The majority of Americans will live in a nursing home or other long-term care facility at some point in their lives, but most have done nothing to plan for this event.
And given the current options for addressing long-term care, they may carry the bulk of the burden.
Currently, 12 million Americans need long-term care. By 2050, that number is expected to more than double, to 27 million. Where they’ll find that care and how they’ll pay for itis unclear, creating a crisis.
“I think Americans believe that either their health insurance or Medicare will cover long-term care,” says Aaron Ball, senior vice president of long-term care products at Genworth, a financial security and insurance company. However, neither is a true funding source for long-term care, and most Americans don’t have alternatives in place.
In a recent study, Genworth found that despite the fact that roughly 70 percent of Americans reaching age 65 will one day depend on long-term care services, only 11 percent have a long-term care insurance policy.
“Most Americans aren’t adequately funded for their retirement income needs, let alone a long-term care expense,” Ball says. “So there’s a significant financial gap for most individuals in terms of long-term care … and it won’t be funded by a public program or their current health insurance plans.”
Although Ball and other experts and legislators believe that broader public policy changes are needed to address the unsustainable demand for often unaffordable long-term care, you can prepare for the very real possibility that you will one day depend on such facilities for your daily well-being.
What is Long-Term Care?
Though Medicare covers limited instances of long-term care, it more commonly leaves elders and their families looking for alternative funding sources. Planning ahead will help you avoid this last-minute scramble.
Long-term care costs encompass the services chronically ill, vulnerable, aging or disabled people need daily. Some of these services are medical, and others are called “custodial,” meaning they provide assistance with daily living tasks, such as food preparation, bathing and dressing. Medicare doesn’t cover them all.
What Does Medicare Cover?
Medicare may help pay for care in a skilled nursing facility, hospice or home health care only when you’ve had a recent inpatient hospital stay of at least three days and you’re admitted to the facility within 30 days of that stay. Your condition also must warrant skilled care, or care that must be provided by professional medical staff.
In these cases, Medicare will cover 100 percent of most care costs for only 20 days. On day 21 and through day 100, the agency will only cover a portion of the costs, with you covering up to $152 per day and Medicare picking up the balance. After day 100, you are responsible for 100 percent of any remaining uncovered costs.
However, many aging adults need custodial care. They need assistance with getting out of bed, moving around their homes and preparing their meals. If you only need custodial care, you won’t be covered by Medicare. And even for those in need of skilled nursing care, after 100 days, Medicare is little to no help.
Family and Medicaid
Though family dynamics have changed dramatically over the past 50 years, unpaid caregivers – including adult children or other relatives – still represent 90 percent of those providing long-term care, according to the Institute of Medicine.
But caring for a loved one isn’t always possible. About 37 percent of those caring for a senior had to reduce their work hours or quit their job entirely in 2007, according to AARP. For many households, such a loss in income isn’t feasible.
A recent NerdWallet Health study found medical debt – including debt incurred in long-term care facilities – is the largest category of personal debt in collections. And with medical debt being the No. 1 cause of personal bankruptcy, cutting these expenses before they occur could mean the difference between financial health and disaster.
Nationwide, Medicaid, state-funded public insurance, picks up much of the long-term care bill. A study from the nonprofit Bipartisan Policy Center earlier this year showed that Medicaid covered two-thirds of paid long-term care costs.
Seniors facing a need for long-term care can find themselves with no coverage and no funding source, but can have too many assets to qualify for Medicaid. In these situations, families may be tempted to move assets in an effort to qualify their loved one. However, Medicaid has made this slightly more difficult with “look back” rules, making elders ineligible for a certain period after such transfers are made.
Long-Term Care Insurance
Though 45 percent of adults surveyed by Genworth say they do not plan on purchasing long-term care insurance, only 15 percent say they have another long-term care plan.
Of all the reasons cited for not planning for long-term care, cost was the most common, according to the Genworth study. But Americans are willing to make sacrifices, with 74 percent saying they would be willing to give up their daily gourmet coffee to have a long-term care plan in place.
Ball says people must plan for long-term care much in the way they plan for retirement – long before the care is needed.
“We see a lot of folks that start to evaluate long-term care financing solutions in their mid-50s, or even early 60s, and we think you should start to make that assessment in your mid-40s, quite frankly,” he says.
As with life insurance, shopping for long-term care insurance when you’re younger can save you a considerable amount, as your annual premium has the potential to be much lower than if you wait until old age.
How much you pay will depend on the policy you choose. The American Association for Long-Term Care Insurance estimates a 55-year-old healthy, single person could qualify for a plan that costs about $2,000 per year.
But long-term care insurance is far from a one-size-fits-all solution; rising premiums, daily coverage limits and exclusions are common complaints. You should be careful to read the fine print and do your homework.
Providing for your long-term care could ultimately come down to you.
You can save for a long-term care event. Just keep in mind that the average annual cost of nursing home care is around $50,000, according to AARP. It would take considerable planning and a healthy income to cover that expense