Words: Artie Bernaducci
The 4 Myths About Long-Term Care that Could Cost You
If you haven’t discussed long-term care with an insurance/financial professional, it could be that you’ve been exposed to several myths about long-term care and what pays for it. But relying on these misnomers can lead to some unpleasant – and costly – surprises that could come when it is far too late to do any viable planning.
- “It won’t happen to me.”
It’s no fun to face our mortality – and because of this, it’s human nature to think that bad things are more likely to happen to others than to yourself. So, it isn’t surprising that most people don’t consider their own potential need for long-term care services.
But the reality is that someone who is turning 65 today has a nearly 70% chance of needing at least some type of long-term care services and support in their remaining years.
Even though individual situations can vary, on average, women need care for 3.7 years, and men need it for just over two years. And, while there is a chance that you won’t need any type of long-term care at all, 20% of those who require it will need care for longer than five years. So, it’s not out of the question to need $500,000 or more over the period that someone requires long-term care services. (Source: longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html)
2. “Medicare and Medicaid will cover long-term care expenses.”
While Medicare is a healthcare program for those aged 65 and over, this coverage pays very little – if anything – for long-term care. There is a long list of criteria to meet to qualify for long-term care coverage through Medicare. But even if you do qualify, you could still have substantial out-of-pocket expenses. In 2020, your coinsurance amount could be:
- Days 1 – 20: $0 (for each benefit period)
- Days 21 – 100: $176 per day coinsurance (for each benefit period)
- Days 101 and beyond: You are responsible for all costs (Source: medicare.gov/coverage/skilled-nursing-facility-snf-care)
Medicaid is a separate government program. While this program may pay for care that you receive in a nursing home, to qualify, you would need to spend down your assets – including real estate and annual income – to position yourself in a way that demonstrates your need for government support.
3. “I have enough to self-insure.”
Many people feel that they would be able to cover long-term care expenses out-of-pocket. But unfortunately, doing so could end up causing financial hardship in several areas, such as:
- By accessing funds in savings or investment accounts, it could cause a taxable event.
- With an indefinite time frame, ongoing care could result in spending much more than initially anticipated.
- For married couples, paying for care out of personal assets could leave very little – if anything – for the healthy spouse to use for their ongoing living expenses and/or future care needs.
4. “My spouse/family will take care of me.”
Even though many people have good intentions in mind when they offer to care for a loved one in need, most people underestimate the substantial physical, financial, and emotional toll it can take.
According to an AARP “Family Caregiving and Out-of-Pocket Costs: 2016 Report,” it is estimated that caregivers spend an average of just under $7,000 of their own money for costs related to caregiving. To cover these extra expenses, many family caregivers must pare back their spending on items such as:
- Saving for their retirement
- Leisure spending and activities
- Eating out at restaurants
- Vacations (Source: www.aarp.org/caregivercosts)
Caregiving for a loved one can also take time away from other family members and friends, as well as induce physical, emotional, and work-related strain.
In addition to dispelling these common myths, it is also essential to keep in mind that long-term care costs are continuing to rise by approximately 3-4% annually. So, if you’re age 65 today, and you don’t require long-term care services for another 20 years, how would that impact your savings?
Likewise, if you’ve already got a long-term care plan in place, will it still be able to cover your future potential needs, based on the increase in care costs?
Cost of Care Trends (2004 – 2019)
|Category||2004 Cost||2019 Cost||Total $ Increase||Average Annual $ Increase||Total % Increase||Average Annual % Increase|
|Private Room in a Nursing Home|
|Assisted Living Facility|
|Home Care Home Health Aide|
|Home Care Homemaker||$38,095||$51,480||$13,385||$892||35.14%||2.06%|
Source: Genworth 2019 Cost of Care Survey
With that in mind, it is vital to review your long-term care plan regularly, just like you would your retirement plan, to make any adjustments and to determine whether or not it is still on track. And if you don’t yet have a plan to pay for long-term care, it’s also important to regularly reevaluate your situation over time.
So, I’d like to share an example with you I know of and am changing their names for privacy reasons: Bill and Barbara, both in their early 60s, have been active all of their lives – he has a passion for golf, and she has weekly tennis matches with her three best friends.
They both receive stellar results from their yearly physicals. So, even though their advisor asked them about long-term care insurance several years ago, the couple decided against it – primarily due to the high premiums. They opted to instead use that money for traveling around the country to visit their grandchildren.
About a year ago, though, Bill’s sister-in-law called to let the couple know that Bill’s brother Pete had been involved in a car accident. Pete’s right leg was completely shattered, requiring several surgeries and three months in the hospital – followed by rehab for another three months at a local nursing facility.
During Pete’s stay at the nursing home, he qualified for Medicare’s skilled nursing facility benefit. But even so, because Pete was there for over three months, his out-of-pocket coinsurance still cost him over $14,000. (In 2021 it would be: $185.50 per day X 80 days = $14,840).
Then, after Pete returned home, he required assistance with bathing, getting dressed, and even moving from bed to the living room recliner. But, with the cost of a home health aide being $4,000 per month in their area, Pete and his wife are having trouble paying for that and their day-to-day living expenses.
Unfortunately, Pete’s wife has had to take up some of the slack. But being a relatively small woman, she struggles to help her husband get around – and as each day goes by, she can feel her health starting to decline.
Not wanting to face the same situation, Bill and Barbara set up another meeting with their advisor. They told him they wanted protection from potential long-term care expenses but didn’t want to pay into a policy that goes unused.
Their advisor showed Bill and Barbara an alternate solution – a “hybrid” insurance plan that provides long-term care coverage within a life insurance policy. With this option, the couple could pay one single premium, or instead, they could opt to make a series of premium payments over time.
If long-term care is needed, the death benefit from the policy may be accessed tax-free. But, if no long-term care is required, the policy’s death benefit would be paid – also tax-free – to a beneficiary.
The advisor told Bill and Barbara that they would each likely qualify due mainly to their excellent health and active lifestyles. Unfortunately, when Bill asked if his brother Pete could also purchase a plan like this, the advisor told him that it was too late for him to apply due to Pete already requiring long-term care.
Need More Information About Protecting and Keeping Your Future Retirement Lifestyle Healthy – Even If You Require Long-Term Care in the Future?
This article Is personal for me because I took care of my mother for two years after she had a stroke, and we used up a lot of her savings because she didn’t ‘believe in insurance.’ The funny thing is she wanted it AFTER the stroke. It doesn’t work like that!
Living longer is undoubtedly great news – but only if we have a financial strategy in place that accounts for a retirement that could last for 30 or more years, including solutions for potential long-term care needs.
If your life savings are at risk to a potential long-term care need, your lifestyle – and your future – could change in the blink of an eye. The more you know about the options available for insulating your financial security, the better.
Not all long-term care solutions are suitable for everyone. First, it is always recommended to discuss options with a financial professional who can help determine a strategy that would work for you based on your specific goals and objectives.
Please take this message to heart and whether you know a good financial professional or not, contact me with any questions, and I will do my best to help you out.