The downside of living longer is that some of those extra years will come with extra difficulty. We are likely to have trouble getting around, whether that means trouble operating the car safely, needing a walker or a wheelchair. We are likely to have trouble doing the laundry and the housework. Grocery shopping and cooking will become too burdensome. Even bathing, dressing and grooming; using the toilet and maintaining continence may well become a problem. You may be wondering, do I need long-term care insurance? Nearly 70% of us will need some form of long-term care.
We don’t like to think about this. But by putting off doing so, we rob ourselves of the opportunity to choose how to meet these challenges.
Caring for elderly parents
Many people think that their children will take care of them. This is unrealistic. In 2016 only 9% of children helped their elderly parents financially. The average gift? $595. Today children may not live nearby. In most families, both parents must work outside the home. The amount of time a child can devote to caring for a parent – and the number of months or years they can do it – is limited. Quarrels over how to care for aging parents and how to spend their money can tear families apart.
Medicare home health care provides limited assistance for people who also need skilled nursing or therapy.
Medicaid home health care “demonstration projects” provide up to 40 hours per week – for now – and only for people who would otherwise be in a nursing home and who have a limited income and virtually no resources beyond their home. Waiting lists can range from 4 to 18 months.
Medicaid does not pay for assisted living facilities, though the VA may be of some help.
How much does long-term care cost?
How much does long-term care cost recently and in years to come with inflation? The 2015 Genworth Cost of Care Study found that home health aide services 40 hours/week cost $45,760. With only a 3% inflation rate, they are expected to cost $91,520 in 2040. The same study found that a year in an Assisted Living Facility averages $43,200 and in 2040, using a 3% inflation rate, can be expected to cost $86,400. As for nursing homes, if you want a private room (not a shared or “semi private” room), today you would pay $91,250; in 2040 $182,500. These figures are low: costs have recently been rising at 5.5% per year.
Most of us would much prefer to stay at home or live in an assisted living facility than to wind up in a Medicaid nursing home. But few of us can pay out of pocket.
Similarly, few of us can pay out of pocket for a private room or for a private pay only nursing home.
The need for long-term care insurance
As Medicaid benefits become less generous and harder to access, long-term care insurance becomes more and more necessary. We don’t expect our house to burn down, but we all have fire insurance. We don’t expect to be in an automobile accident, but we all have car insurance. Needing long term care is not a certainty, but there is a 70% chance.
Premiums are tax-deductible (to a point.)
Three basic types of long-term care insurance
Today there are three basic types of long-term care insurance: traditional, life insurance with a long-term care rider, and hybrid policies. All have different underwriting standards and meet different goals.
Traditional long-term care insurance
Traditional long-term care insurance has the lowest premium, most comprehensive benefits and the strictest underwriting. It is generally easier to get in your fifties. Premiums are not fixed and will rise over time, particularly as you enter your eighties: 81 is the average age at which people file a claim.
Hybrid policies (long-term care and life insurance)
Hybrid policies combine long-term care and life insurance, payable if you do not exhaust your long-term care benefits. They have a cash surrender value. Premiums tend to rise less than with a policy which is only for long-term care. Some require a single premium ($50,000 minimum). A hybrid policy may cost more than separate policies for life and long-term care.
Life insurance with a long-term care rider
A life insurance policy with a long-term care rider differs from a hybrid policy in that it has less restrictive underwriting. You can also choose a guaranteed level premium option. Again, the life insurance is payable only if you do not exhaust your long-term care benefits and the policy may cost more than separate policies for life and long-term care.
If you realize that you or your spouse may someday need Medicaid even with long-term care insurance and want to preserve assets in addition to your home, you may be interested in a long-term care policy available through the Texas Long-Term Care Partnership Program. When you have exhausted your benefits and apply for Medicaid, assets equivalent to the amount paid in benefits can be preserved.
Short-term care insurance for seniors is affordable and can help fill in gaps in other types of coverage. Is it an option for you? Find out more here: Long-term care insurance for the short term
The biggest retirement challenge facing Baby Boomers, and the generations which follow, is paying for long-term care, or what is coming to be called, “long-term supports and services” (“LTSS.”) Read more in The Elephant in the Room: The Challenge of Paying for Long-Term Care
Elder law attorney, Terry Garrett, is a member of the National Academy of Elder Law Attorneys and is active in the Texas and Austin Bar Associations. She graduated with honors from Cornell University. She was on the Dean’s List at Wharton Business School. She earned her J.D. at Columbia Law School, receiving the Parker Award and a Mellon Fellowship.