you don't need the care, then you
will not have spent money on insurance premiums. You can set aside a certain
amount of your assets for this specific purpose or have the expenses paid
from a general investment fund. Your financial advisor will be able to
help you make that decision, determine how much you might need, and help
you attain your goal through investments.
-
Buy long-term care insurance. This has traditionally been a good option, especially if you have assets
and income you want to protect, you want to avoid being a financial burden
on others, and you want to have some choice in the care you receive. Most
policies give you the option of receiving care in your own home or in
a private-pay facility. As with any insurance, the premiums are lower
when you are younger and in good health; if you wait too long, the cost
could be prohibitive and you might not qualify. In recent years, the premiums
have gone up on these policies because the insurance companies under-estimated
the actual costs. Your insurance advisor will be able to help you evaluate
current policies and determine if one is right for you.
-
Purchase life insurance and annuities with long-term care benefits. Some life insurance policies have accelerated death benefits that will
pay benefits if the insured has a care issue, as do some annuity products.
The premiums for these will be higher, but they may be worth exploring.
Your insurance advisor will be able to help you evaluate these options.
-
Qualify for Medicaid. Medicaid pays the bills for a large number of people in nursing homes
today. But because the program is designed to provide services for those
who cannot support themselves (children, the disabled, the poor), you
will have to "spend down" your assets and be practically penniless
in order to qualify for benefits. Your spouse will also be limited to
the amount of assets and income he or she can have, and you will only
be able to receive care from a facility that accepts Medicaid. (Most people
would prefer to receive care at home or in a private-pay facility.)
If you have minimal assets, this may be an option for you. However,
before you do anything, speak with a local elder law attorney who has experience with Medicaid
planning. Medicaid, while a federal program, is administered by the states,
so the rules vary from state to state. An innocent error could disqualify
you from receiving benefits for many months.
Explore a Medicaid Trust. When properly prepared, these irrevocable trusts can help some people
qualify for Medicaid without impoverishing the well spouse or spending
the children's inheritance. Five years must pass between the time
assets are transferred to the trust and when the person is deemed eligible
for Medicaid. This is known as the "look-back period." Long-term
care insurance is often used to cover the look-back period if care is
needed before qualifying for Medicaid. Assistance from a local elder law
attorney who has extensive experience with these trusts is absolutely
essential.
What You Need to Know: The benefit of planning for the possible costs of long-term care is the
peace of mind that comes from knowing that this care can be provided if needed without
destroying the financial well-being of the entire family.
Actions to Consider
- Find out the costs for long-term care in your area. Your professional advisors
(financial, attorney, insurance) will be able to give you some parameters.
- Talk with your spouse about the kind of long-term care you would each like
to receive if that time comes. Do you want to stay in your home? Do you
want to be in an assisted-living facility together for as long as possible?
- Talk with your advisors (financial, attorney, insurance) about your options
and make an educated decision that is right for you.
- Let other family members know about your decisions and your plans. This
will let them know your wishes, what they will need to do, and whom to
contact. It will also give them peace of mind.