Long-term care 101: What is it? Why plan for it? Who pays for it? Important recent changes.
What is Long-Term Care?
Long-term care is a form of healthcare that assists patients in carrying out necessary activities of daily living; among other activities, this includes bathing, dressing, transferring to a toilet, and eating.
Additionally, long-term care assists those who have suffered from severe cognitive impairments requiring substantial supervision such as Alzheimer’s disease or dementia.
Other examples of conditions that may require long-term care include: a fracture from a fall, arthritis, a stroke, cardio vascular disorder, severe diabetes, multiple sclerosis, or a car accident.
Commonly used long-term care facilities include: home health services, assisted living facilities, physical or occupational therapies, adult day care, and personal care.
Why Plan for It?
Clients often ask us when they should start planning for long-term care.
Here’s how we think about it:
- When you buy a car, you buy auto insurance
- When you buy a home, you buy home insurance
- When you plan for income replacement you buy disability insurance
And so the comparisons continue.
When you plan for retirement, you should start planning for long-term care insurance. Long-term care insurance is a critical part of retirement planning. Consider these statistics:
- Probability of loss from a fire: 0.0008 %
- Probability of a major auto accident: < 1%
- Probability of needing hospitalization in your lifetime: 10%
- Probability of developing Alzheimer’s: 11-15%
- Probability of needing long-term care: >75%
In fact, at age 65, there is a lifetime change of more than 40% of entering a nursing home (of which 10% of the population will stay longer than 5 years). At age 65, women have a 1 in 2 risk of entering a nursing home and men have a 1 in 3 risk.
Given those odds, failure to properly plan for long-term care can be a costly mistake. Think about the projected average costs of long-term care in New York City: a home health aid costs ~$150 per day and a good nursing home can cost upwards of $450 per day. When you multiply that out with a cost of living factor, it becomes very expensive very quickly.
Why plan for long-term care? There are both financial and non-financial reasons:
1. Protect your family from being the primary care givers.
2. Ensure that your family has enough income and can maintain their lifestyles without eroding it to pay for long-term care.
3. Protect financial assets and create a planned gift or legacy.
4. Pay for care with insurance money, not your own.
Who Will Pay for Long-Term Care if You Don’t?
- Private health insurance? No! Private health insurance is designed only for preventative and rehabilitative care, not long-term care.
- Medicaid? No! Medicaid is only a viable option after you have spent your income and assets down to the poverty level.
- Medicare? No! Medicare only pays for skilled care under specific conditions and under a limited basis (for only up to 100 days).
- So who does that leave to pay for it? You – or an insurance carrier!
Important Recent Changes
Change is coming. More and more companies are exiting the long-term care insurance marketplace. The importance of obtaining long-term care is more critical as one gets older. The longer you wait, the higher the probability of being denied coverage.
Next week, we will dive into why everyone needs long term care insurance.
Have questions or concerns for our members or experts? Become a member and participate in our forum!