Traditionally, long-term care (LTC) was actually thought of as “end-of-life” care – you went into a nursing home and died there, generally within a year or two. But if your care was given at home, your family either provided it themselves or paid for outside help out of their pockets. And if Medicare or Medicaid didn’t pay for nursing-home care you or your family did. The original LTC insurance policies were created to help families fill these funding gaps.
LTC is not simply the care you might need at a nursing home near the end of your life. So here we look at the different types of LTC and the options you have to plan for the day you and your family might need it, ensuring you have some choices when that day comes.
The first LTC policies, issued until about the early 1990s, paralleled the Medicare LTC requirements. The only difference was that these original LTC insurance policies normally provided only care that was custodial in nature rather than medically necessary, skilled care.
There were three main problems with these original LTC policies:
- Few people who needed custodial care spent three days and nights in a hospital.
- If covered care was required the need often did not last long enough to meet the LTC policies’ elimination (waiting) period.
- The policies’ didn’t cover care anywhere except in a nursing home.
To counter these shortcomings, the next generation of LTC policies greatly expanded their offerings – well beyond custodial care in a nursing home. They eliminated the requirement for the three-day/night hospital stay, but they also added bells and whistles such as family, spousal and multi-generational discounts, lifetime benefits and more.
Here are some of the care-facility options these policies offer:
- Nursing-home care.
- At-home care.
- Assisted living/continuing care.
- Alzheimer’s/group-home care.
- Adult day care.
- Respite care.
- Home modification.
These represent a person’s main options for meeting his or her LTC needs.
To address issues concerning the taxability of benefits, LTC insurance policies have been developed to ensure benefits received are tax qualified, meaning part of the premiums are deductible, and the benefits you receive for those costs exceeding 7.5% of your adjusted gross income are tax free.
How Can a Person Plan to Pay for LTC?
Here are the main options and their limitations. (The next section explains the various facilities and locations where you can receive LTC.)
Medicare does provide LTC for people who are over 65 and covered by Medicare, but only about 5-8% of all nursing-home care given is paid for by Medicare. This type of funding is often quite restricted: it may pay only for medically necessary, skilled care given in a nursing home, and the benefit periods are limited to 100 days each. And those 100 days impose some hefty co-payments.
Medicaid LTC benefits are quite comprehensive, at least in some states. Some states (or cities) have case management systems with client input about the type of care and facility where the care will be given.
But if you are not close to indigent, you may not qualify for Medicaid, which means you must somehow pay your own expenses or hope Medicare will pay for awhile.
If you are married and you need LTC, your spouse can even stay at home, and he or she can usually keep his or her pension, Social Security and/or similar income. If your spouse has little or no income, some provisions allow part of your income to go to him or her while the balance goes toward your care. Your spouse can also keep some cash and other assets – the amounts change each year and vary by state, but you can go to http://www.medicaid.gov/ to see current Medicaid regulations.
Here are the disadvantages of Medicaid:
- You may not be able to receive care in your home.
- When the spouse living in the home dies, your state may sell the home and take the money to pay for your care. This may be a problem if you get well enough to return home, or if you are planning to leave your home to your heir’s.
- If, to try and qualify for Medicaid-paid LTC, you gifted your assets to a trust or your family but then later got better, you may have a problem getting to your money, which you now need.
- Not all facilities accept Medicaid, and those that do may have a separate wing, mandatory roommates and other restrictions on what you can receive from their facility.
Pay as You Go
This is how most people pay for LTC – they do it on their own, using what resources they have at the time. But family members providing your care can suffer lost time, lost wages, missed events and missed opportunities. Alternatively, paying for your own care quickly eats up assets that could have gone to your heirs.
If you are planning simply to pay as you go, think again. Nursing home costs vary wildly, depending on the facility, where you live and what services you receive. If you live in a rural area of the U.S. you can easily pay $125-150 per day in a nursing home, and in urban or high-cost areas (such as Alaska) it can approach $300-400 a day. Home-care costs, Alzheimer’s group homes and assisted-living facility costs aren’t much less, about 75-80% of the cost of a nursing home. And these rates are rising far faster than the rate of inflation.
LTC insurance coverage is not limited to any type of care or daily rate (or total benefit amount). LTC insurance policies are tailored according to the premiums you can afford (these premiums can go up every year). You can go to any facility your LTC insurance policy covers, and you don’t have to selloff, spend down or gift away your assets to pay for your care.
Also, to stave off some effects of inflation, you can add features that provide a 5-7% compounded (or simple) increase in the benefit. If your policy has been sold since the mid-’90s and has at least a 90-day wait for benefits, your benefits may be tax-free, and your premiums tax-deductible.
Types of LTC Facilities/Settings
There are many types of LTC facilities and settings. If you can afford them, you can choose LTC insurance policies that allow you to receive care almost anywhere. The same applies if you pay as you go. But if you choose to rely on your family, Medicare or Medicaid, you may feel the consequences.
Here’s a summary chart covering the types of LTC settings and the provisions of funding methods:
|Nursing Home||Yes – for up to 100 days of medically necessary, skilled care.||Yes – for as long as custodial care is needed.||Yes – as long as your money lasts.||Yes – according to the chosen policy\’s benefit, period and amount.|
|At-Home Care||Maybe, but not likely.||Maybe – depends on your state.||Yes – as long as your money lasts.||Yes – according to the chosen policy\’s benefit, period and amount.|
|Assisted Living/ Continuing Care||No||Rarely- it depends on your state.||Yes – as long as your money lasts.||Yes – according to the chosen policy\’s benefit, period and amount.|
|Alzheimer\’s/Group- Home Care||Rarely||Maybe – it depends on your state.||Yes – as long as your money lasts.||Yes – according to the chosen policy\’s benefit, period and amount.|
|Respite Care||No||Rarely – it depends on your state.||Yes – as long as your money lasts.||Yes – according to the chosen policy\’s benefit, period and amount.|
|Adult Day Care||No||Rarely – it depends on your state.||Yes – as long as your money lasts.||Yes – according to the chosen policy\’s benefit, period and amount.|
|Home Modification||No||Rarely – it depends on your state.||Yes – as long as your money lasts.||Yes – according to the chosen policy\’s benefit, period and amount.|
1. For Medicare and Medicaid, the conditions outlined in the chart apply provided the previously mentioned conditions are met.
2. Normally, for LTC insurance policies each type of LTC setting is a separate option that can stand alone, so many people pick and chose their options. Your chosen policy may not cover all these care situations.
Wrapping It Up
LTC refers to a great many types of care and facilities. One day you may need some or even all them. Remember LTC has come a long way – far beyond nursing home care – so if you want to keep your options open in the future, make appropriate choices in the present.