Rusty had paid for a long-term care policy for many years. Then, one day, his daughter found a cancelation notice for nonpayment of premiums sitting on his desk.
“Dad, why are you not paying the premiums for this policy?”
“Because I have Medicare and my pipe trade’s policy. I don’t need that one.”
“Dad, get out your checkbook. We’re going to the FedEx office and sending in the payment.”
Three weeks later, Rusty suffered complications from prostate cancer and could not manage his care. He was admitted to a long-term care facility where he lived until his death 13 months later. The long-term care policy paid its share every day, the difference between Rusty keeping or having to sell his farm.
Rusty (full disclosure: Rusty was my father) fell for one of the biggest Medicare myths ever: that Medicare covers long-term care. He wasn’t alone in thinking that. 56% of middle-income Baby Boomers believe that Medicare will pay for their ongoing long-term care.
Medicare does not now and never has covered long-term care.
Problems tend to arise because there’s so much confusion about long-term care, LTC, for short. This Q&A should help clarify some of the issues.
What is long-term care?
Long-term care, often called custodial care, is a range of services and support to meet health or personal care needs over an extended period of time. This is non-medical care provided by non-licensed caregivers.
Who needs long-term care and why?
Maybe, eventually, every one of us will need this care. Consider these statistics.
- A person turning 65 today has almost a 70% chance of needing some type of long-term care services and support in their remaining years.
- 20% of those turning 65 will need care for longer than five years.
- About 35% of people who reach age 65 are expected to enter a nursing home at least once in their lifetime.
The need for long-term care comes into play when the aging process begins to take effect and one loses the ability to perform activities of daily living (ADL). The six essential ADL include the ability to eat independently, dress, walk or transfer from one position to another, bathe, and toilet, and maintain bowel and bladder continence.
Those needing long-term care have a variety of physical and mental characteristics. However, arthritis and Alzheimer’s disease or other dementias top the list of medical conditions contributing to a need for-long-term care.
Where is long-term care provided?
A variety of settings provide long-term care, including
- An adult day-care center
- A nursing home
- An assisted living facility or residential care community, and
- The most common location, the home, with care provided by a family member or friend. In 2017, over 40 million caregivers provided the equivalent of $470 billion in unpaid assistance.
Why do so many believe that Medicare pays for long-term care?
The confusion likely stems from the services that Medicare Part A, hospital insurance, will cover. Two of those are inpatient care in a skilled nursing facility (SNF) and home health care, common settings for long-term care.
So, you may wonder. If a person moves into a nursing home because she needs long-term care or a homecare agency sends an aide to the home to help a patient with bathing, why doesn’t Medicare pay? Simple answer: Medicare pays for care that is skilled, meaning that it requires the skills of a registered nurse, physical therapist, occupational therapist, or speech-language pathologist. If the average non-medical person can provide the care without additional training, the care is not skilled and Medicare will not pay for it.
The person is in a nursing home because she is not safe at home and needs help with ADL. It doesn’t take a nurse to bathe a person in her home. Contrast that to skilled care. The person who had a stroke goes to a nursing home for rehabilitation. Once home, a physical therapist visits to set up a home program, and coordinate equipment.
How can you pay for long-term care?
Let’s be very clear: Medicare does not pay for long-term care. But this care can be very costly. In 2013, total national spending on long-term care services was almost $339 billion. What options are available to help with the cost?
Traditional long-term care policy.
This type of insurance will pay or reimburse for some or all long-term care costs. Many long-term care insurance policies have limits on how long or how much they will pay. These policies can also become costly over time.
Insurance companies can consider health conditions when determining eligibility for coverage. The older the applicant, the more likely he won’t qualify. In 2019, almost one-third of applicants ages 65-69 were denied coverage.
The type of coverage depends on the individual’s health, financial status, age at application, and other factors. A professional advisor who knows about these policies and the different options can guide the application process.
An annuity is essentially a contract with an insurance company. An individual purchases an annuity that the insurance company pays back over a defined period of time. It’s possible to get guaranteed payments for life, even if the amount paid back exceeds the original investment.
Annuities offer an option for those who want to plan for long-term care expenses in retirement, which could be many years into the future. Given the variety (fixed, indexed, immediate, and variable, to name a few), it’s best to work with a knowledgeable, trustworthy financial professional.
Combination or hybrid products–life insurance with a long-term care rider.
Consumers tend to worry that they will lose the money they spend on long-term care insurance if they don’t use it. In recent years, insurance companies have taken steps to ease these concerns.
These relatively new products combine life insurance with long-term care insurance. The idea is that policy benefits will always be paid, in life insurance or long-term care. A policy holder can access some or all of the policy’s death benefit for long-term care that meets the company’s requirements. These combination products are still evolving. An agent can help explain the ins and outs.
Health savings account (HSA).
HSA funds can help cover many long-term care expenses. According to the IRS, qualified medical expenses “also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract.” Qualified long-term care services include maintenance and personal care services that a chronically ill individual requires.
A reverse mortgage is a special type of home equity loan that allows the mortgage holder to receive cash against the value of a home without selling it. An approved reverse mortgage counselor can discuss the many considerations, including how the mortgage will work, the criteria for spending the funds, and what heirs need to know.
Charitable remainder trust.
A charitable remainder trust allows one’s assets to pay for long-term care services while contributing to a charity and reducing the tax burden at the same time. Payments from the trust can cover long-term care services and, after death, the balance of the funds in the trust goes to the charity.
Medicare Advantage plans.
Recent policy changes now allow Medicare Advantage plans to cover supplemental healthcare benefits for “daily maintenance.” These benefits may include ADL assistance, transportation to medical appointments, meals after hospitalization, even chow for a service dog. Some plans offer one benefit, others may offer more. The offerings are limited, generally to one benefit in a calendar year and the plan will likely require prior authorization and impose network limitations.
Not all Medicare Advantage plans offer these benefits and it is the Medicare Advantage plan, and not Medicare, that pays for these services.
This program is funded jointly by individual states and the federal government. Medicaid benefits are guaranteed to pregnant women, children, disabled individuals, and the elderly, who meet certain income limits. One of the benefits is long-term care.
Those who don’t qualify for Medicaid because their assets are too high have to pay for long-term care. Then, once their assets are low enough, they can qualify for Medicaid coverage. Every state has its own enrollment process, qualification criteria and policies. Find information about a specific state program on Medicaid.gov.
How can you start planning for long-term care?
Here are some beginning steps.
1. Learn about long-term care, the different options, and what’s available in your community.
2. Work with a trusted financial advisor to develop a plan to cover the costs. Consider these two scary statistics.
- Fewer than 35% of Boomers have a plan for how they will receive care in retirement.
- Almost 80% have no money set aside specifically for their long-term care needs.
3. Determine who can play a role in your plan. Do not expect your family to be the sole source of support. Explore community resources and caregiving options.
4. Incorporate your wishes into the plan. Do you have an up-to-date will, advance health care directive and durable power of attorney for healthcare? Include in your plan important financial information and your long-term care wishes.
5. Share the plan with family members, healthcare providers, anyone who you believe will be involved or needs to know.
Those who believe that Medicare will pay for long-term care or that this care involves long-term care insurance or living in a nursing home may be woefully unprepared for the future. It’s never too late to put together a long-term care plan, your personal strategy for handling decisions in the future.