What is Long Term Care (LTC)?
It’s personal care for people whose health has declined to the point where they need need someone to help them with two or more “activities of daily living” which includes dressing, bathing, eating, taking medication, toileting and transferring (getting in and out of a chair or a bed.) The other indication that someone is in need of Long Term Care is that they have become cognitively impaired. Cognitively impaired may be defined as the impairment to judge accurately, reason and act prudently in everyday actions. The impairment is considered severe enough to cause possible injury or damage to oneself or others in bodily harm or loss of property. LTC may include a long term care facility such as a nursing home, assisted and independent living facilities, adult day care as well as home health care.
Why is LTC planning more important than ever?
1. Cost. The average cost of a nursing home in the U.S. in 2011 was $193 per day and $213 per day for a private room. Assisted living costs $3,261 per month and home health care goes for about $20 an hour that according to Genworth Financial.
2. Increasing longevity. We are now living longer. According to “World Life Expectancy” life expectancy in the U.S. once we turn age 65 in 2011 is 85 years old for males and 88 years old for females. We are living longer than ever and just because we are living longer doesn’t mean we will not end up in a Nursing home…it could mean we stay alive in a nursing home a lot longer.
3. Underwriting may not be favorable. According to one nationally known personal finance radio talk show host age 60 is the optimal time to buy LTC Insurance (LTCi.) In a perfect world this seems reasonable unfortunately, as we get older passing underwriting requirements becomes more difficult. The LTCi carriers report about a 30% decline rate if you wait until you’re 57 years of age. The most procrastinated tasks is acquiring insurance. You don’t wait to watch your house to catch fire before calling to insure your house against a fire…it’s too late then.
4. It’s a bad economic choice unless you’re extremely wealthy or extremely poor. To work hard and save your money over the course of 40 or 50 years and then to be hit with a stroke or Alzheimer’s Disease could wipe out your savings. A stay of 5 years in the nursing home would set you back about $300,000 if you paid out of pocket, $600,000 if both spouses are in need. A simple $2,000 per year premium for a LTC policy for 10 years would be $20,000.
5. “But what if I grow old and never need LTCi?” A common objection although you never complain about having to spend $20,000 on fire insurance when chances are good you will never have a fire. Chances of needing LTCi: 3 out of 4 seniors age 65 and over, 75%. Chances your house will burn down: .08%
6. “Well doesn’t Medicare cover Nursing Home and Home Health Care?” No, very little if any is paid for by Medicare. Medicare as well as all health insurance is designed to get from a position of sickness or injury back to normal everyday life. LTCi is designed for people who will usually not return to a normal wellness state. LTC basically allows you to live with as much comfort as possible for the long term (until death.) People receiving LTC are not expected to make a comeback in terms of a normal productive life. The only type of coverage for this is LTCi.
7. “But how about Medicaid? I heard that once you can get on Medicaid your LTC is paid for by the state.” Medicaid is only available for those who live in poverty. Here is what’s necessary to receive Medicaid payments for LTC. 1) Your assets have not been transferred to someone else (like your children or someone else) in the past 5 years from the date you actually need LTC. 2) The spouse needing LTC (referred to as the “Institutionalized Spouse”) will have all their monthly cash flow such as a pension and Social Security income going straight to the nursing home before Medicaid kicks in. In addition, the stay at home spouse officially called the “Impoverished Spouse” or the “Community Spouse” must show that there is no more than $113,640 (in 2012 and adjusted annually for inflation) in assets, a maximum of $1,500 of cash value life insurance, one automobile, some personal affects such as jewelry and furniture and of course only one house which is is the primary residence. 3) The institutionalized spouse will be limited to facilities that accept Medicaid. What if the nearest facility is 100 miles away from the impoverished spouse’s home? 4) Medicaid is not an entitlement program, but rather a loan. At the passing of the impoverished spouse assets including the home will be sold to satisfy the amount of services Medicaid paid for also known as Estate Recovery. 5) In most states, Medicaid only covers the cost of nursing homes, not home health care, adult day care or assisted and independent living facilities.
8. “I’ll let my children take care of me like I did for my folks” Really? Have you had that conversation with your adult children? Sure they might feel obligated but what a sacrifice to ask of them. Who wants to ask their children to care for them? What about your adult child’s spouse and their own children? I know their are some living like this because there is no other choice but this is no way you want to be remembered. Take action now! Maybe your children can help pay for LTCi; if they can afford it great. Asking them to help pay your LTCi is much easier than asking if you can move in with them and have them take care of you.