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Paying for Long-Term Care

Kimmer W. Callahan, JD, LL.M.

Before we address the issues of how you can pay for long-term care, lets first address some of the realities of long-term care and the associated costs. We will then turn our attention to the four primary options for paying for long-term care.

The greatest financial risk that most Americans will ever face is the high, and rising, costs associated with long-term care needs.  Middle Class Americans seeking to preserve their estates cannot afford to ignore the potentially devastating costs relating to nursing home and other long-term care costs.  Traditional Estate Planning does nothing to reduce this risk.

About 70% of those turning age 65 will have a long-term care need at some point in their lifetime.  On average, a person age 65 will need 3 years of long-term care, and 20% are expected to need at least 5 years or more of care.  The average cost of a semi-private room in a nursing home in 2008 was $185 per day.  That is $5,550 per month, or $66,600 per year.  The costs of a semi-private room in a nursing home has increased at an annual rate of 6.5% per year from 2004 through 2010.  If costs continue to increase at the same rate, the average cost of a semi-private room in a nursing home in 2018 will be $125,000 per year.  A three-year stay starting in 2018 would cost about $400,000.  Are you prepared to face that cost?

So, how can you pay for long-term care. There are 4 primary ways to pay for long-term care costs:

1.  Private-pay.  This is the choice that most Americans make – by default.  By not making a choice, or by failing to plan for this need, this ends up being the default choice.  The reality is that it is also the choice that most American’s don’t want.  We want to provide for your spouse, children and grandchildren.  The other reality is that most of us do not have a large enough nest egg to support a $125,000 a year cost, while allowing our spouse to maintain a comfortable standard of living, let alone having anything left to leave to our children.

2.  Medicare or general health insurance.  Thirty-six percent of Americans expect that Medicare or private health insurance will pay for their future long-term care needs.  However, in most cases, they are mistaken – Medicare and private health insurance do not generally pay for long-term care costs.  They are designed to cover acute care, such as doctor bills and hospital bills.  Medicare will pay 100% of care for 20 days and a small portion of the bill for an additional 80 days if you meet specific requirements. The requirements are:
— you spend at least 3 days in the hospital.
— you are transferred by doctor’s orders to a long-term care facility for rehabilitative care.
— you continue to receive rehabilitative care.  If rehab stops, so does the Medicare coverage.

3.  Long-term care insurance.  Long-term care insurance (LTCI) a specific type of insurance designed to cover the costs of long-term care.  LTCI can have several advantages, including significant financial support to cover the high costs of care, providing support to family members, and reducing the financial stress of family.  However, LTCI can be expensive.  If you have never had a quote prepared for LTCI, you should obtain a quote so that you can make an informed decision to determine if LTCI is a good fit for you.  You should also discuss this with your financial advisor.  They may be able to restructure your investments to generate additional income to cover the premium costs without causing a reduction in your current cash flow or standard of living.  Don’t just assume you can’t afford it.

4.  Medicaid.  Medicaid is the welfare-based system that is the payer of last resort.  It pays for long-term care costs for those who have no means to otherwise pay for the care.  In order to receive Medicaid benefits you must meet certain qualifications.  The basic requirements to qualify for Medicaid are:
— If you are married, the spouse in need of care can have $2,000, plus a house and a car.
The at-home spouse can keep 50% of the couples remaining assets up to about $110,000, in
addition to the house and the car.
— If you are single, you can have $2,000, plus a house and a car.

In addition to the asset (or resource) requirements, there are also income requirements that must be met as well.  The actual qualification process is too involved to explain in a single article, but this gives you an idea of the basic qualification requirements.

For those who are proactive and plan ahead, there is a fifth option, which involves some combination of the other four options, as well as asset protection planning.  Our next report will focus on some of the advance planning options that can be used to help reduce the risk of loss from the high and rising costs of long term care.  We will also talk about what does not work.

The information in this article is general in nature and should not be acted upon without seeking advise from competent advisors.  For more information about how you can plan to reduce the risks associated with long-term care costs, call our office to schedule a consultation.

Provided as an educational service by:
Callahan & Associates, Chtd.
Kimmer W. Callahan
Attorney at Law
(208) 664-9228