FPA Financial
Planning Perspectives
Many Americans know that they, their spouse or perhaps
their parents may well require long-term care at some point in their
life—perhaps for life—either at home or in a long-term care (LTC) facility. And
many Americans know that the cost of this care is not cheap. The average annual
cost for a nursing home is roughly $45,000 —double that in some areas. The United
Seniors Health Cooperative projects that average nursing home costs will double
in the next decade.
Currently, most people rely on one of two ways to pay
the bills: out of their own pockets or out of the government’s pockets. Only a
small percentage rely on what most experts agree is the best way to pay for
long-term care: private insurance. According to a 1998 report by the American
Council of Life Insurance (ACLI), “about six percent of elderly people and a
very small number of baby boomers have purchased long-term care insurance.”
Here are several reasons why you should strongly
consider buying a private policy instead of relying on government support or
exhausting your own savings and income.
Treat it like any other type of insurance. You wouldn’t think of going without homeowner’s,
medical, auto or life insurance. So why go without insurance that protects you
from the financial devastation of long-term health care?
Don’t rely on the kids. Most people don’t want to be so poor that they have
to rely on their children, and caregiving is very expensive to the caregiver in
terms of lost wages, future benefits and so on. Furthermore, baby boomers have
fewer children to rely on for at-home care and children tend to be more
scattered than they once were.
Medicare doesn’t pick up most of the tab. Many people believe that Medicare will pick up the
tab for long-term health care. Medicare pays for limited nursing home care
(skilled care for 100 days or less) and limited home health care. It doesn’t pay for-long term
custodial care.
Avoid Medicaid.
Medicaid, the federal/state health care program for the poor, will pay up to
lifetime for long-term care, but to qualify for Medicaid, you must be
impoverished. Rules vary from state to state, but generally you must have less
than $2,000 in financial assets, not counting your home, and income is limited.
Your spouse can keep more, but is still severely limited in assets and income.
Also understand that Medicaid doesn’t pay all the costs
of the nursing home bill that you can’t. You will still have to direct any of
your income, such as Social Security and pension income, to the nursing home to
supplement Medicaid. Furthermore, Medicaid programs are required to recover
expenses from the recipient’s estate once the recipient dies. That means when
your heirs sell your home the profits may go to Medicaid to help repay the
bill.
Don’t have to transfer assets. Some Medicaid experts recommend strategies for people
to give away assets to their heirs to deliberately impoverish themselves so
they qualify for Medicaid. But most people don’t want to transfer assets they
will likely need for retirement, not do they want to intentionally impoverish
themselves, out of pride and because of the emotional trauma of poverty.
Better alternatives to nursing homes. Most people want more options for care alternatives.
Most LTC policies pay for at-home care, as well as the increasingly popular
assisted living facilities, most of whom don’t take Medicaid patients. A policy
also will pay for adult day care, respite care, home modifications, and other
housing alternatives.
Maximize nursing home choice. Because Medicaid reimburses nursing homes at below
the going rate, many nursing homes limit the number of beds available for
Medicaid patients, and some don’t have any. This may mean a wait to get to an
available nursing home, or you may be forced to move farther away from your
loved ones just to get a bed.
Maximize quality of care. If you start out as a private-pay patient, and later
switch to Medicaid because you have exhausted your financial resources, the
nursing home cannot kick you out. It also technically cannot reduce the quality
of care. However, homes frequently transfer Medicaid patients to different rooms
(say from a single to a double) or even to a different facility.
September 2000— This column
is produced by the Financial Planning Association, the membership organization
for the financial planning community, and is provided by Rich Chambers, CFP, a
local member in good standing of the FPA. Questions? Contact Us…