The Need for Long-term Care
Long-term care is expensive! Depending on the level of care needed, the national average runs $37,000 to $80,000 a year. For most people, figuring out the best way to pay for it is one of the final pieces in the retirement puzzle. With our aging population and life-extending medical advances, these costs are likely to rise each year. According to the U.S. Department of Health and Human Services, there were about 9 million Americans over 65 who needed long-term care in 2010. That number is expected to swell to 12 million by 2020.
What does it mean to need long-term care? Most medical and insurance definitions focus on a person’s inability to do daily, routine activities unassisted – known as the “Activities of Daily Living.” They include bathing, dressing, toileting, eating and transferring (moving from a bed, a chair or a vehicle with help). While it is impossible to predict which individuals will need long-term care, chances are most people will require some form of long-term care during their lifetime.
According to the HHS Clearing House, 70% of people age 65 or older will require some long-term care either on a temporary or permanent basis. The average need is about three years. Women typically need long-term care longer than men: 3.7 years versus 2.2 years. To get an estimate of what long-term care might cost, multiply the expected length of stay by the average annual cost of the facility. For example, if a woman needed to be in an $80,000-a-year nursing home for two years, that would cost $160,000.
Medicare, Medicaid, “self-pay,” and private insurance are the primary ways of paying for long-term care. Other ways of dealing with the costs involve legal techniques, such as special types of trusts and asset transfers.
Medicare: Many consumers mistakenly believe that Medicare will pay for the long-term care services they might need. Actually, it will only pay for long-term care if you need skilled nursing services or recuperative care for a short-period of time: up to 100 days of care. In most cases, you have to meet two conditions to qualify: 1. the long-term care must immediately follow a three-day minimum hospital stay and 2. skilled nursing services are needed and the care is recuperative in nature. Medicare won’t pay for what long-term care is about: custodial care and help with activities of daily living. It is a short-term fix for what is likely to be a long-term need. 100 days is a “drop-in-the-bucket” when you consider that the average stay for long-term care is over 1,000 days.
Medicaid: Medicaid is a joint federal and state program that provides a “safety net” for those in need. If you qualify, Medicaid will pay for your long-term care costs. While you may not have your choice of facilities or much privacy, Medicaid will pay for your stay in an assisted living facility or a nursing home. Each state administers Medicaid and has its own rules about qualification. In general, you’ve got to spend your own money first. Depending on the state you live in, you are allowed to keep about $2,000 cash and certain assets like your home, one car and a few other personal items. If you are married, your spouse can retain certain assets and about $100,000 in cash. There are also income limits; if you have too much income, you may not qualify.
According to the Cato Institute, Medicaid currently costs our government over 275 billion dollars a year. 92 billion of those dollars go to paying for long-term care. With an aging population, expenditures for long-term care are likely to go up. However, taxpayer-funded Medicaid was never intended to cover everyone’s long-term care needs. Some take advantage of the system by “pretending to be broke” so they can leave their money to their heirs. Medicaid is for people in need, not for those who can actually pay for it themselves (either out-of-pocket or by buying long-term care insurance).
In 2000, my grandmother began to suffer from declining health and dementia. With my family’s assistance, she arranged to have health aides come into her home to help her with those activities of daily living. As her health declined further, one aide for an eight-hour daily shift became three aides for three shifts each day. Fortunately, my grandmother had put aside CDs to pay for this care. She proudly wrote checks to her aides until she physically couldn’t do it anymore. My dad then wrote them for her. My grandmother had the money (not a lot, but enough) to pay for her own care. She didn’t try to hide the money or give it to her two sons in a dishonest attempt to qualify for Medicaid. If she had run out of money, then our family would have sought Medicaid.
There are legitimate reasons to consult with an attorney about Medicaid, like planning and providing for the non-institutionalized spouse. Scheming to hide or give money to your family should not be one of the reasons. We’ll look at some legitimate ways to address long-term care in next week’s column.
David D. Holland, a CERTIFIED FINANCIAL PLANNER™ practitioner, hosts a weekday radio show at 9AM on AM1380 Ormond Beach, AM1230 New Smyrna Beach and AM1490 Deland. He has also authored two books in his Confessions of a Financial Planner series. Holland offers investment advice through Holland Advisory Services, Inc., a registered investment adviser in Ormond Beach. He can be contacted at (386) 671-7526. Email your financial questions to info@DavidHolland.com.