What Would Happen If A Loved One Suddenly Needed Long-Term Care?


Most Americans would be caught completely unprepared if they or a loved one were faced with a medical crisis that required long-term care. In fact, one out of five Americans over the age of 50 is at risk of needing long-term care in the next 12 months. Options for financing potential long-term care needs and the government benefits available for long-term care are things many people have never considered. When a medical catastrophe such as a stroke or Alzheimer’s disease occurs, the majority of Americans are forced to either self-pay for their care or rely on Medicaid to foot the bill.

The average cost of a year’s stay in a nursing home is $40,000 to $80,000, and the average stay is two and a half years. Contrary to common belief, most long-term care expenses are generally not covered by either Medicare or most employer-sponsored plans. Medicare covers only skilled nursing care, under certain conditions, and part-time home health care.

Medicaid (MediCAL in CA) will only cover long-term care after a person “spends down” his or her assets to qualify. Since a large percentage of long-term care is paid for by the individual or his family, absent other planning, families are at risk of losing their hard-earned assets in order to provide for a loved one’s long-term care needs.

I am always a bit bewildered when someone comes to my office and says they think it is unfair to have to spend down their assets to have the government pay for long term care. I explain to them that they would likely not be enthusiastic about paying for their neighbor’s long term care, just so the neighbor could leave assets to the children. It’s really that simple.

One way to prepare for future long-term care expenses is through the purchase of private long-term care insurance. This insurance benefits offers financial security, as well as the ability to choose the type of care that best suits their needs.

There are many different types of long-term care insurance policies available, all with different costs and levels of benefits. Depending on the type of policy, long-term care insurance can be used not only to finance nursing home care, but also to pay for assisted living facilities, home-based care and other services. The costs of premiums vary based on age, health status and the types of available benefits. It can also be provided as a rider to a life insurance policy or integrated with a life insurance policy.

Enhanced products and the shift in public policy towards greater reliance on private dollars to finance long-term care have contributed to better receptivity of the product. However, it is clearly not a standard household product. Currently less than 15 percent of all individuals over 65 and fewer than 5 percent of those under 65 have these policies, according to the National Association of Health Underwriters (NAHU).

Aside from the benefits for policyholders, an increase in long-term care policies will decrease public expenditures on long-term care. In other words, private insurance benefits will pay for long-term care instead of public dollars through the Medicaid program. Since Medicaid is one of the fastest growing items on state budgets, it is not surprising that as many as 35 states legislatures have approved tax incentives for long-term care insurance.

In 1996, with the passage of the Health Insurance Portability and Accountability Act (HIPAA), the federal government took a first step towards providing Americans with an incentive to purchase long-term care insurance by making a portion of the premium tax-deductible for individuals who buy tax-qualified plans.

I sometimes liken insurance companies to banks. Banks won’t loan you money until you can prove that you don’t really need it. Insurance companies underwrite long-term care policies, so you need to be in good health to buy it. Don’t wait until there has been a serious medical event and decide to apply for long term care insurance and apply before you are age 80. This month I had a client tell me that their friend, a prominent Redding Resident was paying something over $8,000 monthly to care for the husband at home!

Finally, we don’t talk about the social cost of family providing long term care. We have all watched the decline of the caregiver who tries to maintain providing care for an individual past the time that is reasonable. This type of coverage simply provides a pot of money that can be tax-favored to pay for these expenses.

Margaret R. Beck

Margaret Beck CLU, ChFC, CEBS started her insurance practice in Redding in 1978. She founded Affiliated Benefit Services.

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