The Basics of Long Term Care

For most seniors, the potential need for long term care is not a pleasant topic. It conjures up visions of nursing homes; of isolation and loneliness; of being surrounded by strangers and separation from loved ones and being away from home – perhaps never to return.

Long term care insurance does not rate much better as a topic. It conjures up pushy salespeople anxious to sell a policy as quickly as possible before moving on to their next prospect. The policies themselves can be confusing and expensive. Besides, won’t Medicare or the Medicare Supplement policy pay for care when and if needed?

In this article, we will “demystify” long term care and discuss the sources of payment for care – including the role of long term care insurance. A better understanding of these topics will help you get over any anxiety you may have and make you more willing to face your (or your spouse’s) potential need for care and how you can better prepare for it.

Long term Care and the Role of Long Term Care Insurance

When we use the phrase “long term care” we are referring to personal or custodial care. We are not referring to health care – the distinction is important because, in general, Medicare and Medicare Supplement policies do not pay for custodial care.

Custodial care – the type of care paid for by long term care insurance policies – includes assistance with the “activities of daily living” or ADLs. These are functions and activities you normally do every day without assistance. There are six ADLs:

• Bathing
• Continence
• Dressing
• Eating
• Toileting
• Transferring

As you can tell from the list, assistance with ADLs does not typically require a licensed health professional. Unpaid family members can, and often do, provide the assistance needed. When a paid caregiver is required – whether the care is received at home, in an assisted living center or nursing home - Medicare and Medicare Supplement plans pick up only a very small percentage of the cost of custodial care (if they pay anything at all). Nor do most employer provided retiree health care plans pay for such costs.

This is where long term care insurance can help. Most policies will pay for care once a policyholder is unable to perform 2 of the 6 ADLs. In addition, the policy will pay if the policyholder has a cognitive impairment such as Alzheimer’s disease. A good policy will pay for care whether it is received at home, in an assisted living center or nursing home.

How Much Does Long Term Care Cost?

The answer to “how much does long term care cost?” depends on such factors as the amount of care needed, its duration and where the care is received. The most quoted statistic in the news media is the average cost of a year in a nursing home – approximately $78,000. But this is only an average – the actual cost can vary tremendously depending on where you live. For example, the average annual rate in Alaska is $187,800 while in Louisiana the annual average cost is $42,900!

But most long term care claims are for the costs of care received at home. Initially, home care can be much less expensive than nursing home care - although costs can escalate quickly as health deteriorates. Home costs vary depending upon the skill of the caregiver required. The average hourly cost for homemaker services (shopping, cooking) is $18 while a certified and licensed home health (skilled) care aide can cost as much as $38 per hour. Again, these are national averages – the cost varies greatly depending on what part of the country you live in.

Who Pays for Long Term Care?

If you don’t have long term care insurance and Medicare pays for only a limited amount of long term custodial care, who does pay? The sources of payment come down to:

• You (from your retirement nest egg)
• Medicaid.

Medicaid is a health insurance program run jointly by the Federal and state governments. It is meant to pay for health care and long term care coverage for the poor regardless of age. Medicaid will pay for your long term care costs once you are impoverished. In other words, once you have depleted almost all your assets due to the cost of your care or the cost of your spouse’s care, and meet the definition of “impoverished” (which can vary by state), Medicaid will pay the cost.

Summary

It is possible to need long term custodial care at any age. However, the chance of needing care increases greatly as we age. The question is – how best to plan for this contingency. You’ve learned that government programs are limited in the assistance provided. Medicare pays for custodial care only under very limited circumstances. Medicaid does pay for care but you must be impoverished to qualify for the program. That means care must be provided by unpaid family members or care must be purchased using your personal funds or long term care insurance proceeds – if you purchased a policy.

The Future

The outlook is not as bleak as it seems. Millions of Americans have turned to long term care insurance as a way to finance part or all of their care. Good policies pay for care whether it is received in an institution or at home. New annuity and life insurance products include provisions for the payment of long term care costs incurred by the policyholder. Technology will allow many of us to “age in place” and remain at home longer than previously was possible.

In separate articles we will discuss and explain the advantages and disadvantages of these exciting new developments.