Six Ways to Plan For Long-Term Care

And ignoring it is still a plan

In my first article of this series, “Will You Need Long-Term Care Services?” I included a list of all the services that fall under the term “long-term care.”

In addition, I pointed out that most people receiving long-term care choose to receive it at home. But while 65% of people receiving care will receive it at home, 35% of people receiving care will receive it in a nursing home.

Regardless of where you think you will receive the care, you still have to plan how to deal with it. This article will focus on your choices.

Choice #1 Rely on Family and Friends

This is the default plan for anyone who chooses to ignore the issue of planning for long-term care needs.

According to a 2019 Morningstar study, 83% of seniors needing long-term care had unpaid family or friends provide it. And of those unpaid caregivers, 70% suffered work-related difficulties as a result.

It should also be noted that 30% of seniors need care for two years or longer. That is a heavy load to place on family and friends. At the very least, if you can, you should create a plan to help any family or friends who provide your care financially.

In any event, the question is: do you want to place this burden on family and friends?

Choice #2 Rely on Medicaid

According to The Congressional Research Service, 42.1% of all Long-Term Care expenses were paid by Medicaid, while Medicare paid 18.2%.

It must be noted that Medicare has stringent rules regarding long-term care services and cannot be counted for long-term care.

Regarding paying for Nursing Home care, Medicaid covers the cost for 62% of patients.

How do you qualify for Medicaid?

First, you will be required to spend down your assets. For single individuals, you can retain $2000 in savings. In addition, all your income will be applied to your nursing home costs.

For example, let’s consider a single individual aged 75 with a combined total of $800,000 in savings, investments, and a retirement account. In Arizona, this individual must spend $798,000 on long-term care costs.

If this individual also owned a home, it could be sold by the state to recover Medicaid costs.

For married couples, this is a bit different. Let us assume this couple has $300,000 in savings, and each spouse has $250,000 in a retirement account. In this situation, the spouse that does not require long-term care can retain $150,620 in assets.

In addition, there is an income test for benefits. In Arizona, each spouse qualifies based on their own income, although there is a combined income if both need care. To qualify, the individual’s monthly income must be below $2742. It is my understanding that if the spouse requiring care had an income of $1800 and the other spouse had an income of $3000 a month, that $3000 would be exempt.

The examples above came from using a calculator on the American Council for Aging website.

Keep in mind, that each state has its own rules, so check with your state.

Please seek legal counsel when considering Medicaid planning.

Choice #3 Use a Reverse Mortgage

Heading into retirement, most people have a mortgage-free or at least almost mortgage-free home. And that provides great peace of mind in retirement. But in the absence of significant financial resources or long-term care insurance, the equity of the house can be used to pay for long-term care.

A reverse mortgage is simply a way to turn the equity in your home into a monthly annuity. The annuity continues for as long as you or your spouse continue to live in the home.

This option is extremely valuable for both a single individual and a married couple.

For the single individual, the equity in the home can be tapped into to help pay for home healthcare. For the married couple, the house's equity can be tapped into for home health, nursing home, or assisted living expenses.

The great thing about the reverse mortgage for the married couple is that as long as one spouse lives in the home and keeps up with maintenance and taxes, they can stay there, regardless of the mortgage amount.

Choice #4 Buy a Home Health Care Insurance Policy

Because we know that everyone would prefer to receive care at home and that most long-term care is delivered at home, this is a viable insurance option.

Home healthcare policies are a relatively new insurance product and have evolved significantly. Today, several companies are selling policies that will pay a weekly benefit for up to 52 weeks for home healthcare.

The best of these policies will pay the benefit directly to you regardless of the actual cost of care if you meet the requirements. What does it take to receive benefits?

This is where you have to take the time to understand the policy because not all home healthcare policies are equal, and it can be very difficult to understand the differences. Even many insurance agents miss the fine details.

Here is an example of two policies that sound similar but are significantly different.

Policy #1 will pay $1200 a week for up to 52 weeks when you qualify for care. This policy also includes a feature allowing you to file a second 52-week claim after being treatment-free for 180 days.

Policy #2 has a $ 1200-a-week benefit payable for 50 weeks. But it does not provide for a second claim period.

Costs: Policy #1 will cost roughly $80 a month, while policy #2 is approximately $10 more monthly.

But there is a big difference. Policy #1 states that care must be medically necessary, and treatment must be aimed at improving the condition. Policy #2 simply requires a physician to certify that the insured needs help with two out of six activities of daily living.

The second policy is actually the better policy for long-term care needs. If my wife were suffering from dementia or suffered a stroke, improvement is unlikely. But she might need help feeding herself or bathing herself.

Who Should Consider a Home Healthcare Policy?

While it is a less-than-perfect solution, a home healthcare policy can provide funds to provide professional and respite care for a family member or friend who may be providing unpaid caregiving. Once the policy is triggered, the benefits get paid for as long as you must receive at least three weekly visits. The benefits paid in excess of the actual costs can be used for other needs.

Choice #5 Buy a Long-Term Care Insurance Policy

Long-term care insurance was first developed in the nineteen eighties. It was evident that the need for long-term care services would increase as the boomers aged. Medicaid was not equipped to pay for this care, and it was thought that most Americans would not want to apply for it.

Long-term care insurance never actually took off as a product. And many of those that did purchase it found themselves getting significant premium rate increases that made the policy unaffordable.

Nonetheless, long-term care insurance is an option, albeit an expensive one.

Most long-term care policies will include benefits for home healthcare and institutional care. Generally, benefits are either for three years, five years, or for as long as the insured requires care.

To give you an example of cost, I visited the Mutual of Omaha website where I found a great calculator. According to that calculator, a policy providing $5000 per month for 36 months of care with a 3% inflation rider would cost a 65-year-old male $294 per month. To insure a couple there would be a 30% discount. But that still leaves a cost of over $400 a month.

In addition to the policy's cost is that if you do not use it, that money is gone forever. So, due to the cost and the fact that once paid, the premiums are gone forever, only 10% of Americans own a long-term care insurance policy.

Choice #6 Buy a Hybrid Life Insurance or Annuity Policy

Finally, we come to what I believe is the best choice for people with assets to protect. Several insurance companies have developed life insurance policies and annuities that include enhanced benefits for long-term care.

In fact, if you have investments that you do not need to touch and will not need to, this is far better than leaving your money in the market. This is especially true if your goal is to leave a legacy for your children.

Let me give you some examples of how these policies might work.

Single Premium Life Insurance

Here is an example that I found for a couple. The husband is age 61, and the wife is age 60. They have $150,000 currently sitting in investments but are not being used for their retirement income. They use the $150,000 as a one-time premium. That immediately creates a death benefit of $196,479. If either of them were to die tomorrow, the beneficiary would receive that as a tax-free benefit.

However, if one or both were to need long-term care, that policy would provide $70,000 per year for each of them for as long as they needed care.

Of course, they both must qualify for life insurance.

Single Premium Annuity

An annuity is another good choice for some people. There are several different approaches to providing long-term care benefits from an annuity. Some policies have guaranteed enhanced benefits for long-term care, while others base their benefits on policy expectations.

Here is an example of an indexed annuity that has enhanced benefits for long-term care. Assuming the policy operates as expected, a $75000 investment for a male age 70 would provide approximately $39,000 a year for seven years for long-term care.

It should be noted that most annuities' long-term care benefit depends on the policy performing as predicted as opposed to a guaranteed benefit. I chose the annuity for two reasons:

1: I could not qualify for the life insurance product due to a history of cancer.

2: If needed, my wife and I plan to use long-term care in Mexico. I was looking for a policy that did not require care or diagnosis in the United States.

Several companies offer these hybrid policies, so make sure to work with a qualified, independent insurance agent (like me) when looking into them.

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