Many older adults will require long-term care at some point during their lives. Long-term care is defined as requiring assistance with at least two “activities of daily living” (eating, bathing, toileting, dressing, continence or transferring from a bed to a chair) that lasts at least 90 days, or a need for substantial assistance due to severe cognitive impairment. According to a report by the U.S. Department of Health and Human Services, “more than 6 million older Americans are thought to have a high need for long-term care. Yet fewer than 10 percent of older adults have purchased long-term care insurance because it’s expensive.” So how do you get long-term care without breaking the bank?
Consider your budget and purchase a long-term care policy that is more focused on home-based care. Most people want to stay in their homes as long as possible. According to long-term care insurer Genworth’s 2016 data, “People are primarily utilizing home care with only a small percentage needing nursing home care.” People believe that they will start out using home care but eventually need to be in a facility. However, that’s not what the data shows. For the most part, people are able to stay at home for the whole time.
Long-term care policies offer various benefits, such as inflation protection, shared care, assisted living, home-health and nursing home care. These benefits come with a cost. Home-based care is much less costly than nursing home care, and inflation riders greatly increase the cost of a policy. It’s possible to consider creating your policy with the most likely scenario in mind and keep the cost within a reasonable range.
According to Genworth’s 2016 data, the average annual cost for care provided by a home health aide was $46,332 (compared to $82,128 for a semiprivate room in a nursing home). That equates to $3,861 a month, for 44 hours of home care a week, resulting in slightly more than six hours of care, seven days a week. That amount might not be enough for seniors with serious, disabling illnesses, but it does provide much-needed relief to unpaid family caregivers who would otherwise be on call nonstop.
What if you’ve prepared for long-term care in home but find that you or your spouse needs nursing home care? Most current policies are designated as a qualified long-term care partnership policy. These policies are designed to help you preserve your assets if you become seriously ill, require a nursing home and pursue Medicaid eligibility. Medicaid pays for nearly half of nursing home costs in the U.S. So if you have purchased a policy that provides $300,000 total benefits, you can qualify for Medicaid while retaining that amount of your assets. The policies don’t guarantee Medicaid eligibility — you’re still required to meet the income standards set by your state. But many states allow people to “spend down” to qualify, using their income to pay for their facility care.
Older adults need to know what the average home care and nursing home costs are for their state in order to make an informed decision. Consult with your financial advisor before deciding on a policy. They can help you determine which option makes the most sense for your unique situation.
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"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.