The Financial Realities of Elder Care & Long-Term Care Insurance

Rev. James R. Cook, CFP®, RICP®

The current life expectancy in the U.S. in 2022 was 79.05 years, a 0.08% increase from 2021.¹ People are living longer which means more and more, younger baby boomers, who may not be prepared for the wide-ranging considerations of eldercare, are faced with caring for aging parents. And sometimes the most difficult part is talking about future care with aging parents who are still healthy and independent.

A lot has been written about the legal documents that can help with making difficult decisions about care such as a will, a living trust, and an advanced healthcare directive. But equally important is coming to grips with financial realities that can become quite expensive and overwhelming depending on the level of care that is needed.

According to AARP, 70% of adults 65 years and older will need some type of long-term care during their lives. Many families are surprised to learn that Medicare does not cover the costs for assistance including bathing, dressing, and eating. A room in a nursing home is only covered if the stay is under 100 days, and you must meet other criteria for coverage. See the chart below for average 2020 long-term care costs.

So, what are some of the solutions available to elders and their families when planning for soaring financial long-term care costs? Experts stress that honest communication is critical and suggest adult children arrange a family meeting with their parent(s) to get a realistic assessment of the financial resources available. An early start with planning can make a big difference in whether certain strategies will be available to you.

Long-Term Care Insurance

One option is long-term care (LTC) policies that generally cover nursing home care, home health care, personal care, and adult daycare. However, most policies have established maximum daily payments that can be made for services such as nursing home care or a home health aide visit. The bad news is that LTC is expensive and purchasing a policy can be cost prohibitive. The younger you are when you purchase LTC, the less expensive it will be, so it is generally recommended to purchase a policy between ages 45 to 60 to manage initial premiums. Keep in mind that there is a good chance you will be paying premiums for at least 20 years before you actually need the services. And one of the biggest complaints about LTC is how quickly the premiums can escalate and become unaffordable.

Asset Spenddown and Medicaid

This solution is not for everyone, but in some cases, it may be the right option. “Medicaid is a joint federal and state program, and the largest national program that provides health-related services for low-income individuals.”²  Benefits vary by state but in general Medicaid covers nursing home services and in recent years, often covers costs for a person to remain in their home. In order to be eligible for Medicaid, applicants must meet specific income and asset requirements, which vary from state to state. In 2021, in New York, the individual income limit had to be $15,900 or below and $24,500 for couples. Individuals cannot have measurable assets valued at more than $2,000 and couples at $3,000, which includes bank accounts, investment accounts, the cash value of a life insurance policy and in some cases, retirement assets. Refer to Medicaid.gov for a detailed breakdown. Typically, homes are excluded from this asset scenario.

Applicants usually qualify by spending down their assets. In the spenddown scenario, assets are used to pay for their care until they are depleted to the allowable level.

Families should consult with an attorney that specializes in Medicaid.

According to Courier Newsroom.com, “The U.S. is one of only two developed countries in the world without a social insurance program for long-term care.”³As a result, 1 in 5 middle class Americans will be forced to turn to Medicaid to meet long-term care needs Congress has begun to introduce proposals that could potentially expand long-term care services. Since the number of Americans 65 and older is expected to outnumber children under 18 by 2030, this growing crisis will call for innovative and compassionate solutions.

For more information visit:

Eldercare Locator
Caregivers America
Medicaid.gov

James R. Cook, CFP®, RICP® is a Financial Planning Specialist. He brings expertise in comprehensive financial and retirement planning to his work at MMBB [www.mmbb.org]. Cook holds a B.S. in Psychology from Lewis & Clark College, a Master of Divinity degree from Fuller Theological Seminary, and an MBA from the University of Missouri Kansas City.

1. https://www.macrotrends.net/countries/USA/united-states/life-expectancy#
2. https://archive.couriernewsroom.com/2020/01/27/the-alarming-reality-of-americas-elder-care-crisis/