19 Sep, 2016 – Nearly 70 percent of Americans will depend on long-term care at some point during their lifetimes after reaching age 65. Despite those odds, few people plan for how they will be able to finance their long-term care needs, says Susan Herendeen, CFP®, a wealth advisor and vice president with Tompkins Financial Advisors in Rochester, NY.
Long-term care doesn’t only refer to the services provided in a nursing home. The most common type of long-term care is home-based care, and services may also be provided in settings such as assistant living facilities and adult day care centers.
There are three levels of long-term care:
• Skilled care: Round-the-clock care given by professional health care providers, such as nurses, therapists or aides under a doctor’s supervision
• Intermediate care: Professional health care services provided on a less frequent basis
• Custodial care: Personal care delivered by family health caregivers, nurses’ aides, or home health workers who provide assistance with activities of daily living, such as bathing, eating and dressing
Whatever type of care you may need, you can count on it being expensive. “Our financial planners recommend that people assess their ability to cover the cost of long-term care years before the services are needed, just as they would plan for their retirement,” says Herendeen.
Costs of Long-Term Care
The cost of long-term care can be daunting, especially if you are suddenly faced with the prospect of having to enter a nursing home. Paying for long-term care can quickly absorb your income and deplete your savings, which is why you need to plan for how you will finance it.
Here are some of the average costs for long-term care* in the United States:
• A semi-private room in a nursing home costs $6,235 per month, or $74,820 per year
• A private room in a nursing home costs $6,965 per month, or $83,580 per year
• A one-bedroom unit in an assisted living facility costs $3,293 per month
• A home health aide costs $21 per hour
*U.S. Department of Health and Human Services, December 1, 2015
Evaluating Available Sources to Pay for Long-Term Care
Many people assume that Medicare, the federal health insurance program for older Americans, will pay for long-term care. But Medicare only provides limited coverage for nursing home care. Under current regulations, Medicare covers up to 100 days in a nursing home after you have spent three days in a hospital and as long as you need skilled care. After that period ends, you are responsible for 100 percent of any remaining costs.
Medicaid, the joint federal-state program, is used by two-thirds of nursing home residents to pay some of their long-term care expenses. But many seniors have too much income and too many assets to qualify for Medicaid. And while Medicaid covers nursing home care, it provides only limited coverage for home health care in some states.
You may consider using your income, savings, investments and assets (such as your home) to pay for long-term care. That will give you the most control over where and how you receive care. The high costs of long-term care, however, may make it difficult for you to afford extended care when you need it.
Buying Long-Term Care Insurance
Tompkins Insurance financial planners advise that investing in long-term care insurance can help preserve assets and guarantee that you’ll have access to a range of care options. In exchange for your premium payments, an insurance company will cover part of your future long-term care costs. The cost of long-term care insurance, however, can be expensive, so you need to evaluate whether you can afford the premiums on an ongoing basis.
How much you pay for long-term health insurance depends primarily on your age — the younger you are when you buy a policy, the lower your premium will be. It also varies according to the following benefits:
• Benefit amount: The maximum amount your policy will pay for your care each day
• Benefit period: The length of time your policy pays benefits
• Elimination period: The number of days you must pay for your own care before the policy begins paying for care
• Types of facilities included: Most policies cover care in a range of settings, including your own home, assisted living facilities, and nursing homes
• Inflation protection: This allows your benefit to increase by a certain percentage each year to keep pace with rising prices
If you are thinking of purchasing long-term care insurance, you should contact a financial planner to help you compare policies. Regardless of whether you buy the insurance or not, the sooner you begin planning for long-term care, the more options you’ll have in the future.
Some of this material was prepared by Forefield/Broadridge for Tompkins Financial Advisors. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
We suggest that you discuss your specific situation with your financial advisor prior to investing.
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