The longer people live, the greater the likelihood they will require assistance in old age. And today, people are living longer than ever. As if providing for one’s own retirement isn’t hard enough, now we must factor in the cost of providing long-term care.
Health insurance — including Medicare — is designed to cover only expenses related to acute care, such as a trip to the hospital. It does not cover the cost of assistance over a long period of time — and certainly not for the remainder of your life. Unless you qualify for government benefits or purchase some form of long-term care insurance, this form of assistance must be paid for out of your retirement income.
In addition to whatever saving and investment vehicles you are using to accumulate a retirement nest egg, it’s also important to consider what options are currently available to help finance long-term care.
Medicaid and Medicare
Medicaid offers benefits for long-term care, but generally it requires that beneficiaries use their own assets to pay for care until they are down to their last $2,000. Certain assets are excluded such as home equity in your primary residence of up to $572,000 – $858,000, depending on which state you live in. Medicaid coverage is available only for traditional nursing homes, but not every facility accepts Medicaid patients.
Historically, Medicare offered coverage for nursing home care only up to 100 days after a hospital stay. However, in March of 2018 the Centers for Medicare and Medicaid Services (CMS) announced that, starting in 2019, Medicare Advantage (MA) plans would be permitted to offer coverage for certain long-term care services. The CMS has left it up to individual MA insurers to determine specific coverage options, but suggested that it might include home aides to help with daily living activities as deemed medically appropriate by a licensed health care provider.
Be aware that only Medicare Advantage plans, not original Medicare, are able to implement long-term care coverage under this new rule.
If you are a veteran who served at least 90 days during a time of war, you might qualify for long-term care benefits through the Veterans Aid and Attendance program. Eligible applicants may not exceed certain income and asset limit requirements. The benefit offers as much as $1,830 per month to a qualifying veteran and as much as $1,176 for a surviving spouse specifically for long-term care assistance.
The Housebound Benefit is another long-term coverage option for veterans with a permanent disability that leaves them mostly shut-in at home, but who do not need daily assistance. The benefit is paid as an additional stipend to a veteran’s monthly pension.
Long-Term Care Insurance
Traditional long-term care insurance (LTCI) works much the way we use auto insurance. In other words, you pay a premium whether you end up using the coverage or not. The purpose of this insurance is to help protect a household’s assets. Because long-term care is expensive, it can use up an entire nest egg, leaving nothing for the other spouse to live on.
Long-term care insurance generally pays for daily assistance resulting from a disability or chronic illness from which the patient is not expected to fully recover. The policy may pay out a fixed sum to the policy owner for home health aides, or a fixed per diem paid directly to a nursing home or assisted living facility. Generally, both indemnity and reimbursement policies have contractual limits.
Note that many LTCI policies require a waiting period (e.g. 90 days) before coverage kicks in, and there is generally a limit to how long coverage lasts (e.g. three years).
Hybrid Insurance Options
These days, different types of life insurance policies now include long-term care coverage as an optional rider or as part of the policy. For example, a long-term care rider may be added to a whole or universal life insurance policy for an additional fee. Or, a policy might offer terminal illness benefits, which pay out a portion of the policy’s death benefit if the policyowner is diagnosed with a terminal illness or cognitive impairment.
Some annuity contracts now allow distributions for long-term care expenses. The Long-Term Care Doubler or Home Health Care Doubler allows the lifetime income benefit to be doubled and paid out for a limited time or for the duration of the long-term care stay. Also note that these annuity-based long-term care benefits are distributed on a tax-free basis.