Who Pays for Long-Term Care?

Allen Kampf, RFC
Wealth Advocacy Partners
Sparks, Maryland
410-527-1171

Member of the national ElderCare Matters Alliance, Maryland chapter

As a result of medical technology, we are definitely living longer.  When we continue living, we age; when we age, we need care.  It isn't a question of who will care for you.  The question is, "What impact will that care have on your family – physically, emotionally and financially?"

Until age 65, most people's health insurance is either privately purchased or provided (in whole or part) by an employer, union or association.  Beginning at age 65, most Americans enroll in Medicare, the federal government's insurance program for seniors.  The vast majority of seniors use Medicare because it is widely available and more economical than private health coverage.

Currently, Medicare has about 40 million participants, most of whom pay only $96.40 per month for the "Part B" premium that covers doctors bills.  Part A, which covers hospital bills, is free to eligible seniors with 40 or more covered quarters.  Both parts of Medicare also contain a variety of co-payments and deductibles, but much of this can be covered by purchasing private Medicare supplement insurance ("Medigap"), which is sold in 10 standard plans.

The most costly myth about health insurance for seniors is that the combination of Medicare and Medigap creates a strong health insurance "safety net".  If there is such a safety net, it contains a large hole through which most or all of a senior's life savings can disappear in a short time.  This hole exists because neither Medicare nor Medigap covers most long-term care costs.

What does Medicare cover?

The highest level of long-term care is called "skilled nursing care", and it is usually administered in a specialized medical facility under a doctor's supervision.  Medicare may cover up to 20 days of treatment at a skilled nursing care facility at full cost, plus part of the cost of another 80 days.  All except two of the 10 Medigap standard plans include a skilled nursing coinsurance that covers most of the balance during those 80 days.  However, if Medicare declines to cover any part of those 80 days, Medigap plans won't fill the gap either.

Medicare pays for a nursing home only in very limited situations involving hospital stays, doctors' orders and a skilled nursing need.  Four of the standard Medigap plans include an at-home recovery benefit that may reimburse part of the costs of a skilled nurse or home health aide.  This coverage is limited to assistance with activities of daily living following an illness, injury or surgery, and it lasts a relatively short time.

Invariably, Medicare and Medigap can't be relied upon to pay most of the cost of long-term care in a nursing home, community-based facility or private home, especially if the treatment lasts a long time.

Medicaid and the Elderly Indigent

Long-term care costs typically fall on two funding sources: Medicaid and the savings of the elderly.  Medicaid, a welfare program jointly funded by the federal government and the states, supports long-term care for the elderly indigent.

In recent years, Medicaid has funded approximately half of the total costs of nursing homes in the United States.  The catch is that you must qualify to have nursing home bills paid by Medicaid, and that usually means spending down virtually all your assets, except for the value of a primary residence.  Also, you must agree to receive care in a Medicaid-approved facility.

The Hole in the Safety Net

Long-term care insurance (LTCI) has become a bedrock financial solution for protecting retirement savings against the rising cost of long-term care.  Think of LTCI as working together with Medicare and Medigap coverage to make the health insurance safety nets of seniors strong.

Planning for this coverage, and including its premium cost in retirement budgets, can be among the most important steps in protecting your standard of living, while increasing your confidence that all your hard work and planning won't be devastated by an illness, injury or the recovery period.

This coverage also adds to your confidence that you won't become a burden on others and that you will meet other financial goals (e.g., leaving money to your children or grandchildren).

Long-term care insurance typically covers home care, assisted living care, and nursing home care.  Having said this, home care is most often the preferred choice of the person in need of care and their loved ones.  Keeping the person at home preserves a person's dignity and is usually better for the person emotionally.

In short, devastating life events occur without notice.  Take steps now to ensure you and those you care about the most are protected, no matter what the future holds.  Consider purchasing long term care insurance when you are younger and healthy.

Do not wait for a malady to occur and then try to purchase the insurance because you probably won't be able to obtain it or it will cost too much.