Long-Term Care Dilemma

Submitted by David Gratke on Friday, March 23, 2012 - 9:00am
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Long-term care is expensive. Odds are high that you will need it in old age. One way to protect yourself – and your nest egg – is to buy insurance to pay for nursing home stays or home health aides.
Today, 70% of couples age 65 and older can expect at least one partner to needlong term care sometime before dying. Given longer lifespans, have you thought about the consequences longevity will have on your family?
In 2011 the average cost of care in a skilled nursing home was $84,680 per year and home care averaged $45,625. The average long-term care (LTC) claim is for three years, so the $84,680 figure translates into $254,000 in today's dollars,
How would $254,000 removed from your net worth affect your lifestyle, support for your heirs or your charitable intents? 
Who Will Take Care of You?
Family. Sometimes parents assume their children will take care of them in their old age. But will your children have the strength, time and financial freedom to do so? Do they possess medical training? The sacrifices of an unpaid caregiver required are huge.
Adult children now provide the majority of long-term care to their loved ones, according to a 2007 report from AARP. About 92% of those with the most caregiving responsibilities had to change their work schedules. Over 37% went from full-time to part-time work, and 35% gave up work entirely.
Public programs. Most people underestimate the cost of LTC and overestimate the funding available through public programs and private health insurance. Currently, there is no government program specifically designed to cover LTC expenses. Medicare may cover some nursing home or assisted living costs, but only for “skilled care” that is deemed medically necessary for the duration of an illness, usually limited to 100 days following a three-day hospital stay.
As a result, Medicaid has become the primary source of public funding for LTC. However, because Medicaid is a program designed to help those in financial need, families must “spend down” (usually to $3,000 total estate value) their personal assets before they qualify for public assistance. The result: Your nest egg vanishes.
Personal Assets. Tapping your own resources means depleting retirement funds, trust funds, or education savings. You can sell real estate, but property is not a liquid asset and, as a motivated seller, you won’t get the best price. Another option is to borrow against the cash value of a permanent life insurance. That, however, reduces the policy’s death benefit, increases the chance that the policy will lapse, and may result in a tax liability if the policy ends before you die.
Insurance. Most policies provide limited or no help. Disability plans replace a portion of your income if you are unable to work due to an accident or illness. But this coverage is temporary, and not available once you retire. Health insurance may help pay for skilled care, yet it too is of short duration.
Long-term care insurance, on the other hand, pays for home care, nursing homes or assisted living facilities and adult day care. LTC insurance minimizes the financial risk of extended care and eliminates uncertainty for your family.
Insurance Costs
LTC insurance can help cover expenses of nursing homes, assisted living facilities or even home health care. You may find that such coverage allows you to remain independent, while also increasing your options for care.
It is not cheap, but hardly prohibitive. The longer you wait to sign up for it, the more expensive the premiums are. Costs also vary by location and health. The longer you carry the coverage without using it, the more its value grows.
According to the American Association for Long-Term Care Insurance, a 55-year-old couple buying a policy pays a combined average of $2,700 yearly for $340,000 of current benefits, which will grow to over $700,000 when they turn 80. But a 60-year-old couple pays $3,335 for the same level of protection. It will increase to $610,000 when they reach 80.
A Long-Term Plan
Much of what LTC insurance pays for includes assisting people with activities of daily living -- dressing, bathing, eating, etc. Services range from custodial care in the home to medical care in a nursing home. You are generally considered to be in need of LTC if you have difficulty performing two or more daily activities due to physical limitations, severe cognitive impairment or both.
Whether you are planning for yourself or an older loved one, you need to ask certain questions about the care that’s needed.

  1. Do you want to stay at home? If so, what home modifications, such as a ramp or a emergency response system (a radio that is linked to help), are needed?
  2. What kind of medical care facilities are needed, if staying in the home is no longer an option? Some assisted living facilities may have long waiting lists.
  3. Do you have an up-to-date will? What about a durable power of attorney, which grants a designated individual the authority to make financial and legal decisions? A living will, detailing preferences for end-of-life care? A power of attorney for health-care decisions? Where are copies of important documents kept?
  4. What if you become widowed? How would circumstances change?

At a time when you are incapacitated, systems must be in place for your wellbeing.
David Gratke is chief executive officer of Gratke Wealth LLC in Beaverton, Ore.
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