You might be healthy now, but chances are you’re going to need some help taking care of yourself as you get older. In fact, if you’re turning 65-years-old this year you can expect to live another two decades and there’s a 52% chance you’ll need some type of long-term care services and support at some point.

Long term care includes the personal and healthcare services you may need if you are unable to perform daily activities on your own. It includes things like eating, bathing, dressing, transferring, using the bathroom, and taking your medications.

You might think that Medicare will cover all of these costs in your senior years. Unfortunately, this isn’t the case. Getting older often requires specific types of care that’s not considered medically necessary. Without long-term care insurance coverage, millions of seniors find themselves without options to cover the bills, so they turn to Medicaid.

For most of us nearing retirement and getting our Medicare benefits for the first time, the question is most often how do I pay for long-term care when I need it? The purpose of this MedicareWire.com guide is to help you get the answer to this important question so you can plan ahead.

 

MEDICARE LONG-TERM CARE COVERAGE & BENEFITS

Medicare offers its beneficiaries coverage for medically necessary healthcare services. Its primary focus is acute care, including doctor visits, lab work, prescription medicine, and inpatient hospital stays.

Medicare also covers short-term healthcare services for conditions that are expected to improve. Common services include physical therapy, occupational therapy, mental health services, and skilled nursing for recovery after a hospital stay.

Medicare’s skilled nursing facility (SNF) benefits, covered under Medicare Part A, are often confused with traditional nursing home care. Although Medicare does cover costs associated with some skilled care, it only does so in specific situations.

Medicare’s SNF benefits apply when a medical professional determines you need skilled care after being hospitalized for three or more days. The benefit requires that you use a Medicare-Certified skilled nursing facility.

In most cases, Medicare will cover up to 100 days of skilled nursing care per benefit period. After the 20th day, beneficiaries pay coinsurance.

Medicare does not cover:

• Assisted living facilities;
• Home care; or
• Nursing home care that’s not related to hospitalization.

In other words, Medicare coverage does not pay for your long-term care needs. It covers care that’s medically necessary. For everything else, you’ll need insurance or care from family and friends.

LONG TERM CARE INSURANCE

Buying long-term care (LTC) insurance is one way to prepare for getting the help you’ll need as you get older. LTC insurance helps you pay for qualifying care in your home, assisted living facility, community-based care center, or nursing home. Common services include help with daily activities such as eating, bathing, dressing, transferring, toileting, and continence. These are known as the six activities of daily living (ADLs)

Most LTC policies are designed to kick in when the beneficiary is unable to perform two out of six ADLs or is cognitively impaired (such as Dementia and Alzheimer’s).

Carefully considering long-term care costs is an important part of any retirement plan. You can’t wait until you need the care to buy coverage. You won’t qualify to buy LTC insurance if you already have a debilitating health condition. The best time to buy is in your mid-50s to mid-60s.

Whether long-term care insurance is the right choice for you depends on your financial and family situation and your preferences for receiving care.

It’s important to realize that, similar to Medicare Supplement insurance carriers, each long-term care insurer sets their own rates. The LTC insurer with the lowest cost for a 55-year-old married couple in Arizona is unlikely to be the least expensive for a 64-year-old married couple in Florida. There are many factors, including health, lifestyle, age, location and the type of clients each insurer wants to attract.

 

Why Get Long-Term Care Insurance?

Most people buy long-term care insurance for two reasons:

1. To protect their retirement savings; and
2. To have more choices for care.

According to the U.S. Department of Health & Human Services (HHS), nearly half of all people turning 65-years-old today will develop a chronic condition or disability that requires long-term care services. Most people will need services for less than two years, says HHS, but nearly 14% will require care for more than five years. There’s no way of knowing if you will be among the 14%.

As documented above, Medicare covers only short nursing home stays or limited amounts of home health care when you need skilled nursing or rehabilitation. It does not pay for any form of custodial care.

In short, if you don’t have long-term care insurance, you’ll have to pay for the care you need yourself. Medicaid is another option (see LongTermCare.gov), but to qualify you will first need to exhaust most of your savings and other financial assets.

Long-term care costs will quickly deplete most people’s retirement savings. According to Genworth’s 2018 Cost of Care Survey[1], the average cost of care in a semi-private nursing home room is $89,297 a year.

As a general rule, the quality of care you can get is directly tied to the money you have to spend for your long-term care. If you must rely on Medicaid, your options are limited to nursing homes and home health agencies that accept Medicaid payments. In some states, Medicaid does not cover assisted living facility costs. As a guide, most insurance experts recommend spending no more than 5% of your income on a long-term care policy.

What Exactly Does Long-Term Insurance Cover?

LTC insurance covers most costs associated with treating chronic illnesses or other ailments in old age, including in-home care or nursing home costs for people unable to live alone. In addition, long-term care covers homemaker services, respite care, and memory care facilities.

LTC insurance does not cover costs associated with seeing your doctor, surgeries, hospitalization, or prescription drugs. These medically necessary costs are covered by Medicare (or other health insurance).

Who Needs Long-Term Care Insurance?

As stated above, nearly half of all seniors turning 65 today will need some form of long-term care. However, to truly understand who needs long-term care insurance, you first need to understand Medicaid.

Medicaid is health insurance provided to poorer Americans. People with Medicare can also qualify for Medicaid benefits, but only if you are at or below the Federal poverty standard.

Medicaid covers long-term care, but only if you’re flat broke and busted. In fact, Medicaid is the largest payer of long-term care services in the country.

If you think you can simply give your retirement savings to your kids so you can qualify for Medicaid, you’d better plan ahead. You’ll need to wait 5 years from the point you divest your money before you can qualify for Medicaid benefits.

Nursing homes rival 4-star hotel rooms for cost. Although national averages are just over $200 per day, in some areas they run up to $400 per day. If you do the math, you’ll see that a 5-year stay in a nursing home can easily total $750,000 or more. Long-term care insurance is worth considering if you don’t want to spend that much on elder care in your senior years.

Couples get a serious discount if they buy their long-term care insurance together. An LTC policy that covers both spouses is only slightly more than an individual policy.

If you’re broke and think you may always be, you have Medicaid. In this case, there’s no need to buy long-term care insurance.

How Much Does Long-Term Care Insurance Cost?

Long-term care insurance premiums increase as you get older. Buying an LTC policy while you’re still under age 60 is ideal. After age 60, it could be unaffordable.

A single 55-year-old man in good health getting initial coverage will pay an average of $2,050 a year for a long-term care policy with an initial pool of benefits of $164,000[2]. For the same policy, a single 55-year-old woman will pay an average of $2,700 a year.

Most LTC policies have a built-in 3% annual benefit increase to keep pace with inflation. However, the policy’s benefit amount is still fixed. This means if you need specialized care for a long period of time your policy may deplete. Keep this in mind when choosing your policy.

Also, most LTC policies cost substantially per person if purchased as a couple. The average combined premiums for a 55-year-old couple, each buying $164,000 of coverage, are $3,050 a year.

How is Long-Term Care Insurance Calculated?

In calculating your premiums, LTC insurance companies typically base the costs on the following primary considerations:

• AGE: The older you when you buy your policy, the higher the premium. The best age to get covered is in your 50’s when you are still in good health and still have time to build your retirement assets.
• GENDER: If you’re a woman your premium will be higher than men because statistically women live longer.
• HEALTH: If you have a chronic illness or a disability, insurance companies will either deny you coverage or jack up your premium to cover their risk.
• COVERAGE: The services you want to be covered will be subjected to daily reimbursements. Coverage usually takes care of 100 percent of the common services including nursing home, assisted living facility or hospice facility, home care, adult daycare, respite services, caregiver services, and hospice care at home.
• DAILY BENEFIT AMOUNT (DBA): LTC insurance companies generally pay the maximum of the policy holder’s daily cost of care. As an example, if you buy a policy with a $150 per day reimbursement, you’ll pay the balance out of your own pocket if you exceeded $150.
• BENEFIT PERIOD: In addition to the DBA, you must also choose the number of years (or days) of coverage. The more coverage time, the more your premium will be.
• INFLATION PROTECTION:  Most LTC policies account for annual inflation. On balance, 3% per year generally keeps up with the yearly inflation rate.
• CERTIFICATION PERIOD: This is the amount of time that an insurance company takes to assess your eligibility for long-term care insurance, including your ability to pay the yearly premiums you chose.
• ELIMINATION PERIOD: This is the period that must pass from the beginning of your need for care and when you are eligible to receive reimburse benefits.

Who Qualifies for Long-Term Care Coverage?

Long term care insurance is underwritten by insurance companies. Premiums are based on your age, health history and where you live.

Each year you wait to apply the cost for coverage rises. With most policies, once you’re insured, your premiums are locked in and do not increase as you age.

You’ll need to pass a health screening process to be approved. Certain medical conditions may disqualify you from coverage. This is why it’s so important to apply for insurance before an unforeseen injury or illness.

When applying for coverage, most carriers require a telephone health interview and will need to see your official medical records. Depending on your age and health, a carrier may also want a face-to-face assessment in your home.

The LTC insurance underwriting process usually takes 4 – 6 weeks. It all depends on how quickly your medical records are received.

It’s important to know what your doctors have written in your medical records. If you’re concerned about what’s in your medical record, you can get a copy of your medical records from the Medical Information Bureau and request access to your prescription drug records from your state Prescription Drug Monitoring Program.

Cognitive impairment, including dementia and Alzheimer’s, are a few of the main reasons people purchase LTC insurance. You can be sure that the insurer you choose will look for these conditions in your medical history.

If your record indicates cognitive impairment, your carrier will use standardized tests during the phone or face-to-face interview. The standardized tests are the Minnesota Cognitive Acuity Screen and the Enhanced Mental Skills Test.

Physical therapy is another reason you could be declined. If you are currently receiving home care, adult daycare, nursing home, or facility care services you’re likely to be declined, including:

• Needing assistance with bathing, eating, dressing, transferring to a bed or chair, toileting, or continence
• Use of a walker, wheelchair, quad cane, motorized scooter, nebulizer, ventilator, hospital bed, oxygen, or kidney dialysis
• Current use of narcotic pain medication
• Currently in Physical Therapy
• Receiving disability benefits

Other diagnoses commonly declined coverage:

• AIDS/HIV+
• Alzheimer’s
• Amputation due to disease
• Amyotrophic Lateral Sclerosis (ALS or Lou Gehrig’s Disease)
• Cancer of bone, brain, esophagus, liver, pancreas, stomach
• Cirrhosis of the liver
• Congestive Heart Failure (CHF)
• Cystic Fibrosis
• Dementia
• Frequent/Persistent forgetfulness or memory loss
• Huntington’s Chorea
• Chronic Kidney Disease
• Metastatic Cancer
• Multiple Sclerosis
• Muscular Dystrophy
• Organ Transplant other than kidney or cornea
• Organic Brain Syndrome
• Paralysis
• Parkinson’s Disease
• Scleroderma
• Schizophrenia or other forms of Psychosis
• Systemic Lupus
• Transient Ischemic Attack (TIA) within 2 years or more

When Should I Get Long-Term Care Insurance?

For most people, the best time is between ages 55 and 64. This is a general rule, but it’s best to get your LTC policy before you qualify for Medicare. The reason for this is simple. When you enroll in Medicare you’ll start getting free preventive health exams, starting with your “Welcome to Medicare” doctor visit.

Preventative health exams are wonderful. However, if your doctor finds a chronic health condition, it could prevent you from qualifying for long-term care insurance. There are no guaranteed issue rights with LTC insurance as there are with Medicare Supplements (learn more here). You must go through medical underwriting.

If you’re counting on a Medicare Advantage plan to cover your LTC needs, you’d better do your homework. While it’s true that, since 2019, Medicare Advantage plans can cover some LTC expenses, such as home-delivered meals and items that make it possible for you to continue living at home, they don’t cover long-term home care or long-term care in a facility. You can learn more about what Medicare Advantage covers, here.

Although Medicare Advantage plans cannot (yet) cover long-term care costs, there are plans designed specifically for people in long-term care facilities. A growing number of Medicare Special Needs Plans (SNP) offer coordinated care for institutionalized beneficiaries. You can learn more about Medicare Special Needs Plans on this page.

State Long-Term Care Partnership Program

The Medicaid program in most states offers long-term care insurance companies partnership programs as an enticement for people to buy long-term-care coverage.

Partnership programs allow insurers to offer policies that protect against inflation. If you buy a partnership policy, you get to protect more of your assets if you use up all the long-term care benefits and then need help from Medicaid.

In most states, a single person can have assets totally no more than $2,000 to be eligible for Medicaid assistance. If you have a partnership policy you can qualify for Medicaid sooner. In most states, its a dollar for dollar benefit. In other words, you can keep a dollar that you would have had to spend to qualify for Medicaid for every dollar your long-term care insurance paid out.

Check with your state’s insurance department for more information.

Long-Term Care Tax Advantages & Benefits

Long-term care insurance offers a slight tax advantage if you itemize deductions. The deduction benefits increase as you get older.

Federal and some state tax codes allow you to include all or part of your long-term care insurance premiums as medical expenses, so long as they meet a certain threshold. The annual limit on the amount of LTC premiums you can deduct increases with your age[3].

Age at the end of the yearMaximum deductible premium40 or under$42041 to 50$79051 to 60$1,58061 to 70$4,22071 and over$5,220

How To Choose Long-Term Care Insurance

The American Association for Long-Term Care Insurance, or AALTI, suggests a “Good – Better – Best” approach. The following chart explains each lever of coverage:

Alternatives to Long-Term Care Insurance

As we’ve explored in the topics above, an LTC insurance policy helps you prepare for a time when you’re not able to take care of your own basic needs. But long-term care insurance isn’t the only way to cover your in-home care, adult daycare, assisted living, or nursing home financial needs.

Long-term care insurance is not an option for everyone, especially if you wait until your 60s to look into purchasing coverage. About 8 million Americans have LTC insurance, according to the American Association for Long-Term Care Insurance. That means most people are finding alternatives.

Here are a few alternatives to long-term care insurance to consider:

• A life insurance policy with a long-term care rider
• An asset-based policy
• An annuity
• Save money for long-term care
• Family and friends

The Bottom Line on Long-Term Care

Long-term care is complicated and it’s becoming more so as we live longer. Here are some general rules to follow while shopping for LTC insurance:

• Do your research. Investigate the quality of service, efficiency, and reliability of the insurance company you’re thinking of using. Compare rates.
• Get covered while you’re younger. The younger you are the cheaper and easier it will be to get.
• Avoid buying cheap insurance. Long-term care is expensive. You don’t want your coverage to run out in your desperate time of need.
• Avoid buying too much insurance. Don’t buy more than you need. Use some of your savings to pay for a part of your care and let your policy take care of the rest.
• Scrutinize each policy carefully. The most important thing to remember is that your policy must be designed around your needs and what you think you’ll need in the future.
• Talk with an insurance broker. Agents are typically captive to a specific insurance carrier. Brokers compare prices and service quality of multiple insurance companies to find you the best deal.

[1] https://www.genworth.com/aging-and-you/finances/cost-of-care.html

[2] According to a 2019 price index from the American Association for Long-Term Care Insurance.

[3] IRS Revenue Procedure 2018-57