Prepare for long-term care costsPublished 7:56pm Friday, January 25, 2013
Good news: Americans can expect to live longer than ever before. According to the U.S. Census Bureau, a female born in 2008 is expected to live 80.5 years, and a male born that year is expected to live 77.5 years.
Now the not-so-good news: Modern medicine and technology have resulted in a longer life span, but living longer increases the risk of needing long-term care due to a chronic illness or other physical condition.
Long-term care may be provided at home, or at assisted living facilities or nursing homes. Regardless of where care is provided, it is costly.
According to the Genworth Financial, the median annual cost for home health aide service is $41,756. The annual median cost for homemaker services (cooking, cleaning, etc.) is $40,612. For assisted living, the median annual cost is $41,775; and for a semi-private room in a nursing home, the median annual cost is $72,088.
Most people prefer to remain at home for as long as possible and often rely on a family member, usually their spouse or adult child, to be the caregiver. Family member caregivers act out of compassion for their loved ones; however, many caregivers experience mental and physical fatigue after long periods of time. Ultimately, the extent of care required exceeds the ability of the family caregiver, so decisions become necessary.
Long-term care costs are obstacles for most people. They can be paid with some combination of five different fund sources: self-funding, the Veterans Administration, Medicare, Medicaid or with long-term care insurance.
Self-funding for two years or more may deplete retirement savings and become financially devastating to the spouse. Alternatives such as reverse mortgages and home equity loans can be considered, but should be thoroughly evaluated before utilizing them.
The Veterans Administration has programs to assist veterans and their widows/widowers. Aid and Attendance is a benefit that can help those who qualify. Beware — the application and approval process is lengthy.
Medicare may pay for long-term care if there was a minimum of three days of hospitalization prior to the need for assistance. Medicare can pay the full cost of care for up to 20 days, and then could pay a co-pay benefit for the next 80 days of care. Generally a medical professional must state the patient’s condition is anticipated to improve with the administration of skilled care for Medicare to cost-share.
Medicaid is needs-based, and therefore is means-tested. Qualifying for Medicaid involves reporting all assets owned or co-owned by the applicant. The applicant must not own more personal assets than the qualifying threshold, or Medicaid will not pay.
Long-term care insurance benefits will pay for long-term care services when the person insured requires help to perform two or more “activities of daily life.” Usually a waiting or elimination period must be met before benefits are paid. Care services may be administered at home, an assisted living facility or nursing home.
We’ll take a closer look next time at what to look for when shopping for Long-Term Care insurance.
Mark U. McGahee is a financial planner and specializes in investment and protection planning. Email him at firstname.lastname@example.org.