AMID ALL THE HEALTH CARE debates our nation has had this year, I’ve kept wondering: When are we going to talk about long-term care? Two-thirds of Americans age 65 and older are going to need long-term care—medical and nursing services that go beyond doctor visits or treatment for specific illnesses, and that can include help at home as well as stays in assisted-living facilities or nursing homes. This type of care is staggeringly expensive: The average rate for a private room in a nursing home was $212 a day last year, more than $77,000 a year, according to the MetLife Mature Market Institute. And when seniors require long-term care, they need it for an average of three years.
Our national system for delivering long-term care has problems that go beyond cost. For one thing, when a person over the age of 65 gets sick, Medicare covers lifesaving procedures and immediate treatment. But when she returns home, it will not cover ongoing services, such as rehabilitation therapy that lasts longer than 100 days. As Mary Brinkley, executive director of the Oklahoma Association of Homes and Services for Aging, says, “We’ve made a mistake in separating acute care from chronic care.” Medicaid covers long-term care, but seniors have to be severely impoverished, with less than $2,000 in assets in most states, to qualify. And Medicaid typically covers only institutional services, such as nursing-home stays, not care delivered at home.
While various members of Congress launched ideas to address these issues, each effort has stalled. For example, Sen. Tom Harkin (D–Iowa) and Rep. Danny Davis (D–Ill.) introduced the Community Choice Act, which would make home care the default option for seniors to get Medicaid. But that bill has languished in committee. The late Sen. Edward Kennedy (D–Mass.) sponsored the Community Living Assistance Services and Supports Act, which would create a national long-term-care insurance program, funded through a payroll deduction that would average $65 a month. By creating a gigantic long-term-care insurance pool, a national program could drastically increase coverage pretty cheaply. But that legislative provision is still mired in the overall Congressional healthcare debate.
The unfortunate upshot is that we cannot count on the Obama administration and Congress to act on long-term care. Which means it’s more important than ever to make long-term-care planning part of your overall retirement planning. In the past I have argued that you need long-term-care insurance, and that’s still true: The odds of needing care are high, the costs are huge, and most other kinds of insurance won’t cover its costs. But it’s also true that insurance companies have been boosting premiums. Suppose you’re 65 and willing to cut your long-term-care insurance costs by purchasing a policy that has a 90-day deductible and pays $150 a day in benefits (just 70 percent of the national average for nursing-home expenses) for three years. Your average cost will still be $3,042 a year, according to the American Association for Long-Term Care Insurance.
You or your parents may already be too old or too much of a health risk to get cheap long-term-care insurance; conversely, in order to get affordable premiums, you may have to jettison important chunks of your benefits. Fortunately, there are ways to supplement your long-term-care insurance and prepare for the costs of assisted-living or nursing care. Here are four.
- Partnership policies. Under this idea, if you buy a long-term-care policy approved by your state Medicaid agency, you can protect an amount of assets from Medicaid equal to the benefits that policy pays out. For instance, say your father’s policy pays $180 a day in benefits for three years. If he exhausts that care, he will then be able to keep $197,100 in assets ($180 times 365 days times 3 years) and still be eligible for Medicaid. Partnership policies can be a huge help in figuring out how much insurance to buy and in ensuring that running out of benefits won’t lead to destitution. Forty-three states now have or are implementing them.
- Long-term-care riders. For a small fee, many insurers will let you add a provision to your life insurance policy that will pay long-term-care benefits in exchange for reducing your death benefit. The good news is that because everyone dies but not everyone needs long-term care, you’ll get substantially more than you give up. The bad news, of course, is that your heirs will get less. Say you’re 55 and your death benefit is $250,000. With a rider, you could get $500,000 in long-term-care benefits and still have a residual $50,000 death benefit, says Craig Skeels, a fee-only planner at Apex Wealth Management Group in Oxnard, Calif. “In effect, it’s a way to turn your life insurance premiums into long-term-care prepayment.”
- Reverse mortgages. Since I wrote about them in April 2008, reverse mortgages have become better deals. With a reverse mortgage, your bank advances you part of the equity in your home, paying cash to you. This year Congress raised the limit on reverse-mortgage loans, to $625,500 through the end of 2009. It also capped origination fees, which had been a growing problem. Most important, for the first time it allowed seniors using reverse mortgages to put the money toward buying a new home.
- Aid for veterans. If you served in our nation’s military during wartime, you may be eligible for aid and attendance benefits. Aid and attendance is underpublicized but extremely valuable: The federal government will pay up to $1,950 a month for a veteran with spouse, in addition to a vet’s basic pension, to help cover in-home, assisted-living or nursing-home care. And this is a non-service-connected benefit, which means the reason you need help does not have to result from your military service. It’s terrific—but you need to apply. For more information, contact the Veterans Administration at (800) 827-1000.
The key with all these options is to expand your horizons about wealth you can tap to cover long-term-care expenses. Traditional insurance may be only a partial answer and may squeeze your monthly budget. But your home, your life insurance, federal coffers and states looking to ease their Medicaid burdens all may offer further resources. As long as we are stuck with the long-term-care system we’ve got, we have to build our own safety nets.