Long-term Care is a reality that everyone will eventually confront—either for themselves, a loved one, or both. But it is an expensive proposition that too few people are prepared for— or understand.
Unfortunately, most people don’t think about how they will pay for care until they are confronted by a serious health situation for themselves or a loved one. Long-term care is a topic people avoid until they are thrown into a crisis situation for which most are completely unprepared. The worst time to start planning is in the midst of a crisis because the options to pay for care can be complicated and take time to access.
There is a major disconnect between what people think about their lives and the realities of long-term care: 70% of people over the age of 65 will need some form of long-term care in their lifetime—yet very few people realize how expensive care can be and what it will take for them to pay for it.
The three primary ways to pay for long-term care are Medicare, Medicaid, or private pay.
Medicare is an “age based” program that will only cover the first twenty days of rehabilitation care in a licensed skilled nursing facility upon direct discharge from a hospital 100% and the next eighty days 80%.
Medicaid is a “means based” program that covers skilled nursing care. To qualify an applicant must meet both standards of medical necessity and be below set asset and income levels below the poverty line. Applying for Medicaid can be a challenging process that requires the applicant to submit detailed medical and financial records. Medicaid will “look back” five years at financial records to make sure that assets have not been hidden or transferred to family members.
Private Pay primarily comes from an individual and/or a family’s savings, insurance, assets, and income. People that are private pay can choose any form and location of care that they want.
The Average couple retiring at 65 today will spend $285,000 on medical costs in retirement. Total expenditures for health care in the U.S. in 2020 was $4.1 trillion which broke out along these primary buckets, according to Kaiser Family Foundation:
Medicare spent $829.5 billion
Medicaid spent $671.2 billion
Out-of-pocket expenditures $388.6 billion
Private health insurance spent $1.2 billion
In 2021, there were 52 million people collecting Social Security, 64 million people enrolled in Medicare, and 88 million people enrolled in Medicaid, according to the Centers for Medicare and Medicaid Services. Of the people enrolled in Medicaid, 5.5% of the population accounted for 34.1% of LTC related expenditures.
Private pay options
Families need to do all they can today to prepare to fund long-term care and protect themselves from both the financial costs and the possibilities of legal liabilities. Independent and Assisted Living, as well as most forms of Home Care are primarily private pay. Nursing homes are primarily covered by Medicaid for people who can qualify. Skilled Rehabilitation and Hospice are primarily covered by Medicare.
There are long-term care funding tools that agents can add to their practice to help people prepare for the future-- but they also have options to address an immediate need for care if they are not prepared for these costs:
Long-Term Care Insurance: Policies that will provide a fixed monthly payment to cover approved forms of qualifying long-term care. Long-term care insurance can be purchased as a stand-alone policy or as a life/LTC hybrid policy. The younger and healthier a person is when buying a policy, the more affordable their premium rates and likelihood to qualify.
LTC-Life Settlements: A Life Settlement can be used to fund a Long-Term Care Benefit Plan which is similar to a Health Savings Account (HSA). This LTC Benefit Plan is an irrevocable Bank Account that is professionally administered with payments made monthly to long-term care providers. Medically qualified policy owners that use an LTC-life settlement are able to immediately direct tax-exempt payments to cover their senior housing and long-term care costs.
Pension Protection Act (PPA) Annuit: A tax-free annuity option established by the Pension Protection Act in 2006 allowing for the funding of annuities under favorable conditions for the purposes of long-term care. Can create either a monthly income stream drawing down on the original premium or the full premium can remain untouched until 2 ADL’s trigger need for care and available balance increases 3x.
Medicaid Compliant Annuity: A single premium immediate annuity purchased to set up a guaranteed income stream for a spouse while the annuitant qualifies to go onto Medicaid and into a nursing home. It is an irrevocable annuity established for a period equal-to or less than the remaining life expectancy of the annuitant. The state is named as the remainder beneficiary to receive any funds after the annuitant dies.
Medically Underwritten SPIA: An immediate annuity designed to provide a higher monthly income to people with impairments and suffering loss of ADL’s who need LTC supports and want to establish a guaranteed income stream for life.
Veteran’s Aide & Attendance Benefit: Veterans of active combat duty and/or their spouses are eligible to receive monthly benefits paid directly towards qualifying long-term care service. Like Medicaid, the applicant must meet both medical necessity and income/asset level requirements to qualify.
Reverse Mortgage: Homeowners with little to no remaining mortgage balance that are age 62 or older can qualify to take a HUD backed Home Equity Conversion Mortgage (HECM) loan against the home in the form of a lump sum, monthly income, or a line of credit. To qualify the home must still be the primary residence and the loan must be paid back with interest and fees after the homeowner dies (typically through the sale of the property).
Senior Bridge Loans: A loan that can be secured specifically to pay for long-term care services. These loans are secured by collateral such as home that is for sale or guaranteed by family members who co-sign (one or more). Interest rates are similar to a credit card and the loans are typically between $50,000-$500,000 for a term of one year or less.
The key to successfully navigating any long-term care situation is to understand the range of available financial options and understand the differences between what will be covered by Medicare, Medicaid, or Private Pay. Planning as far in advance as possible is best, but there are also a number of funding options available that advisors can use to can help people address a sudden and immediate need for care.
Join us every month as we continue to talk about what you need to know to help people Retire Like a Genius!
Chris Orestis, CSA President of Retirement Genius, is a nationally recognized financial, health/LTC, and retirement issues expert. He has over 25 years’ experience in the insurance and long-term care industries and is credited with pioneering the Long-Term Care Life Settlement over a decade ago. Known as a political insider and senior issues advocate, Orestis is a former Washington, D.C. lobbyist who has worked in both the White House and for the Senate Majority Leader on Capitol Hill. In 2007 he founded Life Care Funding, in 2017 he founded the LifeCare Xchange, and in 2020 he founded Retirement Genius. He is author of the books Help on the Way and A Survival Guide to Aging-- with a third book Retire Like a Genius to be published in 2022. He has appeared in The New York Times, The Wall Street Journal, CNBC, and many other leading media outlets.