Right now, a 65-year-old has a 70 percent chance of needing long term care at some point in the future. Twenty percent of today’s 65-year-olds will need long term care for more than five years. This kind of care is critical to an individual’s health, safety and comfort. And it’s expensive—very expensive. If you someday need long term care, paying out of pocket for your own services could decimate your savings. Long term care insurance may help you protect what you’ve built.
How Long Term Care Insurance Works
First, it’s useful to understand what we mean when we talk about long term care. Defined by the Department of Health & Human Services as “services and supports necessary to meet health or personal care needs over an extended period of time,” long term care looks different in different people’s lives. Anyone who lives in a nursing home or assisted living facility is receiving long term care. For people living at home, LTC services may include daily visits from health aides who assist with bathing and grooming, or community-based programs like adult day care for people with dementia.
Because the people who need these services tend to be either elderly or disabled, many can’t pay out of pocket for long term care. Government programs (Medicaid) provide necessary services to eligible Americans who lack the resources to afford their own care. But Medicaid has strict eligibility and financial requirements that often leave its recipients with very limited assets.
Long term care insurance is an option for anyone who hopes to avoid relying on Medicaid someday, but wouldn’t be able to afford a years-long nursing-home stay. Someone with this type of coverage pays a monthly premium. If long term care services become medically necessary, the insurance company will pay for those services, with caps on how much it will pay per day and over the person’s lifetime. There are a lot of different options around these insurance policies, including shared-care riders that let couples pool their coverage.
Pros of Long Term Care Insurance
Freedom of choice is a real selling point for long term care insurance. Those people who rely on Medicaid to meet their needs are restricted in where and how they receive services. Someone with an LTC insurance policy has more autonomy to decide where they will live and who they’ll choose to help them, for example.
Then there’s the eligibility issue. In Massachusetts, applying for long-term care services under MassHealth (the Commonwealth’s version of Medicaid) can take months. Before that, eligible applicants have to spend down their assets to nearly zero if they want to get approved. There are strict guidelines around how an applicant is allowed to get rid of “excess” assets (giving them away to a family member won’t work), and the previous 60 months of an applicant’s financial history are scrutinized.
Essentially—getting Medicaid to pay for your long term care may wipe out nearly everything that you’ve built. But few people can afford to pay $10,000+ a month, over the course of several years, for residency in a nursing home. Long term care insurance is one potential solution.
Cons of Long Term Care Insurance
For someone considering long term care insurance, timing is a critical factor. Often people don’t think about LTC insurance until they’re nearing or older than 65. As you might assume, premiums rise with the age of the applicant. Someone who buys a policy at age 70 may have premiums twice as high as if they had bought the policy at 60.
Also, not everyone is eligible for this insurance. Certain pre-existing conditions will disqualify you. Waiting too long to apply puts you at risk of developing such a condition in the meantime.
Like with all insurance choices, there are a myriad of reasons that long term care insurance isn’t right for everyone. Premiums can cost several thousand dollars a year, which may be an inadvisable use of that money for relatively young and healthy people with limited assets. Plus, LTC insurance has its limitations. Someone who chooses a three-year policy may end up living for six years in a nursing home, landing them back in the position of having to figure out how to pay for care.
Should I Have Long Term Care Insurance?
Generally, your early 50s is the right time to think about buying long term care insurance, though some people buy policies even younger. If it’s the right choice for you, applying before you’re 65 is ideal—but older applicants still may have options too. Because your health determines whether you’re insurable, and your financial picture determines whether long term care insurance is advisable, this is a highly personal decision. The advisors at Sachetta Callahan are here to help you weigh all your options and make the insurance decisions that are right for your future and for your family’s future. Contact us today!