As the saying goes, there are two guarantees in life. The first promise is that you will die. The second promise is that you will pay taxes. There is also a third guarantee that should be mentioned. If you are fortunate to live to old age, you are most likely going to need some form of long-term care.
When people think of aging, they often fear the type of care that they are most likely going to need at some point. While it is not as fun as planning for a trip around the world, long-term care should not be forgotten about. It is much better to add long-term care in your financial plan than to hope you will never need it. Long-term care is just another variable to be added and managed on the journey toward financial independence.
What is Long-Term Care
Long-term care is different from other types of healthcare and not covered by traditional health insurance. The objective of long-term care is not to cure an illness or disease. The main purpose of long-term care is to allow an individual to attain and maintain an optimal level of functioning as they age.
What do the average statistics look like for people who will need long-term care? Someone turning age 65 today has almost a 70% chance of needing some type of long-term service and support. Women need care longer than men. On average, women need 3.7 years of care and men need 2.2 years of care. The difference in time is based on women living longer than men. Based on today’s population of 65-year-olds, 20 percent will need it for longer than 5 years.
Where is Long-Term Care Provided
Most long-term care is provided at home. Long-term care is changing. As part of the Triple-Aim, along with being cost-effective, and high-quality, the focus needs to be community-based.
Of older people with disabilities who receive LTSS at home, 66% get all their care exclusively from their family caregiver. This care is mostly given by wives and daughters. Another 26% receive some combination of family care and paid help. Only 9% of people who receive LTSS at home receive paid help.
Based on a 2013 report from the CDC, about 8 million people receive support from the 5 main paid regulated long-term care service providers:
- 57% – Home Health Care Providers
- 17% – Skilled Nursing Facilities
- 15% – Hospice Care Units
- 9% – Independent Care Communizes
- 3% – Adult Day Services
What is the Cost of Long-Term Care
The cost of long-term care varies by region. Long-term care is more expensive in the northeast than in the south. Along with cost, quality standards also need to be considered. Below are the median annual costs for my home state Pennsylvania:
- Private room in a skilled nursing facility is $120,000
- Private one bedroom in an assisted living facility is $41,000
- Home Health Aide (44 hours of care) is $50,000
Who Pays for Long-Term Care
The total national LTSS spending in the U.S. is $310 billion. On average, the retirement savings of families between the ages of 56 and 61 is $164,000. The median for this population is only $17,000. With the savings rates being so low and the costs so high, where does the funding come from? Based on the CMS, the breakdown is as follows:
- 8% – Private Insurance Providers
- 19% – Private pay or out-of-pocket
- 51% – Medicaid
- 21% – Other Public sources
What is Long-Term Care Insurance
Long-term care insurance pays for care in your home, assisted living facility, community-based care center, and skilled nursing home. The policies begin coverage wan an individual is unable to perform two of the six activities of daily living (ADLs) or are cognitively impaired (Dementia or Alzheimer’s). The six basic ADSs are eating, bathing, dressing, toileting, transferring (walking), and continence.
Individual policies are commonly sold to individuals by insurance agents. Employees policies are employer-sponsored benefits that might be offered as a group long-term care insurance plan. Association policies are group insurance policies that are offered by associations such as AAA or AARP.
Some states have long-term care insurance partnership programs. When you buy a federally qualified partnership policy, you will receive partial protection against the normal Medicaid requirements to spend down your assets to become eligible.
Some federal income tax advantages are available to people who buy certain long-term care insurance policies.
Sales of traditional long-term care policies have fallen sharply, but life insurance policies and annuities that carry long-term care benefits are growing in popularity.
Most people who buy long-term care insurance do so between the ages of 55 – 65.
Who sells Long-Term Care Insurance
According to Consumersadvocate.org, the top 5 providers of long-term care for 2018 are:
- Golden Care
- CLTC Insurance Services
- Mutual of Omaha
- Mass Mutual
Most people would like to pretend that long-term care is not a fact of life. Unfortunately, it is something that most people will have to deal with. While it is not a light-hearted topic, it is a good idea to discuss it with those who you might have to care for as well as with those who might have to care for you. As with every other aspect of personal finance, long-term care is another issue that needs to be part of a financial plan. It is always better to have a plan and not need it than to be faced with a life-altering situation and not have a plan.
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