Medicare, Medicaid, and Long-term Care Insurance: Myth vs. Reality

Surprisingly, the lifetime probability of needing long-term care for those reaching 65, is about 70%. The question then becomes how to pay for long-term care. 75% of people over 40 don’t think they’ll be able to pay for their own long-term care. Tom Daschle, co-chair of Bipartisan Policy Center is concerned.  “This issue is becoming a national crisis and families must have better options to help cover these potentially devastating out of pocket costs,” he says. 

Millions of people are facing the dilemma of how to pay for long-term care. It’s a major challenge financially, and a burden on average families. 

Kathy Warren gets up from the dining room table in her modest mobile home where she’s been working on a jigsaw puzzle. The outside edge is finished, and the bottom third is taking shape. She walks into her bedroom to look out the window, and into her 92-year-old stepfather’s mobile home across the street. Satisfied he’s up and moving around, it’s time to go.

Kathy walks across the street and lets herself into her stepdad’s home to begin another day of caretaking. It’s been her daily routine for four years, since her mother died. The better part of her day is spent on his personal care and daily living activities. She calls him to a breakfast of French toast, coffee, and orange juice. He comes to the table rolling an oxygen tank in front of him.

The petite 66-year-old in a purple cardigan and jeans peers through thick prescription lenses. She says about her life as a caregiver, “I haven’t been able to visit my son. I haven’t been able to see my granddaughter. My life is really on hold.” With her aging stepfather caught between qualifying for Medicaid and affording out-of-pocket long-term care, she’s his only option.

“Back when I was working, this wasn’t even on my radar,” Kathy says. “I found out that there really are no resources out there for somebody who’s in the situation my dad is. He’s kind of in the middle.” 

Kathy is not alone in her dilemma. The vast majority of aging adults haven’t planned for their long-term care. Only one in ten adults over 55 have long-term care insurance, which is putting a tremendous burden on their families.  Figuring out how to pay for long-term care for the uninsured is no easy challenge. Most Americans will fall into the financial category of Kathy’s stepfather. They’re stuck between not being poor enough to qualify for Medicaid, and not having enough to pay for their own care out-of-pocket.

If you are among the majority of Americans who fall between qualifying for Medicaid and being able to independently pay for long-term care out-of-pocket, Capital Retention can help you find the right solution for you.

How to Pay for Long-term Care

Over 45 million Americans are currently caring for an aging family member. It’s a burden that could be much lighter with the financial support that planning brings. So what are the options when you don’t know how to for pay for long-term care? The current solutions are few, with the burden increasingly falling hardest on families who can’t afford to absorb it. Everyone’s situation is different. Peruse the most common ways of paying for long-term care below. Which is a good fit for you?

 

Medicare

Surprisingly, many people believe that they don’t have to worry about long-term care, because Medicare will pay for it. This is unequivocally not true. Medicare may pay for some qualifying short term events, but it does not pay for long-term care services. Count this option out.

 

Medicaid

Medicaid does pay for long-term care, but only for the indigent. Asset limits to qualify for Medicaid are no more than $2,000 in cash. You can own one home valued up to $500,000, and one car. You can also have a funeral/burial fund equal to $1,500, and personal property essential to self-support. Additionally, you can have the cash value of a life insurance policy.

Counting on Medicaid spend down laws, or even the Medicaid program at all, may be risky. Especially, at a time when the government is considering slashing the program. This option has an uncertain future.

 

PACE

PACE (All-Inclusive Care for the Elderly) is a Medicare and Medicaid program. It provides an alternative to going to a nursing home or care facility. They provide in-home, community, and PACE Center services. Members must be over 55, and live in a PACE service area. They must need nursing home-level care, and be able to safely live in the community with PACE support. PACE provides the same services covered by Medicare and Medicaid with the same asset exclusion rules. It also faces the same unpredictable government funding.

 

Personal Savings

We know adults over 65 have a 70% chance of needing some level of long-term care in their lifetimes. Most are woefully under prepared to pay for it, due largely to underestimating the costs of long-term care. But there is also a universal philosophy of denial, avoidance, and distraction. The average long-term care facility costs $10,000 per year now (not considering inflation). Aging adults will potentially need a half million dollars in savings for a safe and secure long-term care plan. This is a viable option for those with the assets and savings to handle it.

 

Children’s Savings

An uninsured parent’s savings are often depleted by their long-term care needs while still needing care. The next step most families follow is to tap the savings of their children to pay for care. Long-term care costs can become astronomical depending upon the length of care needed. That leaves little opportunity for their children to prepare for their own long-term care. Another viable, albeit unpleasant, option.

 

Traditional Long-term Care Insurance

Traditional long-term care insurance companies count on premiums and conservative investments to pay out claims and to make a profit. Safe investments aren’t yielding enough profit to stay solvent, so raising premiums is the alternative. In 2017, traditional long-term insurance policies increased premiums an average of 83%, shocking many policy-holders. With traditional policies, if you don’t need to use them, the money you’ve paid in is lost. They’re similar to auto insurance or fire insurance. If you can afford the premiums, and don’t mind paying for coverage whether you use it, or not, this is an option.

 

Hybrid Long-term Care Insurance

Today’s hybrid long-term care policies are far better than traditional policies of the 1990s that got both providers and clients in trouble. They’ve eliminated the risk to policy owners with features like one and done pay asset-based premium solutions. You transition your poor performing assets (like a bank CD) into a single premium LTC policy. It provides a three to eight times multiplier in long-term care value on day one, depending on your age. 

 

$60,000, which is two-thirds the cost of one year of care, in a one-time payment would equal $180,000 (two years of care at present day prices) to $480,000 (five years of care) on day one of your policy. Add an inflation rider, and you’re all set. Even better, if you don’t end up using long-term care, the money is an asset you still own. It can be passed down your children as a death benefit. Annual pay options provide similar benefits for those without transferable assets.

Cash for Family Caregivers

For those who don’t have the assets for a one-time payment option, there’s Flex Plan. These affordable long-term care insurance plans include a cash option. You can use it to pay informal caregivers like friends and family. You can also use it for respite care, so caregivers can take a break. If, and when family caregiving is no longer an option, you can use this plan for assisted living. If your care needs exceed those services, you can transition your claims to nursing or hospice care.

 

Are you ready to take your long-term care planning into your own hands?  We’re happy to listen and come up with a plan together that best suits your needs. Call us toll-free at 844-805-3557.

 

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(Sources: How Can Americans Afford Long-Term Care? Bipartisan Policy Center Report, Paying for Senior Care, and CBS Sunday Morning Report)

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