Medicare may be a few years away for you, but even so, not planning now is like waiting until our gas gauge says, “2 miles to empty,” when it may be too late. Medicare does not cover long-term care, which is a very big and pricey problem. If you wait too long past 65 to find your solution, it could be too late to qualify for insurance that covers long-term care. Even if you can get long-term care coverage, as we age a policy will also be costlier.
There is a reason why Medicare does not, in the main, cover long-term care. That reason is because it is expensive--very expensive. There are 7 million people with long-term care needs at any given time. At an average yearly cost of $80,000 per person, when factoring in all types of long-term care, it would cost Medicare $560 billion dollars a year.
Medicare had an annual budget of $839 billion dollars in 2023, which was 14% of all federal spending. $560 billion in added spending would take that total from 14% to 25%. You can see why taxpayers would say, “No thank you.”
So instead, Medicare has passed the cost of taking care of you, if and when you need long-term care, to you.
WHAT IS LONG-TERM CARE?
A long-term need arises when someone needs help with two or more of the six Activities of Daily Living: bathing, dressing, toileting, transferring, continence, and eating.
This care need can be taken care of in several different ways, all of which can also have varied cost. The ideal for most people is to stay put in their home and receive the help they need in the comfort of the home they know.
When families do provide home-based care some of the ancillary costs include both skilled medical care visits and personal care assistance, which could be daily or hired on a respite basis to give a family caregiver needed breaks.
Homecare, though, is often not an option depending on the ability of family members to provide the care. The level of care needed may also not be practical to provide at home. The options then become assisted living homes, nursing homes, and memory care centers. People also often graduate between the levels as their needs increase.
WHAT IS THE COST OF LONG-TERM CARE?
In life there are FUN FACTS and then there are NOT-SO-FUN FACTS. Those ticket items that make us “gulp” when we hear the cost fall into the not-so-fun fact category.
The average cost of unskilled homecare is $27 an hour. Skilled homecare ranges from $50 to $130 an hour. Then there’s the issue of how many hours of help someone will need, both at first, and as time goes on. And, for how many months or years will the need continue to exist? Add to that the cost of retrofitting a home, equipment such as power wheelchairs, and special dietary and other needs. What will the end tally be for someone needing homecare in their final years? It’s near impossible to say.
The statistics estimate that the average cost nationally for homecare is $4,500 a month or $54,000 a year. But then who is average? Our own needs could be well beyond the average.
The average cost of assisted living is around $6,000 a month or $72,000 a year. But what level of luxury do you want to have? Pricier places can be $10,000 a month or more.
Which bring us to nursing homes. The average cost with nursing homes is considerably higher because of the level of care being provided. The average cost of nursing homes in the USA is $115,000 a year. More expensive ones can go up, way up, from there. The $115,000 cost is for a semi-private room. Here’s hoping one’s roomie doesn’t snore. If a private room is preferred, then add another $12,000 a year to the cost.
And we do have to mention that awful word that may be amongst the most disliked words in the English language: inflation. Inflation is not just about the cost of eggs. Nursing home and homecare costs have risen faster than the national inflation average, with an annual increase of nearly 4%.
WHO WILL NEED LONG-TERM CARE?
The answer to that question is that 70% of us will. According to a Health and Human Services (HHS) study, 70% of people over 65 years of age will need long-term care sometime in their lifetime.
48% of men and 51% of women will require some form of paid support. With men, the average duration of needing long-term care is 2.2 years and with women, it’s 3.3 years.
HOW DO PEOPLE PAY FOR LONG-TERM CARE?
There are three ways:
- Through insurance paying: 8% of the time
- We pay ourselves (self-paid): 41% of the time
- The government pays (Medicaid): 51% of the time
Option 1: Insurance. Only 8% of people have insurance that covers long-term care needs. The reason for this is that when people take out insurance policies in their younger years, they’re thinking about accidents, or maybe they have a friend who had a heart attack at 42. But they are not thinking about something that won’t happen until they’re at least 75 or 80. Maybe they figure scientists will have aging cured by then and we’ll all have perpetual youth. We wish!
Now, of course, for us in our 60’s, being 75 or 80 is no longer quite so distant. And many of us know people who have the need for long-term care at 70 or even younger.
Option 2: Us. We Pay. Great, if your name is Bill Gates. But the problem is that most of the rest of us didn’t create Windows. It’s not just Bill Gates or Warren Buffet or that crowd, though. There are lots of people who are financially set in life to where they don’t have to worry about the cost of long-term care either. Sure, the cost hurts a little, but whatever is needed, the best option will be manageable.
For many more people this is not the case. The money for this care will need to come from somewhere in the absence of insurance, which won’t be easy and will require sacrifice of some kind. Perhaps it will involve equity in a home being sold or mortgaged. Or the use of savings earmarked for something else, such as for the benefit of children and grandchildren. In some cases, there is just plain cutting back needed, often also impacting a spouse.
Too many times, in my Medicare business, I have sadly seen the financial impact when one spouse needs to go into assisted living or a nursing home. The result: The other spouse suffers financially as well.
The question everyone should ask and answer while they’re considering the prospect of aging is, “Where will the money come from?” How will it be paid for, should long-term care be needed in the future, as it likely will be.
The other question to ask is, “Is there a different way to fund long-term care needs that’s available now through an insurance policy, to avoid a future hardship?”
We also need to be aware that insurance that is available to us now may not be available next year or even next month if our health changes, as it could. Or even if available, our rating category could change, to where costs could double.
Option 3: The Government Pays. Sounds great, right? But there are a couple of kickers. And, they’re Big Kickers. One kicker is that old expression, “He who pays the piper calls the tune.” If Medicaid pays, they’ll decide where and how we get care, especially if we need assisted living or nursing home care. Their main criteria is about keeping costs down. And we might not like the place chosen for us.
Big Kicker Two is that we don’t just get to decide, “Let the government pay.” First, we have to qualify to be eligible for Medicaid and our state’s assistance. And, our state has a nasty rule: “Spend your own money first.”
To qualify for long-term care through Medicaid, your income level in 2025 needs to be below $2,901 for a single person or $5,802 for a married couple. That includes all income such as social security.
Most problematic is on the “asset side” of qualification. Countable assets such as cash, stocks, and other investments must be below $2,000 for a single person and $4,000 for a couple. And, if we’re thinking about moving assets to qualify for Medicaid, we need to do it early because Medicaid has a 5-year lookback period, in which they deny any asset transfers.
SHOULD I GET LONG-TERM CARE INSURANCE?
Here is another interesting statistic: 76% of people have collision insurance on their vehicle even though no USA state requires them to do so. With older drivers the percentage is much higher; over 90% of us do, because we know better than not to.
Not only do we know better, but we are thinking, “An accident that totals my car could cost me $40,000. That’s a potential disaster!”
Now, compare that statistic of 90% who have collision coverage to the 8% of seniors who have long-term care insurance. Why is one insurance a must have and the other not so much?
With a vehicle accident, $40,000 would be a very large claim. With long-term care $40,000 hardly gets one through a nursing home door. It could easily cost $200,000 or more.
And, if you want to compare likelihoods, then needing long-term care sits at a 70% likelihood at some point during our life. If getting into a car accident, with a $40,000 claim, was even close to being a 70% likelihood someday, we’d probably all take the bus instead.
So, long-term care insurance--it’s a GOOD IDEA, right? Which brings up the next question most people have even before the other all-important question of how much it will cost. That question being, “Am I insurable?”
AM I INSURABLE?
In the Medicare side of my business, I have done hundreds of enrollments for people needing a Medigap Insurance Supplement as part of their being on Original Medicare. If clients are in the first 6 months since they joined Medicare, then no problem. By Federal law, they’re asked no medical questions. Their acceptance is guaranteed. Any time after that though, people must do underwriting. There are around 20 or so of what we call “kick out” questions. For instance, when I ask a client if they’ve had cancer in the last two years, if they answer ‘Yes,” a red box pops up on my screen that says, “End Application Now.”
It’s sort of rude! But as I explain to clients, “Insurance companies are in the risk business.” If there is a strong chance of them paying out tens of thousands of dollars in the near future, they don’t want your $200 a month.
Likewise with life insurance, not everyone is insurable. Most insurance policies have underwriting which is a process by which insurance companies evaluate risk and decide whether to insure someone or not. Every carrier does this underwriting differently, which is where the skills of an experienced insurance agent can come into play. It’s our role to know the underwriting tendencies of various insurance companies. We’re also able to run your situation by them to first get a preliminary indication as to your insurability.
Now let’s get to the GOOD NEWS. According to a study by AARP, at age 65 around 38% of people get turned down for long-term care insurance. That’s the bad news part.
The good news being that 62% of people are accepted. At least, this is so at age 65. This is why the Goldilocks Factor matters.
WHAT IS THE GOLDILOCKS FACTOR?
In the classic children’s story, there is a perfect time to do things: When it’s not too hot or not too cold. An AARP study points out that the perfect timing for long-term care insurance (or for adding life insurance for other purposes) is between ages 55 and 64 when rates are somewhat lower and acceptance rates are somewhat higher.
But AARP further points out that 65 or 67, or whatever age you are now, still puts you into the “just right age,” when comparing your current age to waiting until you get older to apply for insurance. For instance, at age 70 the rate of acceptance falls to 53% and premiums also go up. The fact is that with each passing day, even if you are 100% healthy, something could happen that will dramatically change your insurability. After all, the time to get fire insurance isn’t when fire trucks are on their way.
Long-term care insurance comes in two forms: As a Standalone Policy or as a Rider to either a Life Insurance Policy or an Annuity. When people reach their 60’s, most people will go the rider direction, because the cost of a standalone long-term care policy, as a component of a life insurance policy or an annuity, is less expensive. Stand-alone policies are also more challenging to find and can be more difficult with their approval process.