Everyone should plan now for long-term care

Published 9:11 pm Tuesday, February 5, 2013

By Mark U. McGahee

Last time, we looked at living longer and facing difficult decisions about what happens when we are no longer able to care for our personal needs without assistance. An illness, injury, or cognitive impairment can prevent us from being able to perform the activities of daily living independently.

Nationally, about 44 percent of people reaching age 65 are expected to enter a nursing home at least once in their life, and of those who do, about 53 percent of them will stay for a year or more. From a family perspective, chances are almost 50 percent that at least one spouse will require long-term care after age 65. Most likely, the need for long-term care has already touched you or someone you are close to.

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In Virginia, the median annual cost for assisted living is $41,775; the median annual cost of a semi-private room in a nursing home is $72,088; and the median annual cost of a private room in a nursing home is $82,125. Prescription drugs and physical/occupational therapy are charged separately from the facility costs.

Where do you find the money to pay for care?

Personal savings and/or retirement accounts can be depleted rapidly at these rates, and can be devastating to the healthy spouse. Medicare is only a limited option for long-term care, because it is not designed to pay for unskilled/custodial care. Medicaid is a government-funded program that will pay nursing-home costs for low-income individuals who have spent most of their assets. Relying on Medicaid to fund long-term care costs requires ceding control of facility and physician choices to Medicaid administrators.

Long-term care insurance may be right for you. Introduced in the 1980s, it will pay, or reimburse you, for some or all of your long-term care costs. Don’t think of it as merely “nursing home” insurance, because although it covers expenses incurred in a nursing home, it also pays for the cost of care provided at home.

Homemaker services such as cooking and cleaning and the cost of a home health aide are covered by long-term care insurance. It will pay for certain services at adult day centers and room and board at assisted living facilities.

Long-term care insurance policies differ in their structure. The type most often purchased has a continual premium structure similar to whole life insurance. The insurance carrier usually has the right to increase premiums in the future under this type of policy. Other types are purchased with a lump sum of money, and are really modified life or universal life insurance contracts that contain a provision to allow payments from the policy when the insured person needs certain assistance.

Some insurance companies have developed riders for their life insurance policies that will pay long-term care costs when the insured person qualifies for the benefits. Be sure to check on the insurance carrier’s financial strength and industry ratings before purchasing a contract.

You should obtain a copy of “A Shopper’s Guide To Long-Term Care Insurance,” produced by the National Association of Insurance Commissioners, and review it to help you determine if long-term care insurance is appropriate for you. It’s free and can be ordered online at www.naic.org.

The guide addresses Medicare and Medicaid, and explains how long-term care policies work. It includes worksheets that help you compare policies from different insurance companies.

Be prepared to answer when someone asks, “What are your plans when your health changes?”

Mark U. McGahee is a financial planner and specializes in investment and protection planning. Email him at mmcgahee@isgva.com.