The Importance of Long Term Care
Updated: May 26, 2022
As a professional, some of the most important financial needs to address in your adult life include your career benefits, a mortgage and retirement savings, among other things. There is less discussion around long term care planning, perhaps because it is not a subject we like to think about. However, thinking about and planning for long term care is more important than most people realize.
Long term care typically refers to services such as nursing homes, assisted living facilities, in-home care providers, and adult day care centers. These services are for the elderly and those with chronic illness or disabilities. Part of this care is medical care such as pain management, therapy, and administration of injections. The second, and most common part is custodial care. Custodial care does not involve medical care, rather it covers help with eating, bathing, mobility, and other assisted living tasks that the patients are not able to do independently.
While the doesn’t sound like something you need to worry about now, the Department of Health and Human Services reports that about 70% of adults who live past the age of 65 require long-term care services at some point. For this reason, you should create a financial plan for long term care early, especially considering that most employer-sponsored insurance plans do not cover these services.
Medicare Part A only covers long term care in the case where custodial care occurs alongside medical care for an acute illness or injury. It requires an individual to have a minimum 3-day hospital stay immediately before requiring long-term care. This occur usually occurs in a skilled nursing facility. This plan covers the following:
100% of the first 20 days
Covers most costs from days 21-100 but requires a copayment of $185.50 per day
Not covered from days 101 and beyond
Medicare covers the full cost of custodial care when a person receives hospice care.
Alternatively, Medicaid does cover some long-term care coverage for those fitting the low-income criteria necessary to qualify.
Without long term care insurance, care could cost anywhere between $20,000 and $100,000, depending on the services you need. Approximate annual costs include:
$93,075 to $105,850 for nursing home care
$53,768 for homemaker services
$54,912 for a home health aide
$51,600 for an assisted living facility
$19,240 for adult day health care
Long Term Care insurance eligibility and premiums vary by age, gender, marital status, current health condition and the type of plan and carrier chosen. On average, in 2021 a single 55-yr-old male purchasing a $165,000 policy benefit will pay $950 per year, while a single 55-yr-old women will pay $1,500 annually. A 55-yr-old couple will pay $2,080 combined annually. Every year on your birthday the annual rate will typically increase by 2% to 4% in your 50s but may jump to 6% to 8% per year in your 60s. While long term care insurance can be a helpful planning tool, it’s important to note a few drawbacks. The premiums are not guaranteed and can be increased at any time. Additionally, many of the policies require you to continue paying the premiums while you are in retirement. If you don’t need the care, the policy has no utility.
You can also look towards policy options such as combining life insurance or annuities with long-term care benefits. Some of these solutions are more flexible in nature as they can be used for different purposes. For example, with permanent life insurance, you may access the cash value for spending needs if you don’t end up needing care, or you can leave a legacy tax free with the death benefit. Furthermore, home equity and reverse mortgages could also lend a hand in paying for LTC costs.
Another important factor of long-term care is the duration. Data findings indicate that the average number of years people need any LTC services is 3 years. The average woman needs LTC services for 3.7 years and the average man for 2.2 years. These numbers include a combination of care within the home and care at an assisted living community or nursing facility. At home, people will need about 1 year for either unpaid care or paid care. For assisted living facilities, the average length of stay for residents is about 28 months. However, 60% of those in assisted living will eventually require a higher level of care, such as a nursing home. The average length of stay in a skilled nursing facility was around 485 days in 2015. Moreover, over half of the residents in nursing homes had a “long stay” (over 100 days) in 2016.
Don’t wait until your health needs demand immediate long-term care. It will be too late to secure insurance. Depending on the type of insurance you put in place, it may make sense to start early to accumulate benefits.