What You Should Know About Long-Term Care?

A friend of mine has been dealing with her aging father and his cognitive decline over the past few years. She has witnessed him go from a highly engaged and intellectually curious individual to being anxious, confused, and unable to perform basic daily functions. My friend has worked hard to keep her father’s home life stable and routine but as a working single parent of two, she is nearing a breaking point in her ability to continue providing his care. The story probably doesn’t sound new to you. You may know someone in a similar position, or perhaps be in this situation with someone you love.

Long-term care (referred to here as LTC) continues to grow in importance and relevance. It doesn’t always refer to care related to someone with cognitive difficulties such as dementia or Alzheimer’s. Long-term care refers to a wide range of support required to meet the medical, personal, and social needs of an individual. Research continues to support findings that suggest over 50% of adults aged 65 or older will experience serious long-term needs, requiring assistance with two or more activities of daily living (ADLs) such as bathing, dressing, or feeding.

The odds are that if we don’t know of someone who needs long-term health care now, including ourselves, it is highly likely that we will know someone in the very near future. Further, long-term care needs often create financial hardships because paid care is expensive and Medicare doesn’t cover most long-term care costs.

This article is meant to answer a few of the major questions about long-term care to provide a basic understanding around the types of care and their associated costs.

How do we define long-term care?

As noted above, long-term care isn’t just about medical care or just about cognitive issues. In the modern definition of long-term care, this type of support is designed to meet the medical, personal, and social needs of those who cannot fully support themselves.

It is important to note that the primary goal of care is not to cure an illness, but to allow an individual to attain and maintain an optimal level of functioning.

The non-medical component of LTC deals more with “custodial care” which is aimed at assisting people with ordinary activities referred to as Activities of Daily Living (ADLs). These daily tasks include bathing, eating, dressing, toileting, and transferring (getting into or out of a bed or a chair). The inability to do two or more ADLs is a key trigger for benefit eligibility with both Medicaid and private long-term care insurance. Cognitive impairment is also a trigger for LTC benefits.

How widespread is the need for long-term care?

Long-term care needs are growing at an alarming rate. As noted earlier, over 50% of individuals living beyond age 65 will need some form of long-term care support. Why are the numbers so high?

Three significant factors are at play:

  • Aging demographics – Baby boomers (those born between 1946 and 1964) currently make up 20% of the population.
  • Increasing longevity – We are all living longer lives.
  • Increased risk – As people age, they are at a greater risk for injury and disability that may result in a long-term need.

It is difficult to predict how much or what type of long-term care a person might need. Several things increase the risk of needing long-term care including:

  • Age – Generally, as we age our risk increases. Age is the biggest risk factor leading to a long-term care need.
  • Marital status – Widowed, divorced, and single adults have the highest risks of long-term care admission according to the National Institute of Aging. These folks are less likely to have someone able to help them on a daily basis.
  • Gender – Women are at a higher risk than men, primarily because they often live longer.
  • Lifestyle – Poor diet and exercise habits can increase a person’s risk.
  • Health and family history – These factors also affect risk for long-term care needs because they can affect the risk of certain diseases and conditions.

What are the types of care and their costs?

Long-term care services and support can vary widely: from helping with services such as bill paying or housekeeping to assistance with many activities of daily living. In addition, costs for care can vary not only by the type of care but also by geography, supply of caregivers, and how much care is needed by the individual.

The most common types of care:

  • Home-Based Care – This is care given in the home and often broken down into two categories:
    • Homemaker Services which usually includes housekeeping, cooking, running errands, and similar activities.
    • Home Health Aide Services which includes assistance with ADLs, but not medical care.

The average monthly cost for home-based care is about $4,580 a month

  • Community-Based Care – This is adult day care, providing therapeutic, social, and other support services in a community based setting. The national average monthly cost is $2,154 a month.
  • Facility-Based Care – This refers to living in a care facility full-time, such as an assisted living facility, where the average monthly cost is approximately $4,300 a month, or a nursing home with the national average monthly cost for a semi-private room at $7,750 a month.

All of these costs are expected to rise over the next several years as demand for long-term care increases. (All figures provided by 2021 Genworth Cost of Care Survey)

How do we pay for long-term care?

Medicare – Many people believe that medicare pays for LTC, but this is not the case. Medicare pays for hospitalizations and treatment largely related to acute situations. Once the patient no longer needs a bed in an acute care facility, medicare benefits stop. Medicare will pay for medically necessary skilled nursing facility care for short periods, however, there are strict criteria that must be met to qualify for Medicare coverage:

  • The individual must have had a prior hospital stay as an admitted patient for at least 3 full days.
  • The individual must be admitted to the skilled care facility within 30 days of discharge from the hospital.
  • A doctor must certify that skilled care is required.
  • The services must be provided by a Medicare-certified facility

If the above qualifications are met, Medicare will pay for costs incurred in the facility including assistance with ADL for up to 100 days.

Medicaid (government funded insurance) – This is only available to certain low income individuals and families who fit into particular eligibility groups that must meet both financial and functional criteria. Financial requirements are that individuals demonstrate minimal income and assets. Functional eligibility requires an impairment that limits ability to perform ADLs.

Even if an individual does qualify for Medicaid, conditions may not be ideal. Most assisted living facilities do not accept Medicaid patients. Most nursing homes accept medicare, but limit how many Medicaid patients they will accept. In some states, patients must take the first bed that opens, no matter where it is located.

Long-term care insurance – This is private insurance that typically provides help in home with personal activities including ADLs, homemaker services such as cleaning, paying bills, visiting nurses, community programs such as adult day care, assisted living services including meals, health monitoring, help with daily activities, and also skilled nursing care.

LTC insurance can help protect individuals, families, and their assets against potentially catastrophic long-term care costs. However, it isn’t appropriate for everyone. For those on fixed incomes or those who are having trouble covering basic living expenses, as well as people who only have modest assets, the cost of funding long-term care insurance may be unaffordable. Similarly, if one can comfortably self-fund the cost of extended care, they may not need LTC insurance.

There are many features to LTC policies and a broad range of customization options. Buyers can choose from: 

  • Care settings and services offered (nursing home only, home health care only, or a  combination)
  • Daily or monthly benefit amount the policy will pay for
  • How long to pay out of pocket before benefits begin (“elimination period”)
  • Duration of benefit payments (i.e. 1 year, 2 years, etc.)
  • Inflation protection

Premiums for long-term care policies are not guaranteed and tend to increase over the life of the policy. In addition, premiums increase dramatically by age of issue, the older one is when purchasing a policy, the higher the premium will be. Typically, purchases of long-term care insurance are made between ages 50 and 65.

Self-Funding – This refers to paying for long-term care costs out of pocket with personal or family money, savings, pension benefits, stocks, a reverse mortgage, or other investments. Self-funding may require planning well in advance in order to save a sufficient amount to cover the costs of long-term care.

Given the likelihood of needing long-term care as we age and the rising costs associated with care, this is a planning issue that can’t be ignored. Your comprehensive financial advisor can address the following questions with you:

  • How would an extended long-term care event impact your financial well being?
  • What is the best way for you to protect yourself and your family in the event you need long-term care?
  • Are you a candidate for long-term care insurance or self funding, or a combination of the two?

What questions should you be asking parents or loved ones who may need long-term care? Your financial advisor can guide you in planning appropriately for this risk, providing peace of mind in knowing that you are protecting yourself and those who love you.