How to Pay for Long Term Care

In previous generations, families cared for members who were unable to care for themselves. It wasn't unusual to find disabled parents living with their children in those days. But they were simpler days. For one thing, the expensive medical care available today to keep people alive longer wasn't in the picture. Today, even though offspring are willing to take care of their parents, the cost of medical care is out of reach for most of them.

It is estimated that around 70 percent of people over 65 will eventually need some kind of long-term-care services. We all know of people who stay in their homes until their 90s and don't need help, in fact, refuse, help from anyone. But they are the rare exceptions. The reality is that more than 40 percent will need nursing-home care before they die.

The likelihood that you will need long-term care will depend on several factors.

• How healthy you are makes a lot of difference.
  
  
• Family history is an important factor. Did your parents need long-term care?
  
  
• Married people are less likely than single people to need it.
  
  
• Men are at lower risk than women-women live longer.
  
  
• The older you get, the more likely it is that you will need long-term care. Every year over 70 increases your likelihood of needing help with daily tasks
  

The cost can be prohibitive. The cost of nursing-home care can easily exceed $72,000 annually, $6,000 a month. Assisted living costs an average of $36,000 a year but can go much higher, depending on where the facility is and what services the resident needs.

There are several options for paying for long term care:

If you retirement income is inadequate, this is probably the only option you have of protecting whatever wealth you've accumulated and intend to pass on to your children. It also allows for more choices when you are choosing which setting you will spend your last years be it in a nursing home or assisted living facility. It not only provides for financial security but the sense of well-being that comes from knowing your savings are being spent. Legislation enacted in the past few years makes this option more viable than when it first began to be offered by insurance companies.

The Health Insurance Reform Act has consumer protections for those who purchase long-term insurance so you don't make the insurance company wealthy and end up with nothing. For one thing, this reform act made long-term care insurance the same as health insurance. The premiums can be included in itemized medical expenses on tax returns. Long-term care is treated as a medical expense and premiums are deductible as long as all costs are within the 7.5 percent threshold of adjusted gross income; furthermore, the insurance benefits are not be taxed as income.

How much are the premiums? It depends on several factors, and you need to ask your insurer to tell you what they are basing it on. Some typical factors are age, health, etc. You will find that you have several options when it comes to what will be covered such as inflation protection and more benefits. The Health Insurance Association of America reports that the following is typical:

• Age 50, $850
  
  
• Age 65, 1,800
  
  
• Age 79, $5,500
  

You will probably find wide variations. Do your research before purchasing. Your state insurance commissioner can tell you who is authorized to sell it in your state.

This federal program for Americans 65 and over and some disabled people under 65 will not cover assisted living costs although it may pay for shorter-term services, such as physical therapy, when provided by a home-health-care provider who will come to the long-term facility to care for the patient. Medicare only takes care of skilled nursing facility services that will help a patient recover from a serious illness, injury or surgery. Medicare has two parts: Hospital Insurance (Part A) and Medical Insurance (Part B).

Part A covers nursing facility care but is limited. It will pay for 20 days; after that, the 21st through the 100th day, the patient is liable for a co-payment, typically well over $100 per day.

The following conditions must be met before Medicare will pay:

• Skilled nursing facility providing 24-hour nursing care to convalescent patients.
  
  
• These services are a daily requirement for the patient.
  
  
• Patient must have been in the hospital for three consecutive days and must have been admitted to the nursing facility within 30 days of discharge.
  
  
• Physician must certify need for skilled nursing facility care.
  

If you have Medicare Part B (which is voluntary and has a cost attached to it), your doctor's fees may be covered. Also, if your Part A coverage has been used up, Part B may cover part of some services such as physical therapy. There is an annual premium and a deductible for Part B coverage. Medicare will pay 80% of the cost of reasonable charges for covered services.

This is a cooperative program between federal and state governments to meet health care needs of low income people; it is the major payer of nursing home care. Those eligible must have income below poverty level, which is determined by the state, and certain health-related criteria must be met. The nursing home must be certified and meet standards set by federal and state governments. It covers room, board, nursing care, and social activities.

When an individual on Medi-Cal has assets, those assets are used to pay nursing care costs until the assets are depleted; at that point, Medi-Cal takes over the costs of care.

However, laws now mandate that the patient's spouse may keep a certain amount of the combined income of the two-patient and spouse. Assets, home, and furnishings are also protected up to a certain amount.

A reverse mortgage is a loan available to seniors (62 and older). The homeowner receives the home equity in the property as one lump sum or as multiple typically monthly payments. The obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner moves out into a senior housing and care facility.

The Federal Housing and Urban Development agency (HUD) recently announced its own reverse mortgage program. To qualify, you must be 62 years old and have adequate equity in your home. Income, employment, and credit are not taken into consideration and you do not have to qualify medically. You must still own your home and you must pay your own property taxes and home-owner insurance.

How much you can borrow will depend on the particular plan you choose as well as the amount and number of cash advances you will receive. There is a wide variation in how much the service costs, which will affect how much your payments will be, so you need to shop around and have the options reviewed by an attorney.

Your age and how much equity you have will determine how much you can borrow as will the value of your home and the interest rate on the mortgage. Federal law limits the amount that can be paid out. The payment can be in a lump sum, in monthly payments, by means of a line of credit, or a combination. The borrower does not make payments to the lender, and whatever equity remains in the home after the borrower dies goes to the heirs, not the lender.

Younger people don't think about aging or the need for long term care insurance. They think they're invincible and will always be around. They expect to live forever. A time when they will need someone else to care for them doesn't penetrate their thoughts and their planning. People also don't think much about what happens when their parents are old and unable to care for themselves.

Long-term care has become a buzz-word in a day when universal medical care is a hot political topic. But just what is it? It has to do with the assistance and care required to meet needs both health and personal over a period of time. It isn't necessarily nursing care; rather, it is usually non-skilled support for the management of daily tasks such as going to the bathroom, getting in and out of bed, eating, putting on and taking off one's clothes, taking a bath, etc.

What happens when a person can no longer do these things? Those who want very much to stay in their homes are rarely able to do so unless they have children nearby who can come in and help. The modern long-term-care movement has arisen to make it possible for people to live where they want to live and still have their daily needs met.

We think of long-term care in terms of the very elderly; however, they are, by no means, the only class of people who need this assistance. For instance, Alzheimer's can set in very early. A young man in the strongest years of his manhood can strike his head in a swimming pool and become a quadriplegic who must have someone take on the role of caretaker in every daily task such as those listed above.

Protects savings and retirement benefits, all people should look at long-term care insurance, not just those who are at an age when they are beginning to need alternatives.

Reasons to buy long-term care insurance:

• You can keep your independence and your dignity. If you have the resources, you can make decisions about where you will spend your last days. If you choose carefully, assisted-care facilities will make life enjoyable when you can no longer stay in your home. The alternative is a nursing home funded by Medicare or Medi-Cal, where you may have only a bed to call your own and a room you will share with someone else. If you have long-term-care insurance, when you reach the place where you need nursing-home care, which very well may happen eventually, you are in charge and can choose a nursing home that may cost more but where you can have a private room and high-quality care.
  
  
• It will relieve your spouse from the worry of having to find money to pay for a caregiver. Long-term-care insurance relieves her or him of this burden.
  
  
• If you have the income to pay for the care you need, you won't need to "tough-it-out" without help nor will your husband or wife. You can obtain the help you need from paid professionals and so can your spouse without dipping into your income.
  
  
• Even if your relationship with your children is such that they are willing to pick up the burden of providing care, the insurance will help them. We all hope for positive, happy relationships with our children when we become unable to care for ourselves, but if they don't have to change our diapers and provide 24-hour care, that relationship will be much more positive for you and for them.
  
  
• If you are single, you need the confidence that care will be available and paid for.
  
  
• You want to leave your assets to your children; you don't want them consumed by the costs of care when you can no longer care for yourself. One of the best ways by using a long-term-care policy.

• Stand-alone comprehensive long term care insurance. This is the most common form of insurance coverage. This type of plan covers all in-home and facility based long-term-care services. Usually monthly, quarterly, semiannual, or annual premiums are paid. Some plans are fully paid up after 20 years, 10 years, or even 1 year.
  
  
• Rider to a cash-value life insurance policy. The premium is split to pay for two coverages.
  
  
• Accelerated death benefit. Pays part of death benefit for terminal illness or terminal, long-term care while insured is alive.
  
  
• Either/or. Death benefit at death life insurance. Long-term care before death; benefits are paid instead of life insurance. The policy expires when all benefits are paid, either before or after death. If long-term care doesn't use up the benefits before death, they unused balance would be due and payable at that time. The premiums are higher with this type of policy.
  
  
• Single-premium deferred annuity. Usually requires a lump sum of $50,000, sometimes even more. Part of the annuity pays for long-term-care insurance. If money is not withdrawn, the principle will grow. The long-term-care premium payments are tax deferred.

The bad news is that not as many people got on the long-term-insurance bandwagon as was hoped by the insurance industry. Had the large numbers that were anticipated jumped on, efficiencies of scale would have made the purchase of such policies more affordable and it would have made the industry more stable.

Perhaps it will pick up over time because so many family members are taking care of their ill or elderly family members that it will spur the next generation to purchase this type of insurance. Also, employers are paying out a lot of money for long-term care and they are going to become more involved in this revolution. But how do you pick a company for the long term? If you are in your forties, you want to be sure the money you are dumping your premiums into is going to be around to fulfill its obligations when you need the support.

First of all, look at size. Don't choose a small company with only two or three lines of insurance. If a smaller company gets into trouble, it will be selling those lines of insurance that are not profitable, and that is likely to be its long-term-care line. Also, pick a company that is committed long-range to long-term care. Make sure that you do your research before you buy!

Secondly, you want a company that will not increase premiums for a change in age or health. This is not to say that rates may not change because a company is in its rights to make a change for a group of policy holders.

If your insurance company sells their long term care business out or goes out of business, the acquiring company will probably honor the rate structure of the company it has purchased. However, you should be prepared for a rate increase because the company that sold probably found the business unprofitable, which was probably the reason for selling.

updated 5 7 2010