Any Ideas How to Pay for Long-Term Care?
SGE’s recent article entitled “How to Pay for Long-Term Care” explains that although long-term care insurance can be a good way to pay for long-term care costs, not everyone can buy a policy. Insurance companies won’t sell coverage to people already in long-term care or having trouble with activities of daily living. They may also refuse coverage, if you have had a stroke or been diagnosed with dementia, cancer, AIDS or Parkinson’s Disease. Even healthy people over 85 may not be able to get long-term care (“LTC”) coverage.
The potential costs of long-term care can be challenging for even a relatively prosperous patient if they are forced to stay for some time in a nursing home. However, there are a number of ideas to pay for long-term care, including the following:
- The Federal government (Medicare). While the federal government’s health insurance plan doesn’t cover most LTC costs, it would pay for up to 100 days in a nursing home if patients required skilled services and rehabilitative care. Skilled home health or other skilled in-home service may also be covered by Medicare. Truthfully though, this is only for 100 days, a little over three (3) months. So you can’t really call this LTC coverage. Typically this type of coverage is meant to get a person home after a hospital stay. This Medicare benefit will not help anyone that truly needs “long-term care.”
- Private health insurance. It is rare that private health insurance would cover long-term are costs. Occassionally, employer-sponsored health plans and other private health insurance will cover a very limited number of LTC costs, such as shorter-term, medically necessary skilled care. However, most don’t, and the ones that do typically put hard ceilings on coverage. So just like Mediare, you can’t rely on private health insurance.
- Long-term care insurance. Private long-term care insurance policies can cover many of the costs of LTC. But as stated above, most people don’t have long term care insurance, and it is expensive.
- Private savings. This is the practical reality for most of my clients when then come to see me. Older adults who require long-term care that’s not covered by government programs and who don’t have LTC insurance can use money from their retirement accounts, personal savings, brokerage accounts and other sources. In Louisiana, in order to qualify for Medicaid (discussed below), a client would have to “spend down” all the way to $2,000 of their assets. A person can only have 1 car, a home (which may be seized later), a burial policy and $2,000. That’s it. Your private savings would have to be spent down before qualifying for assistance.
- Health savings accounts. Money in these tax-advantaged savings can be withdrawn tax-free to pay for qualifying medical expenses, such as long-term care. However, only those in high-deductible health plans can put money into health savings accounts. Also, funds in health savings accounts are considered an “available resource” for Medicaid. Additionaly, the savings in health savings accounts are usually not large enought to pay for even a few months of long-term care.
- Home equity loans. Many older adults have paid off their mortgages or have a lot of equity in their homes. A home equity loan is a way to tap this value to pay for long-term care. But if your only savings are locked into your home, this could leave no inheritance for your children.
- Reverse mortgage. This allows a homeowner to get what amounts to a home equity loan without paying interest or principal on the loans while they’re alive. When the homeowner dies or moves out, the entire balance of the loan becomes due. The lender usually takes ownership. Again, like a home equity loan, if your only savings are locked into your home, this could leave no inheritance for your children.
- Life insurance. Asset-based long-term care insurance is a whole life insurance policy that permits the policyholder to use the death benefits to pay for long-term care. Life insurance policies can also be purchased with a LTC rider as a secondary benefit. Talk to your insurance professional to learn more about these policies.
- Hybrid insurance policies. Some LTC insurance policies are designed annuities. With a single premium payment, the insurer provides benefits that can be used for long-term care. You can also buy a deferred long-term care annuity that’s specially designed to cover these costs. Some permanent life insurance policies also have long-term care riders.
Statistics show that one in three persons will have a stay in a nursing home. While that stay can often be short (for example, to recover from an operation), a significant number of people must go into a nursing home for intensive long term care on a permanent basis. In those cases, the client will spend at least $6,000 or more per month for care in Louisiana (the costs often can approach $8,000 per month in some parts of Louisiana). That’s $72,000 per year, and that is why long-term care insurance is so expensive.
A good estate plan that takes into account the possibility for long-term care costs is a good bet, even if you already have LTC insurance. This is because, as I said, LTC can be maxed out over time.
A good estate plan that can get you qualified for long-term care through Medicad, will help your estate avoids probate, and protect some (or most) of your assets is possible. But you need to speak with a qualified estate planning attorney.
BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.
If you liked this article, “Any Ideas How to Pay for Long-Term Care?” read these additional articles: How Can I Clean Up My Estate Plan? and What OTC Drug Makes High Blood Pressure Worse? and Should I Start Estate Planning Now? and What’s the Best Way to Mess Up Estate Plan?
Reference: SGE (Dec. 4, 2021) “How to Pay for Long-Term Care”