This is a three-part series on long-term care insurance. In Part I we provide an overview
of long-term care insurance. In parts II an III we will discuss what you need to know if
you decide to purchase a policy and how much it may cost you.
Many people have been saying for some time now that long-term care is the real health
care crisis in the United States. But what is long-term care? It is generally defined as a
variety of services for people with a prolonged physical illness, disability or cognitive
disorder. It often includes nursing home care, home care services or adult day-care
services. To qualify, an individual must typically be unable to perform two of six activities
of daily living (known as ADLs: eating, dressing, toileting, bathing, continence and
transferring). This does not apply to those with cognitive disabilities such as Alzheimer's
disease. Some companies recognize five activities of daily living and do not include
bathing, typically the first activity an elder person cannot perform. One should look for
policies that include all six ADLs.
How can long-term care affect you? There are at least three ways long-term care may
affect you: (1) you may have to take care of someone else, (2) you, yourself, may need
long-term care and (3) you may be impacted by higher taxes due to the effect long-term
care will have on the economy.
In Michigan, a recent survey showed that the average cost for nursing home care is now
$ 65,700 a year. The cost of home health care for less than 24 hour-a-day coverage
can easily amount to as much as nursing home care. The cost for 5 hours a day of
home care in Michigan is now $135 ($27/hr). At that rate, 5 hours a day for 5 days a
week, for 52 weeks would cost $35,100 a year. Assisted living costs in Michigan are
now estimated to be $30,636 a year. All of the above costs are expected to increase
rapidly in the future.
What are your chances of needing long-term care? The odds are considered to be
about 50/50 that one will need long-term care. One national study predicted that about
60% of those age 65 or older will enter a nursing home at some time during their life.
The chances are greater for women to spend time in a nursing home than men, since
women typically live longer. Average stays are generally short, usually less than three
years, often much less. The national average was recently estimated to be 19 months.
The number of households requiring long-term care has more than tripled from 7 million
to 22 million in recent years.
Most people think that only the elderly need long-term care. In fact, policies can make
sense for young people to protect them from total disabilities such as that experienced
by the actor, Christopher Reeves. Brain tumors, crippling strokes and accidents can
affect people of all ages. The younger you are when you purchase a long-term care
policy, the lower the premium.
How much will Medicare pay? Medicare will not meet an individual’s long-term care
needs. Medicare provides up to 100 days of skilled nursing care but only following a
hospital stay. And, after the 20th day, you are responsible for daily co-pay (recently
$99 a day). Medicare also will provide for very limited home health care. Medical
supplements to Medicare will not cover long-term care costs, nor will traditional health
care insurance.
What about Medicaid? Medicaid will cover long-term care but typically only for
individuals with less than $ 2,000 in assets. With couples, a spouse can keep only a bit
over $80,000 not counting a home and automobile. And, many states will put a lien on
the home to recover their costs after the survivor is gone. There are income limitations
as well to qualify for Medicaid benefits. Since Medicaid pays less than private pay, it is
necessary to find a nursing home that will honor Medicaid. Don’t expect a private room
under Medicaid.
People often think it is a good idea to give away their assets to children or relatives in
order to qualify for Medicaid. But doing so is fraught with potential problems. They may
spend it, lose it or pass away themselves. The government will look back three years
(five years for an irrevocable trust) to see if assets have been given away in order to
meet Medicaid requirements. If so, benefits will be reduced proportionately.
Recent tax law changes provide for tax-free benefits from “qualified” long-term care
policies. And, a portion of the premiums can be deducted on your tax return as medical
expenses, subject to the 7.5% of adjusted gross income limitation.
In Part II of this series we will discuss who should consider buying long-term care
insurance and what they should look for in a policy.
David C. Patterson, CFP® and Erin Patterson-Preston, CFP® are the owners of
Patterson Advisors, LLC, a fee-for-service-only financial advisory firm. Patterson
Advisors, LLC is a Registered Investment Advisor, registered with the State of Michigan,
helping clients in Waterford, Clarkston and Royal Oak, Michigan as well as other
Oakland County, Michigan communities . Visit www.pattersonadvisorsllc.com for more
information or call 248-674-2108.
Published in the Oakland Insider, July, 2008, Renamed: "Three-Part Series Takes a
Look at Long-Term Care Insurance"
All About Long-Term Care Insurance Part I
By David Patterson and Erin Preston (formerly Patterson)