A Short Course in Long-Term Care
An inescapable reality about life is this: As we age, we are more likely to develop chronic or acute health conditions that require long-term care. The conditions that might necessitate long-term care vary widely, from immobilization or impairment after a stroke to dementia or Alzheimer’s.
People who have the resulting difficulty with the activities of daily living, like bathing, dressing, cooking, or eating might thus require the kind of care offered by a long-term care facility such as a nursing home. It's estimated that more than two-thirds of people over 65 will need at least some long-term care at some point. Fortunately, planning ahead for these contingencies can make navigating the journey more comfortable.
What are the advantages/disadvantages of long-term care?
In our 50+ years of working with families, we have had the opportunity to live through these situations with clients and get a real-life feel for the outcomes. The advantages of well-delivered long-term care include medical attention, physical therapy, emotional support, and social interaction. This can be particularly important if family members are unavailable or not positioned to tend to your needs as your age.
Long-term care also, however, may have some negatives.
- Many older people prefer to age in their most familiar location. This is usually the home they know. Some long-term care options necessitate relocation.
- It can be expensive: on average, a shared room in a nursing home costs $77,380 annually; many can be steeper. (Bear in mind that healthcare costs have risen much faster annually than inflation during recent decades, and nursing home costs are no exception.)
- Long-term care expenses are not typically covered by standard health insurance. Medicare will pay for 100 days in a nursing home after a specific illness or injury if the patient registers improvement. After that, Medicare does not reimburse expenses for long-term care or an extended stay in an assisted living community.
Since Medicaid is a government health insurance for people of limited means, it mandates income and asset limits. If you have assets, such as a home or retirement investments, receiving coverage may necessitate transferring or spending them down to a deficient level, which many people don’t prefer. The income limits are also very low.
How much does it typically cost to purchase long-term care insurance, and how does it work?
One option for those needing to plan for long-term care is long-term care insurance. Such coverage is not cheap. Depending upon your age when you commence coverage, premiums can run as much as $10,000 per year or more. Not only that, but it can be challenging to qualify for coverage when you’re older and closer to the time you will need assistance. Most advisors recommend signing up for long-term care before you’re 60 if you decide to go that route.
Some long-term care insurance policies have restrictions, such as requiring a nursing home stay result of a specific stay in the hospital. Some may not cover chronic conditions. Be sure to check the terms of any policy you’ve previously purchased. Policies being newly issued in today’s market are less likely to carry these sorts of restrictions.
What are some alternatives to long-term care insurance?
Given the complications and expense of long-term care, it’s prudent to be aware of the following alternatives.
Aging in Place
Increasingly senior citizens desire and plan to age in place. This may involve retrofitting your home to account for medical devices or chronic conditions like arthritis, impairing your mobility. It also makes sense to make your surroundings as safe as possible.
For example, most senior citizen falls happen in the bathroom, so grab bars in showers can potentially save you a broken hip and all the complicated recovery that such an accident entails.
Home Health Care
If you need specific help for a particular health condition, you may be able to hire a home health aide. Medicare does offer limited reimbursement for home health care up to a certain point and given qualifying circumstances.
Caregiving From Family
If your family is available and can help in your caregiving, this can be a good option for staying in place. Some senior citizens move in with family or have family move in, who then share in the responsibility for their care.
Assisted living facilities combine senior living situations with certain limited special medical care. Traditionally, they were designed for older seniors who though somewhat independent, find they require some help with daily activities. However, some assisted living facilities also provide a transition to more extended care areas, which are somewhat like nursing homes. Assisted living facilities are less pricey than nursing homes, on the whole, but they nonetheless can represent significant outlays: $42,000 and up per year.
Short-term Care Coverage
Although two-thirds of the elderly population will eventually stay in a nursing home, not all stays are long-term. Roughly 40 to 50 percent of patients stay less than 90 days. So, it’s possible to investigate short-term care coverage, which can be more reasonable in price. Also, prudent financial planning and maintenance of an adequate emergency fund can protect one from this exposure on a “self-insured” basis.
Planning to Pay Out of Pocket
You can pay for long-term care with assets, of course. Whether this makes financial sense for you depends on your expectations for retirement income and your assets. It also depends on your plans for your heirs.
Long-term care, if paid for over long time periods, could threaten to deplete any assets you plan to leave behind for heirs.
Our recommendation for families intending to fully self-insure the risks of long-term care is to prepare a detailed “What If” analysis that helps evaluate the sufficiency of capital to cover this exposure. We have helped many client families look at Monte Carlo type analyses to understand the tradeoffs inherent in self-insuring the risk.
Proactively Staying Healthy
This sounds great, but of course, is an approach not completely within our own control. That said, there are many things folks can do to potentially reduce the probability of a long-term care stay. Aim to be as healthy as possible as you age. Maintain a healthy weight, exercise program, nutritious diet, vitamin/supplement and medication regimen, and regular doctor visits.
How does long-term care affect my investments, or is it better to just keep my money in my investments?
Ryan Patterson, CFP, CFA, and Chief Investment Officer of Linscomb & Williams, said, “Long-term care affects investments because how you pay for it will affect your assets and net worth.” Ryan’s advice is garnered from working with clients using their portfolio to underwrite these risks: “Consider your current health, family history of illness, preferences, and your assets.”
If you decide to make plans for long-term care as you age, you must choose the best payment method for your estimated cost. Some people think it’s better to keep their money invested and then pay out of pocket when they need it. Others choose to pre-fund this risk, using long-term care insurance, or other alternatives.
The decisions are complicated, and there’s no one-size-fits-all solution. Depending on where you live in the United States, assisted living options and costs will vary. Assisted living in Houston, for example, costs $3,863 a month, which is close to the state average.
It’s a good idea to discuss long-term care needs and plans with a financial advisor in Houston so that your health, your assets, and your heirs are all protected appropriately.
Every family is unique, and we look forward to getting to know you and yours. Start a conversation to discuss what independent living looks like for you or a loved one in the years to come.