Long-term Care Can Sap Assets

Start planning now for your later care

By Deborah Jeanne Sergeant

Some people assume that Medicare or their health insurance will entirely cover their cost of nursing home care or at-home care. It will not.

Medicare only covers full-time rehabilitation for a short period of time, but not long-term care. Other people think that their children will be capable of caring for them in their old age without considering their children’s responsibilities and health. Caregiving full-time is difficult and stressful. Many assume they will likely not need long-term care at all.

“I’ve been doing this for 15 years and I could probably count on two hands the number of long-term care policies I’ve seen,” said Brianne Barr, director of social work at Seneca Hill Manor. “A lot of people don’t anticipate how long they’ll live or the medical issues they could have.”

About 50% of people will require long-term care for an average of two and a half years or six months, if they use home help and assisted living for a couple of years. For those with any type of dementia, their need for full-time care could be up to 10 years, as they can experience good physical health but still need full-time care.

Most financial advisers recommend planning a means to cover the costs of long-term care for at least two years—about $200,000 a person—whether at home or within a facility. The cost of long-term care insurance has increased dramatically in the past 15 years, with many insurers no longer issuing new policies. Barr said many people on a fixed income cannot afford the premiums. For those with the means, long-term care insurance can protect their assets.

For people who want to protect their assets for a younger spouse or heirs, long-term care insurance may make sense. Long-term care policies kick in once a person cannot perform two of the six activities of daily living: eating, bathing, toileting, dressing, transferring and continence.

“Typically, these policies have a daily maximum benefit,” said Christine Stanford, senior director of operations and finance at Loretto. “It is important to make sure any policy purchased has an inflation rider to keep up with the rising cost of health care.”

People who purchased policies decades ago without the rider have been shocked to find their policies cover just $50 of care daily, far less than the median $340 per day.

Typically, long-term care coverage includes home care, assisted living services and nursing home care. Assisted living costs about 40% of the cost of nursing home and helps conserve resources longer. Stanford said that unlike with Medicaid coverage, which covers only nursing home care for indigent individuals, long-term care policies help people stay independent longer.

Living in a nursing home has become especially unfavorable because of the pandemic. The pandemic has underscored the challenges of curtailing outbreak of infectious diseases in facilities compared with living at home. Because nursing homes are regulated by the Department of Health—unlike assisted living facilities—residents must accept changes to their living environment such as living with residents who have COVID-19.

To qualify for Medicaid while still protecting assets, people must transfer assets five years before applying for long-term care, although a spouse is permitted to continue living in a house worth $700,000 or less.

Some people choose to self-insure by including the cost of the long-term care into their legacy planning. That way, if they end up not needing long-term care, they can leave more assets to their heirs.

It can be important to look at family health history. Were many of the previous generation long-lived? What health issues do you currently face? Those applying for long-term health insurance must have good health to be approved for a policy.

A shared care policy can provide coverage for whichever spouse needs long-term care. Hybrid life insurance policies can also cover the cost of care or else it pays a death benefit.

Annual premiums for long-term health insurance can range from $2,000 to $5,000 per person, depending on coverage level and health. New York will offer a 20% income tax credit and for some people, the federal government will offer a small deduction.

Some people manage homecare by relying on family members living in the home for things like socialization, housekeeping and cooking and a visiting professional for help with monitoring health, bathing and dressing.

People with $2 million or more of assets can likely self-fund about three to four years of care without lowering their spouse’s lifestyle. Someone with less should consider coverage.
Although the costs of long-term care insurance may be high, compared with the cost of care, it is still a good deal for many people. The insurance offers peace of mind and relieves the family of the challenge of providing care.

“Another option to secure a long-term care insurance policy is to check with life insurance companies,” Stanford said. “Some life insurance companies offer long term care insurance riders.”

These “hybrid” life insurance policies with a critical illness rider may be used for long-term are needs, but if it is not used, it becomes a death benefit for the policyholder’s heirs. The premiums are usually more affordable.

Care does not have to be through a professional home healthcare agency. With a hybrid plan, the policyholder can cash in the policy for a qualified claim and pay someone for providing care—even a family member—and/or pay a home care agency.

“Deciding to purchase a long-term care policy is a comprehensive decision which includes an assessment of your current health status, income, assets and your service delivery preferences for care as you age,” Stanford said. “Although I am not an attorney, I have worked in the healthcare industry for more than 20 years. It is always a best practice to meet with an attorney who specializes in estate planning prior to making any decisions.”