When planning for the future, one aspect that often goes overlooked is long-term medical care.
It's not something people like to think about, but it requires comprehensive planning, tailored to your individual circumstances.
Paying for this sort of care is daunting. The average cost of a nursing home is more than $100,000 a year. For a health aide that makes regular visits to your home, it's over $60,000.
Unless you have that kind of money lying around, you need to start planning how you'll pay for these services, should they become necessary.
What Is Long-Term Care?
Long-term care refers to medical caregiving services provided on an extended basis. There are a number of reasons why it might be necessary, such as disability, cognitive dysfunction, or chronic illnesses. Long-term medical care can be divided into two categories as follows.
Skilled Nursing Care - Intensive daily care in a skilled nursing facility, under a doctor’s orders, supervised by licensed medical personnel.
Custodial Care - Assistance with the “activities of daily living,” which include bathing, eating, dressing, toilet usage, and transferring back and forth from a bed to a chair. Most long-term care is custodial care and may be provided in an assisted living facility or an individual’s home.
Paying for Long-Term Care
How do you pay for that kind of care, should you need it? There are several options. Probably the most common is through insurance. If you're on Medicare, you can get some of your care covered, if you meet certain qualifications. At-home skilled nursing is covered, but for nursing home care, first, you must have spent at least three days in a regular hospital before being admitted to a long-term care facility. And typically, you must be admitted within 30 days of your hospital stay. Medicare will cover 100% of eligible costs for the first 20 days. After that, you must make a daily coinsurance payment to receive coverage, through day 100. After 100 days, your coverage stops, and you're on your own.
Medicaid provides longer and more comprehensive coverage for your long-term care needs. However, it's specifically reserved for low-income households. Qualifying includes a designated "look back" period, where your financial history for the last five years is examined. If the state finds that you've had any significant income or assets that could have been put towards paying for care, you could end up paying a penalty. The income threshold makes it difficult for middle-income households to qualify - even though the cost of care is often still well out of their price range.
For families that don't qualify for Medicaid, one solution is long-term care insurance. It covers services like nursing home care, assisted living, and in-home care. Premiums are typically based on factors such as age, health status, and the level of coverage you want.
While purchasing long-term care insurance can provide financial protection, it's important to assess whether the benefits outweigh the costs, particularly with regards to premiums. The older you are when you apply, the higher your premiums will be. That’s why it's never too early to start thinking about long-term care. Buying a policy in your 40s or 50s will keep your premium payments much more manageable than waiting until retirement age.
Savings and Investments
You can also choose to save for long-term care yourself by setting money aside over time. Creating a dedicated savings account or investment portfolio can help. However, it's essential to balance this with your other financial goals. You also need to consider factors such as investment risk and potential returns. The money you save will get depleted quickly. So with this strategy, you’re essentially betting that you won’t require a prolonged stay in a nursing home.
Financial tools like Health Savings Accounts (HSAs) can also be beneficial. HSAs offer tax advantages, allowing individuals to contribute pre-tax dollars and withdraw funds tax-free for qualified medical expenses, including long-term care. Similarly, annuities can provide a steady income stream to cover long-term care costs, although it's important not to invest in any annuity products without first carefully evaluating the terms and fees associated with it.
Before deciding on long-term care options, it's helpful first to seek guidance from a financial advisor and/or an attorney who specializes in eldercare. They can provide valuable insights and assistance in navigating the complexities of long-term care planning, helping you assess individual needs, explore options, and develop a customized plan that works for your situation.
Effective long-term care planning requires a proactive approach. You need to consider your options early and continue reviewing them periodically, so you can make necessary adjustments as your circumstances change. By taking advance steps to address potential care needs, you can better protect your financial security and ensure peace of mind, leaving you with one less thing you need to worry about as you get older.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material. Investing involves risk including loss of principal. No strategy assures success or protects against loss.