Long-Term Care Insurance: Fact Vs. Fiction

When reviewing a person’s assets, liabilities, health, and choices for healthcare facilities during retirement, a qualified financial planner will often mention long-term care insurance.  However, those who are considering this option often have trouble separating fact from fiction.  The first fact is that few people are prepared to handle the financial burden of long-term health care.  In turn, many of those same individuals have a false sense of security when it comes to long-term care.

Earning Power

A persons earning power is their ability to earn an income and is one of the most valuable assets a person has in their lifetime.  Earning power is comprised of a persons income, a spouses income, investment income, and other income.  In fact, a 30-year-old couple will earn $3.5 million by the age of 65, if their family income averages $100,000 for their entire working careers.  This amount does not take into consideration any raises they may receive during this time.

For those couples who have worked hard and taken their earning power and turned it into financial security for retirement, without proper planning, a serious accident or illness can rob them of their financial independence.

Some Interesting Facts

There are several facts that the average working American may not realize:

  • Almost 70% of people who turn age 65 will need long term care services and supports at some point in their lives.
  • Medicare and most health insurance plans, including Medicare Supplement Insurance policies, do not pay for long-term custodial care.
  • Women make up 67% of nursing home residents and 70% of assisted living residents.
  • The national median rate for a private room in a nursing home in 2016 was $253 per day.
  • The average length of stay for a nursing home resident is 835 days, more than 2 years.
  • The cost for the average nursing home at the average length of stay would cost a person over $211,000 in total.

Separating Fact from Fiction

There is a false sense of security many people have when it comes to long-term care.  By comparing the fact and the fiction, a true grip can be taken on the financial burden of long-term health care.

Fiction Medicare and Medicare supplement policies will cover long-term health care.  

Fact Medicare and Medigap insurance will not pay for ongoing, long-term care.

  • Medicare will pay for up to 100 days in a skilled nursing facility.  However, a 3-day minimum inpatient hospital stay must proceed this, along with a related illness or injury.
  • The first 20 days of this stay will be paid by Medicare, but during days 21-100, a co-payment must also be paid during each benefit period.
  • For short-term skilled nursing home care following hospitalization, Medicare only pays about 12% of the entire nursing home costs.
  • Medicare and most health insurance plans do not pay for long-term custodial care.  This includes Medicare supplement policies.

Fiction The cost of nursing home care can be covered by retirement income.

Fact The cost of nursing home care is often more than what people can afford.

  • On average across the nation, one year in a nursing home currently costs over $92,000 for a private room.  In some areas, this cost exceeds over $110,000.
  • The average length of a nursing home stay is 835 days.  This equals to more than 2 years and 3 months.
  • When combined, the average length of stay and the average cost of nursing home care would cost $322,000.
  • Assisted living national average costs in 2016 was $43,539 per year.  If a patient has Alzheimers and dementia care, the cost can climb to between $60,000 and $70,000 annually.
  • Home health care is less expensive, but still adds up in overall cost.  The national average rate for a licensed home health aide was $20 per hour.  The cost of having an aide come into the home for 21 hours per week, or 3 hours per day, can cost over $1,800 per month or almost $22,000 per year.

Fiction The odds of needing long-term care is low.

Fact The odds of needing some type of long-term care is almost 3 out of 4 retirees over age 65.

  • Almost 70% of people who reach age 65 will need some type of long term care services and supports at some point in their lifetime.
  • A majority of nursing home residents and assisted living residents are women.  For nursing home residents, 67% are women and 43% are men.  In assisted living, 70% are women and 30% are men.

Fiction If I cant afford long-term care, Medicaid will take care of the cost.

Fact If a person has a certain amount of income and assets, they will not qualify for Medicaid.

  • Medicaid is a joint program between the federal government and states and is intended to help with medical costs for some people with low incomes and limited assets.  
  • Certain services must be included by the state in order to receive the Medicaid funds from the federal government.  Those who qualify for Medicaid may receive coverage for nursing home care and prescription drugs.  However, nursing home care must take place in a Medicaid-approved facility in order to qualify for Medicaid reimbursement.  Other services may or may not be included based on the particular state.
  • In order to qualify for Medicaid, certain federal poverty guidelines for income and assets must be met.
  • State requirements for Medicaid eligibility vary from state to state, but all must have low incomes and financial assets in order to qualify.
  • Homes and cars are not included in determining Medicaid eligibility.
  • Medicaid costs will be recouped from the estates of Medicaid recipients.  For example, a home must be sold and the proceeds used to pay for the care received while the decedent was alive.

Instead of making Medicaid part of a persons retirement plan, it should be seen as a safety net for those who did not adequately plan for financial needs in retirement.  Therefore, plan ahead of time with a qualified financial planner to ensure that your retirement is financially safe and secure, even if you or your spouse have to receive long-term care services.

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