Many of us don’t think about long-term care until a medical event or diagnosis brings it to the forefront. Some 70% of adults will need some form of long-term care as they age, and traditional forms of insurance (including Medicare) may not cover the expense.
Whether you’re planning for yourself or acting as caregiver for a loved one, it’s important to plan ahead for lasting medical conditions. Let’s look at what constitutes long-term care and how families like yours can prepare yourself for the potential expense.
What does long-term care actually mean?
We tend to use the phrase long-term care to refer to any type of ongoing support; however, long-term care has a more technical definition in the healthcare (and thus financial) community.
Typically, long-term care refers specifically to “custodial care” and/or “long-term services and support.” These terms encompass medical and nonmedical care provided to someone who has a chronic illness or is unable to care for themselves .
This definition matters because many insurance companies draw a line between medical care and long-term care. Traditional Medicare (Parts A and B) and employer-sponsored health insurance are designed to cover the medical side of the equation. If the illness persists, however, the condition switches from medical to long-term care and likely won’t be covered. For instance, assisted living facilities (such as adult day care) or home health support are rarely covered by medical insurance.
A note on insurance: Many providers of private health insurance, whether they’re employer-sponsored plans or Medicare Advantage plans, follow traditional Medicare (Part A and B) coverage guidelines. For this reason, we’ll refer to Medicare as a baseline, but you should always look up the specifics with your provider.
Skilled vs. unskilled support
While every person and situation are unique, there are a few general guidelines that can help you understand what might be viewed as medical care by insurance versus what might constitute long-term care. Consider nursing homes:
Insurance treats “skilled nursing” facilities—meaning there’s a medical component tied to managing medications, recovering from surgery, or similar—differently than a basic assisted living facility. While we tend to refer to both facilities as nursing homes, and while both usually have medical personnel on staff, it’s important to be precise about what form of care you (or a loved one) will be receiving to avoid a surprise bill.
Providers take a similar approach to home health care. Generally speaking, Medicare covers part-time or intermittent services, like post-surgical wound care, caregiver education, injections, health monitoring, and physical or occupational therapy. To qualify for this type of at-home coverage, you may need to have a doctor officially designate you as a homebound patient.
Support beyond medical care, however, isn’t covered. If you go beyond occupational therapy and need support with personal care, cooking, or daily tasks, that type of home-health
support usually requires additional coverage or out-of-pocket payment.
How to pay for long-term care
If you look up “paying for long-term care,” most of the results focus on long-term care (LTC) insurance. Most people think this type of policy, or paying for everything out of pocket with savings, are the only two options to pay for long-term care. In reality, there are a wide array of new and creative solutions to help you cover that cost. As with anything, it’s best to work with a financial advisor to make sure you understand the various pros and cons of what you’re signing up for, but here’s a preview of some ways to cover long-term care costs.
Pay out of pocket
Depending on the size of your retirement savings and portfolio, you may be able to leverage your savings to cover future care needs. Be sure you understand the potential costs, however.
Rather than simply covering these costs with your hard-earned savings, think through whether one of the alternatives could help your dollars go further.
Annuities
Annuities are a popular way to turn a nest egg into an income stream, so it’s no surprise that some of these products are now designed to incorporate long-term care into the mix. For some annuities, this consideration is built in from the time you purchase the product. For others, you can add a long-term care rider that you activate if needed to cover costs if they arise.
As with any financial product, it’s important to understand the fine print, and we recommend working with a financial advisor who can help ensure you fully understand the pros and cons of this type of policy.
Long-term care insurance
Long-term care insurance can make a significant difference for anyone needing long-term care for more than a year or two. However, these policies come with conditions and aren’t always feasible.
For instance, you’ll want to set a policy in place well before the actual care is required; policies can deny coverage for pre-existing conditions, implement waiting periods that delay the start of coverage, or dramatically increase premiums if they think you’ll need significant support.
Life insurance
While long-term care insurance is available to purchase on its own, it can also come bundled as part of a whole life insurance policy. It’s important to understand how a long-term care provision impacts your premiums and benefits, but with this approach, the money not used to support long-term care remains available as a death benefit.
If you already have a life insurance plan, there may be riders available to provide this type of support and access without having to underwrite a new policy.
As with annuities, it’s important to work with a trusted professional and understand the details of your coverage and the specific policy you’re considering.
Premiums can be very high for this type of coverage, so it’s important to weigh the expected expenses against what’s covered, anticipated costs, and more. A financial advisor can help you run the numbers.
Home equity
You may be able to leverage the equity in your home to cover long-term care costs. There are multiple ways to do this, from selling your home and putting the proceeds towards your care (which could make sense if you don’t anticipate being able to live in the home again), to a reverse mortgage or home equity line of credit.
If you opt to use either a line of credit or a reverse mortgage, it’s important to read the fine print and understand the terms. Spend time thinking through what you want to happen to your home as you age (and after you’re gone) before you’re in a situation where you need long-term care; this can make it much easier to assess whether home equity is a viable option to pay for care or more of a last resort.
Family support
If you are expecting (or hoping) your family will help care for you, have an open and honest conversation with them when you’re still healthy. Some family members may be comfortable stepping in with physical or financial support. However, if the responsibility comes as a surprise, it may feel like a burden and create lingering problems.
Need help managing the costs of caregiving?
If you’re figuring out how to cover the costs of long-term care, we highly recommend speaking with a financial professional during this process.
While there are more ways to pay than ever before, it’s critical to understand the terms as well as the pros and cons of each. For instance, an annuity doesn’t come with the same underwriting or health questionnaire that a life or long-term care insurance solution would. It’s also helpful to work with a financial advisor to figure out which funds you’ll use to pay the premiums on a policy, or any restrictions that might be placed on the benefits involved.
Similarly, if you’re trying to help a loved one cover the cost of their care without damaging your own finances, the Revo Financial team is available to assist. You don’t have to take a “grin and bear it and dip into our savings approach,” and you don’t have to do it alone.
Reach out to our team today to learn more.
