What is Long-Term Care and How Does it Impact Financial Plans?

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We’d all like to think that we’ll stay healthy and independent for our entire lives. While for some that hope is a reality, many of us will either need or care for someone who needs long-term care at some point in the future. In fact, 70% of people 65 and older will need some form of long-term care in their lifetime. Since long-term care is likely directly or indirectly in your future, it’s important for financial advisors and their clients to plan for it.

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What is Long-Term Care?

The Administration for Community Living defines long-term care as, “A range of services and supports you may need to meet your personal care needs.” Long-term care can include medical care, but it also includes activities of daily living (also known as ADLs). 

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The name “long-term care” can be misleading, since it doesn’t necessarily mean someone will need that care for the rest of their life. The average period of time people 65 and older will be in long-term care is three years.

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What are the Types of Long-Term Care?

There are three main types of long-term care. Skilled nursing, assisted living, and home care. Let’s look at each one in more detail.

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Skilled Nursing

Also commonly known as “nursing homes”, skilled nursing facilities are licensed to give several types of care based on someone’s needs. Skilled nursing is for people who need 24/7 medical care or supervision. Communities with skilled nursing have advanced medical services, rehabilitation therapy programs, rooms for residents, meals, activities, laundry services, housekeeping, and most importantly a full, 24/7 nursing team. Skilled nursing is also often recommended after someone has surgery or has just had a hospital stay for a medical condition.

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Assisted Living

Assisted living communities offer medication assistance, housekeeping, laundry, and other personal care needs to residents. The big difference between assisted living and skilled nursing is that most assisted living communities don’t provide 24/7 nursing care teams. Because of this, assisted living is best for people who are aging and need extra help, but do not have serious medical conditions or complex care needs. There are also several residential options for assisted living — condos, suburban neighborhoods, and apartments.

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Home Care

Home care can be medical and non-medical. There are some types of home care that are essentially skilled nursing services but are given inside the person’s home rather than a facility. Some forms of home care are for ADLs, such as:

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• Housekeeping 
• Personal care (eg. bathing, brushing teeth, dressing)
• Transferring to or from a bed or chair
• Eating

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Home care also varies in frequency. A home caregiver could come for just weekly visits or be a 24/7 live-in caregiver. Home care is also often given for free by loved ones instead of paid caregivers. It depends on the individual’s needs and budget. Depending on the level of care and frequency of visits, home care can be the most expensive option of the three types of long-term care.

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The Cost of Long-Term Care

Long-term care is a key component of a comprehensive plan due to the likelihood of it being needed and its cost. One report showed that in 2020:

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• Home health aides had a median cost of $54,912 annually.
• Assisted living communities had a median cost of $51,600 annually. 
• A semi-private room in a nursing home (skilled nursing facility) had a median cost of $93,075 annually.
• A private room in a nursing home (skilled nursing facility) had a median cost of $105,850 annually.

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If you, a loved one, or your client needs a form of long-term care, cost is one of the important factors to consider. It’s also important to know that these costs aren’t all necessarily out of pocket; insurance plans may cover parts of care. However, a large portion of long-term care costs will be out of pocket; especially if you use home care.

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How Medicaid Works with Long-Term Care

Medicaid is a combo of Federal and State programs for low-income people and families. Medicaid covers the costs of medical care and some types of long-term care for people who have limited income and meet other eligibility requirements. Who is eligible and what services are covered vary from state to state. 

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How Medicare Works with Long-Term Care

It’s important to note that Medicare, the Federal health insurance program for anyone 65 and older, does not cover long-term care. However, Medicare can be used to cover short-term care offered within a skilled nursing facility after a hospital stay. 

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How State Assistance Programs Work with Long-Term Care

Some states have PACE (Program of All-Inclusive Care for the Elderly), a Medicare program that provides care and services to people who otherwise would need care in a nursing home. PACE covers medical, social service, and long-term care costs. In some situations, PACE will also partially or fully cover the long-term care needs of a person with Alzheimer’s disease. PACE allows most qualified enrollees to continue living at home instead of moving to a nursing home. There are certain qualifications needed for PACE, and there might be a monthly charge depending on the situation and the state. You can see which states offer PACE by visiting their website. 

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How Veterans Benefits Work with Long-Term Care

The U.S. Department of Veterans Affairs will sometimes cover long-term care or at-home care for qualifying veterans. There are even nursing homes that are specifically for veterans. In some cases, spouses and Gold Star parents (parents of service members who died while serving during a time of conflict) may be eligible to receive long-term care covered by the VA. Visit the Veterans Health Administration or the Veterans Affairs Caregiver Support page to see if you or a loved one qualify.

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How Long-Term Care Insurance Works with Long-Term Care

If someone doesn’t qualify for Medicaid but needs assistance paying for long-term care, insurance specifically for long-term care can be a good option. The cost will vary depending on the enrollee’s age, current health needs, optional benefit add-ons to the plan, and of course the company’s rates. There are many companies that offer long-term care insurance, so it’s a good idea to shop around. Having a foundational healthcare planning strategy, accomplished through processes like the HealthPlanning Analysis with Caribou, can ensure you’re set up for conversations to discuss long-term care insurance options based on your or a loved one’s specific needs and information.

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How Private Health Insurance Works with Long-Term Care

This is (generally) the type of health insurance you would typically get through an employer such as Blue Cross Blue Shield, Aetna, etc. Most private health insurance policies follow the same general rules as Medicare — they technically don’t cover long-term care. If they do, it’s usually just for short-term, skilled nursing care or medically necessary care given within a nursing home. The National Institute of Aging explains it this way:

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• Like Medicare, the skilled nursing stay must follow a recent hospitalization for the same or related condition and is limited to 100 days.
• Coverage of home care is also limited to medically necessary skilled care.
• Most forms of private insurance do not cover custodial or personal care services at all.
• Plans may help pay for some of the copayments or deductibles that Medicare imposes. For example, a plan may help cover the $137.50 per day fee for Medicare-covered nursing home care for days 21 through 100.

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How Self-Paying Works with Long-term Care

As mentioned earlier, the cost of long-term care often comes out of someone’s own pockets even if they have some assistance from any of the above resources. However, there are ways to ease the financial burden even if someone does have to pay for some or all of long-term care services. Reverse mortgages, life insurance policies with long-term care add-ons, annuities, and trusts are all common solutions used to help pay for long-term care. Of course, someone looking into long-term care will want to discuss these options with their financial advisor to decide the best course of action.

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Recap 

Long-term care can seem frightening, but it doesn’t have to be! Spending the time to create a financial plan for it with specific preferences and needs will ensure that should you, a loved one, or your client need this kind of care one day, you’ll be prepared.  

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