The cost of long-term care can vary greatly based on the exact services needed and the region where care is being provided. Some national averages, however, might be of interest. According to the Genworth Financial Cost of Care Survey 2021:
· The median annual national cost for a private room in a nursing home was over $108,000, and a semi-private room was nearly $95,000.
· A one-bedroom unit in an assisted living facility had a median annual cost of $54,000 representing a 4.65% increase from the previous year.
· The median daily rate for adult day health care was $78.
In addition to cost increases, research has also reported an increase in Long-term Care demand. A 2020 study by the Department of Health and Human Services found that someone turning 65 in 2020 has almost a 70% chance of needing some type of long-term care in their remaining years for an average use period of 3 years.
Typically, long-term care starts with services such as home visits, then, depending on health and independence, may transition to additional services that require full-time nursing care. These services will increase in cost as the required care increases. Since a health event can have a serious impact on a family’s finance, a comprehensive financial plan should include a long-term care assessment as part of its insurance analysis or risk management section.
Long-Term Care Payment Options
There are four main different ways to cover the cost of long-term care: government programs, long-term care insurance, hybrid insurance, and personal savings. With the cost of long-term care increasing every year the gap between savings reserves and cost-of-care increases.
Government Programs: The federal government offers very few options for long-term care assistance. These options are typically available only to veterans, through the VA, or to individuals with low incomes and limited assets. Medicaid and state-run programs impose an income and asset threshold, that could require an individual to turn assets over to the government to qualify for care. Medicaid payments are not available until one is indigent. This means that many families will have to rely on their own money and/or privately purchased insurance to pay long-term care expenses.
Medicare does not pay for long-term care, even if you are age 65 or older. Medicare does provide limited short-term care benefits and even those services will be provided only if certain conditions are met.
Traditional long-term care insurance policies: Many insurance companies no longer offer traditional long-term care policies. With the increase in cost and use, most insurance companies found that the benefit being paid out was greater than the benefit being paid in. To compensate for this difference, many insurance companies began raising annual premiums.
However, there are still some insurance companies that offer traditional long-term care policies. A traditional long-term care policy allows the insured to choose the amount of coverage, the coverage period, and the elimination period.
Hybrid policies or “LTC Rider”: In more recent years “hybrid policies” have developed in the form of riders that can be added to life insurance or annuity policies. With an LTC Rider on a life insurance policy, when a long-term care need occurs, you would be able to draw down or accelerate the death benefit amount to pay for your care, subject to a monthly maximum amount. However, even if you used up the entire death benefit, the insurance company would still provide additional long-term care coverage.
An LTC rider on an annuity works a little differently. If you qualify for long-term care benefits, the long-term care coverage would draw down both the account value and the long-term care pool. Once your account value has been exhausted, the insurer would provide the remaining long-term care pool benefits, which is effectively the insurance component of the policy. However, today's interest-rate environment has made it challenging for insurers to provide annuities with long-term care coverage. As a result, many annuity companies do not offer LTC riders as an option.
Personal savings: Using personal savings provides the greatest flexibility around the period of time, type of coverage, and place of coverage. However, that fixability can come at a great expense if not properly planned. The first consideration is if your personal savings and retirement plan was built to withstand these potential expenses. Will your spouse be able to remain in retirement or maintain the same standard of living through the long-term care event? If you do use your qualified retirement accounts, such as your 401(k) or IRA, there may be tax ramifications for withdrawals.
Using personal savings does not provide the same protections as long-term care coverage. Long-term care coverage can also help protect your other assets and allow you to pass your wealth on to your loved ones.
As nursing home care has become more expensive, a family that needs nursing care, even if only for a few years, runs the risk of depleting hundreds of thousands of dollars. Additionally, the lost investment earnings that those assets could have earned had they stayed invested significantly compounds the overall effect on a family’s wealth.
Building a Sound Financial Plan
At RMR Wealth our comprehensive financial plan looks specifically at long-term care risks and will help you gain an understanding of how a long-term care event, for you or your spouse, would impact your family’s finances. Our financial planning team can illustrate how different long-term care strategies may help to protect your assets. Leveraging the power of financial planning software, eMoney, allows us to provide our financial planning clients with the projections and visuals needed to make a fully informed decision.
When analyzing Long-term Care as part of a financial plan, we generate an in-depth report that focuses on four important areas of Long-Term Care:
Cost of Long-Term Care:The “Cost of Long-Term Care” report helps financial planning clients to understand the future costs of long-term care, factoring in inflation.
Long-Term Care Wealth Effect: The true cost of long-term care is not limited to the additional outlay to the long-term care providers. There is also an opportunity cost which is the lost investment growth on that money. Whether paying for long-term care from income or from existing investments, family wealth will be reduced which could prove difficult for the surviving spouse. This report analyses the effect on family wealth.
Long-Term Care Gap Analysis: This analysis reflects the cash flow gap created by a long-term care event, as well as the potential insurance solution to cover all or part of that gap.
Cost-Benefit of Long-Term Care Insurance: Long-term care coverage is an effective tool for protecting your assets and your financial plan. However, LTC coverage is not necessary for everyone. The cost-benefit report helps a financial planning client to understand their need for long-term care coverage by comparing the benefits to that of self-insurance.
Long-Term Care is a concern for many and a comprehensive financial plan that includes a long-term care assessment as part of its insurance analysis or risk management section, can help address those concerns. Understanding the impact of your decisions and the types of coverage available empowers you to make informed choices. These choices can include increased savings, additional coverage, or selecting a house in an area where home care is more affordable. Our team of Certified Financial Planner™ professionals can help you meet your long-term care concerns by analyzing your current and future situation. To get started, talk to your advisor about starting your financial plan, or email us at email@example.com for more information.
Not sure where you stand? Check out the Long-term care needs calculator in the resource center of our website!