Are You Prepared to Pay For Long-Term Care?

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With costs for long-term care expected to quadruple by the time America's 77 million baby boomers reach retirement age[1], there's no time like right now to learn how you can help protect your assets.

Long-term care can be very expensive. As a national average, a year in a nursing home is estimated to cost as much as $56,575[2], with that cost doubling in some areas of the country. Home care can be less expensive, but it still adds up. Bringing an aide in to your home five times a week (two to three hours per visit) to help with dressing, bathing, preparing meals and similar household chores, can easily cost $2,600[3] a month. So who pays for long-term care? The chart shown here gives you a good idea of where the money comes from:

Who pays for long-term care?[4]

As you can see, 25 percent of all long-term care costs are paid out-of-pocket by individuals and their families. Only about 14 percent is paid by Medicare, with Medicaid picking up most of the balance of the country's long-term care bill- either immediately for those meeting the federal poverty guidelines, or later on for those who "spend down" their assets and become eligible.

Let's explore these options in greater detail:

Medicaid, Medicare and Medicare Supplement Insurance
Many people begin paying for long-term care on their own, but find that their savings are not enough to cover more than a few years of care. If they become impoverished, they turn to Medicaid to pay the bills. Because nursing home care is the primary type of care funded by Medicaid, this situation usually means entering or relocating to a Medicaid approved nursing home. Turning to Medicaid once meant impoverishing the spouse who remained at home as well, but changes in the law permit the at-home spouse to retain certain levels of assets and income.

If you are eligible for Medicare, some costs are picked up by Medicare - but only for short-term, skilled nursing home care following hospitalization and for some skilled at-home care when needed for short-term unstable conditions.

Medicare supplement insurance (often called Medigap or MedSupp) is private insurance that helps cover some of the gaps in Medicare coverage. Those gaps include hospital deductibles, doctors' deductibles, and coinsurance payments - or what Medicare considers excess physician charges - but they do not include long-term care.

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Health Insurance
Generally, neither the health insurance you may have on your own or through an employer will pay for long-term care.

Personal Savings
Considering what you've learned about the cost of long-term care, how long would your savings last in the face of an ongoing long-term care need? If you're like many of us, your personal savings could not withstand several years of long-term care costs. Caregivers and/or those in need of long-term care often sacrifice savings earmarked for college tuition, retirement, or an inheritance for the next generation. Once these savings are depleted, Medicaid becomes the only option.

Long-Term Care Insurance
One option that many people are choosing is long-term care insurance. Like other types of insurance, long-term care insurance allows you to pay a pre-set premium that fits your budget and helps offset the risk of much larger out-of-pocket expenses. It's important to know that in return for your premium, long-term care insurance policies pay for expenses associated with long-term care up to the policy limits that you choose.

No one can predict what type of care they'll need in the future, or what the costs will be. But since the risk of having long-term care expenses is very real, and long-term care can be very expensive, you need to consider the best way to manage this risk and preserve your assets.

Will long-term care be a part of your future?

Thanks to advances in medicine and a greater understanding of how we stay healthy, we're all living longer. The baby boomers are nearing retirement in record numbers, and those over age 65 makeup the fastest-growing segment of our society.[5] But while the number of older people is increasing rapidly, changes in families (more childless, one-child and step-families) and the increasing participation of women in the workforce mean that the numbers of those available to provide informal care for aging baby boomers is decreasing.

What does all this mean for your long-term care needs in the future? It means that you need to plan now for the care you may need independently of relatives who could once be relied upon for help. A long-term care policy would provide the funds to help pay for the care you might need.

1 The American Council of Life Insurance, "Can Aging Boomers Avoid the Nursing Home?," 2000. - 2,3 Met Life Mature Market Institute, 2000. 4 Health Care Financing Administration, Office of the Actuary, National Health Statistics Group. 1999 - 5 The American Council of Life Insurance, Insurance Facts, 1998

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