November is Long-term Care awareness month. So, what is Long-term Care insurance (LTCi) and who needs it? LTCi is insurance to help pay for a care facility because a person can’t perform 2 of the 6 activities of daily living: transferring, continence, dressing, toileting, bathing, and eating.
There are many levels of care ranging from independent living to assisted living to a full-blown nursing home. Going into a care facility for independent or assisted living is mostly a personal decision to be closer to peers or to not be a burden on one’s family. When a person gets to the point that their families are unable to care for them because of physical or mental impairment, they go into a nursing home.
The costs of a care facility correspond with the level of care that is needed. In Utah, the average cost of assisted living is about $3,000, with the average cost of a nursing home being $5,500 per month. Secure units for Dementia or Alzheimer’s patients can cost $7,000 to $9,000 per month. A patient with Dementia can expect to pay about $341,000 in their final five years of life.
Another scary statistic is that 52% of people age 65 will have a long-term care need in their lifetime. However, keep in mind that this statistic encompasses any stay in a care facility ranging from a few days to years. Men and women turning age 65 have a 22% and 36% chance respectively of needing more than one year in a nursing home. Whether you will have an LTC need will depend on factors such as age, lifestyle, and family heredity.
To protect from these risks, you can either self-insure by dedicating assets to medical care or by purchasing LTC insurance. If you self-insure, you should designate about $300,000 per person for LTC. If you purchase a traditional LTC policy, the optimal age is between 55 and 60, with costs ranging from $50-$200 per month depending on the level of coverage that you get. If you wait until age 65, those costs will double. By age 70 the costs will be about quadruple that amount. LTCi is also costlier for females. There are many different types of long-term care policies, which are beyond the scope of this article. If you have questions about what benefits to look for, please call one of our Wealth Managers.
Keep in mind, even if you don’t have insurance, there is still a backup plan through Medicaid, which is assistance for low-income people of every age. A common misconception is that Medicare (i.e. health insurance for age 65+) will pay for Long-term Care. Medicare will only pay for the first 100 days in a care facility IF that stay is preceded by a hospital stay of at least three days and the condition for admission is the same.
To receive assistance through Medicaid, you will be required to spend down your assets first. The rules are complicated, but generally speaking a spouse will be allowed to keep $102,000 after all other assets are spent down. If you’re single you can only keep $2,000, which may include selling your home. Once your assets are spent down, Medicaid will cover all other costs in a facility that accepts Medicaid patients.
There is also a 5-year look-back rule that will require you to count as assets anything given away in the last five years. So, you can’t gift away all your assets to family 6 months before you need to go into a care facility and then have Medicaid pick up the tab.
Whether you set aside assets or purchase an insurance policy for Long-term Care costs, make sure you have accounted for medical expenses in your retirement plan. As always, if you have any questions, please call one of our Wealth Managers that can help you navigate the Long-term Care waters.