November is Long-Term Care Awareness Month—and believe it or not, it’s not a celebration of the popular insurance policy. Let’s distinguish the differences between long-term care and the long-term care planning that we do here at Rodgers & Associates.
What is long-term care?
It’s the care someone needs when they are no longer able to care for themselves independently. The Pennsylvania Health Care Association estimates that 70% of people over age 65 will need some kind of long-term care during their lifetime.1
From a legal perspective, if a person cannot do any two of the following activities on their own, they qualify as being in a long-term care situation.
- Eating
- Dressing
- Bathing or showering
- Using the restroom
- Mobility/transfer from a wheelchair to a bed
- Continence
It’s also worth noting that cognitive impairment is an automatic qualifier, or “trigger,” for long-term care services.
What should I be doing to plan for long-term care now?
The first step in planning a strategy for your long-term care is deciding where you would like to be cared for. You might prefer to stay at your current residence and have a nurse or family member help with your daily needs. Another possibility to consider is moving to a continuing care retirement community (CCRC) before you experience a change in health. CCRCs allow you to move from their independent housing units to assisted living facilities, and then into their skilled care accommodations, depending on the level of care needed.
The second step is deciding on how you will fund this care. There are four main options to consider: self-funding, relying on family, applying for Medicaid, and purchasing long-term care insurance.
Self-funding: If you’ve accumulated significant financial resources, you may be able to fund your own care. You might prefer this if you don’t want to be bogged down with “limits” regarding how much care you could receive. You may have to self-fund if your current health status precludes you from receiving other avenues of care.
- Pros: independence, flexibility, cost is based on need
- Cons: cost is based on need, can reduce your nest egg, decreasing legacy and inheritance
Relying on family: Historically, this is what most households have done. Your family’s financial assistance can complement your savings, but it’s best to discuss this option with family early. Don’t assume they can be relied upon in the future, and make them aware of what their responsibilities will be.
- Pros: you likely know and trust the people providing care
- Cons: lack of medical specialization that family members could provide, burdening family without respite, in-fighting among family as to who would provide care
Medicaid: This is the default planning option for most Americans. Not to be confused with Medicare, which provides only limited long-term care assistance, Medicaid is a joint federal and state program that provides care if you have not accumulated enough financial resources.
You may also be able to take advantage of Medicaid if you are in a spend-down scenario. The so-called “Medicaid spend down” is a special planning circumstance in which most of your assets are removed from your estate to provide some asset protection to your family. A great deal of coordination, foresight, and planning is required, and a spend down must be done with your accountant and estate/elder law attorney in advance.
- Pros: established program coordinated by federal and state governments
- Cons: care facilities may be lacking in amenities, must spend down your assets to qualify
Long-term care insurance: This comes in two main varieties: traditional LTC and hybrid LTC. Traditional policies have been around for decades, and most current policy features include a predetermined monthly maximum reimbursement amount, a pre-determined elimination period before benefits begin, a cost of living adjustment option, and the ability to get paid-up coverage if your financial situation changes and you need to stop or lower premiums. Hybrid policies are purchased as a base life insurance policy with a benefit that allows you to use the death benefit while still alive to help pay the costs of long-term care.
One meaningful difference between the two is that traditional policies are, in effect, “use it or lose it.” If you don’t use the benefits, your premium dollars won’t go to your family or loved ones. Because hybrid policies use a life insurance policy as a chassis, you will be able to name a beneficiary and have them receive a tax-advantaged lump sum, whether or not you used the full LTC benefit inside the policy when you pass.
- Pros: hedging and sharing the cost with an insurance company
- Cons: medical underwriting
There’s no way around it: Long-term care is one of the pricier parts of retirement. But it can be even more expensive without a proper plan in place. As you can see, “long-term care” means both the services provided, as well as the manner of funding your care. Thankfully, our clients benefit from proper planning that coordinates all these options. Nowadays, there are no one-size-fits-all solutions for long-term care planning.
As we enter the holiday season and spend more meaningful and intentional time with our families, perhaps it’s a good opportunity to discuss your desires and goals for your care in the future.
