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Long term care defines a range of services that refer to people with differing personal care needs. It isn’t something that can be defined as a single type of service. As a purely medical service long term care is a form of healthcare that delivers assistance to people with chronic illness or disability. However, for others it can also be a type of care that assists people who cannot perform basic tasks essential to normal living. These are known as Activities of Daily Living (ADLs) such as eating, dressing, bathing, getting out of bed, using the toilet and so forth. Then, for those who seek to continue living independently despite slipping health, long term care can even include assisting with Instrumental ADLs (IADLs) such as cooking, shopping, managing money, taking medications and other activities a fully functional person normally performs. Understanding the cost of long term care is crucially important for both Seniors and those close to retirement.
Some 16.7 million people received some form of paid long term care in 2015. That number is expected to more than double to 27 million by 2050. Further, the probability of becoming unable to perform two or more ADLs, which requires some form of long term care, hovers at nearly seven in ten people (68 percent). Long term care is expensive. In 2012 Americans spent $219.9 billion, equal to 9.3% of total personal health care spending. This figure is expected to increase to $346 billion by 2040.
Types and Cost of Long Term Care
Let’s review the most popular forms of long term care to see what they cost and how people pay for them today. In general, you can look at long term care delivery (and the cost of long term care) along a spectrum that begins with Family Caregivers and ends with Hospice care.
Family Caregivers. These are usually family members or friends who may live with the person being cared for or may live separately. These caregivers may help part-time or full-time, and generally are not paid. As of 2015, nearly 66 million Family Caregivers provided some form of long term care to people who could not function successfully on their own.
Although Family Caregivers by definition are unpaid, AARP determined in 2013 that some 40 million family members had donated some 37 billion hours valued at $470 billion—which surpassed total Medicaid spending that year. Those “volunteer” hours do not include between $7,000 and $9,000 those caregivers spend from their own pockets. These number clearly show the high cost both in dollars and emotional impact that long term care draws from its Family Caregivers.
Adult Day Care services are provided in a community setting and designed to deliver social and some health services to adults in a professional, coordinated and compassionate fashion. Adult Day Care is generally used to provide Family Caregivers respite, and to keep the adult active within a community of others.
The median national cost for Adult Day Care is pegged at $70 per day.
Home Health Agency (HHAs) provide services for those who want to live independently in their homes but need the support of professional care givers. These HHAs deliver skilled nursing services and are generally headed by a Medical Doctor or Registered Nurse (RN) who supervise the delivery of services. They address issues including pain management, management of medication, injections, catheter changes, tube feedings and others that can only be administered by a professional.
In addition to skilled nursing, most HHAs offer therapeutic services. These can include physical therapy, speech and language therapy, and related services that help a person safely resume the ADLs essential to normal living.
Note that many companies known by various names such as “home health aids” provide help with ADLs but do not provide any medical care. These may be known as “companion services,” “personal care assistants” and other titles. Don’t confuse these with HHAs that provide medical services.
The cost of for services from these aids and assistants is generally paid out of pocket and with a median national rate of $131 per day ($47,934 annually) with wide variation according to geography, according to the 2017 Genworth study.
Assisted Living facilities are a good choice for people who may need help with ADLs, but do not need intensive nursing and medical help like that offered by nursing homes. Many people in assisted living have found that living alone in a family home is no longer practical. According to the National Caregivers Library, “The average resident of an assisted living facility is an 80-year-old mobile female who has moved from a private living arrangement to the facility and has an average annual income of approximately $30,000.”
The median cost of assisted living is $45,000 per year nationally, with prices varying by state from more than $67,000 in Massachusetts to just over $38,000 in South Carolina.
Nursing Homes provide long term care for those who are seriously ill, disabled or otherwise unable to care for themselves. The specific level of care provided is usually determined by a physician. It may be limited to helping with ADLs and some nursing attention. However, for the most seriously in need, skilled nursing care and 24-hour supervision may be required.
The cost for nursing care tops the price pyramid due to the extensive medical services and staffing provided. Nursing home, based on national median figures, reaches $85,775 per year, while Massachusetts and South Carolina come in at $140,525 and $77,015, respectively.
Hospice Care generally provides for those who have six months or less to live. Stays at a hospice facilities may last up to six months, although many are much shorter. The goal of hospice is to provide a comfortable final close to one’s life, as pain and stress free as possible.
Your costs for hospice care are largely paid by Medicare or Medicare Advantage plans, including pain relief treatment, drugs and care associated with your terminal condition. You will be required to pay five percent of your medication bills and small copays that cannot exceed $1,316 in 2017.
How Will You Cover The Cost of Long Term Care?
You have several choices in financing the cost of long term care. Your own resources may fund a portion of those expenses, but for most people savings and retirement plans are not enough. Long term care insurance can cover some of the cost of long term care, however government programs can also help. Let’s examine each briefly.
Long Term Care Insurance
Your Long Term Care Insurance. If you have purchased long term care insurance, the services and amounts it pays will vary according to your specific policy. Most policies are guaranteed to be renewable for life, although they can be canceled for non-payment. They generally cover home care, adult day care, assisted living, nursing home care and specialty Alzheimer’s facilities as well as hospice care. If you are fortunate to have purchased a long term care policy, it’s likely a sizable portion of your care needs may be covered.
Medicaid and Medicare
Medicaid, a Federal program designed to help America’s poorest people, has stringent eligibility requirements that essentially require you to be living below the poverty level. For those who qualify, Medicaid can pay for medical care such as visits to your doctor and hospital, and for long term care including personal care, home care, some community-based services and nursing home care. The Medicaid program, however, is jointly administered by the Federal and your state governments. The combination of these two determines your eligibility for various forms of long term care, so your state government is the best source for detailed information on eligibility in your state
Medicare, also a Federal program, provides only limited payment for long term care. The assistance required by people unable to perform ADLs, manage their prescription drugs or cook food is not covered at all. However, Medicare will pay for 100 percent of certain skilled nursing services; and for home health care (such as those provided at HHAs) or hospice for up to 20 days. For the next 80 days it pays any amount greater than $140 per day (which you pay out of pocket), then nothing beyond the 100th day.
In addition, Medicare can pay for certain healthcare services when your doctor specifies them as medically necessary and renews their prescription every 60 days or less. These can include part-time or periodic skilled nursing; various services of an HHA; certain social services; and, medical and durable equipment for which you pay 20 percent of their costs.
Finally, if you have a terminal illness and are not expected to live more than six months, Medicare may help. It can provide hospice care and pay the cost of drugs to manage your illness and provide palliative relief as well as respite for Family Caregivers. These services may be delivered in your home, at a Medicare-approved hospice facility or, if you live in a nursing home, at that location.
Annuities
Annuities sold in the general financial marketplace offer a regular monthly income in return for one or more premium payments. Annuities used to fund long term care are available in two major forms. An immediate annuity is purchased when a person cannot qualify for long term care insurance and/or because the person is already in need of funds to pay for long term care. On the other hand, a “deferred long term annuity” builds two funds: one for to pay for long term care, another to use for other purposes. Most buyers pay for their annuities by transferring money from savings, a CD, 401-K or other retirement account.
Annuities pose concerns for many, though. Annuities may not fully fund long term care needs. They may complicate one’s tax situation. They will most likely be affected by inflation. And, if you wish to qualify for Medicaid, owning annuities may disqualify you from the Medicaid program.
Charitable Remainder Trusts allow you to place a portion of your assets into a trust that pays between 50 and 95 percent of your assets to a charitable organization, while allowing you to withdraw the balance during your lifetime for up to 20 years. Of course, the difficulty here is that paying a large portion of assets may leave you with too little to pay your long term care needs.
Reverse Mortgages
Reverse Mortgages allow you, at age 62 or greater, to essentially “sell” the accumulated equity in your home in return for monthly income, a line of credit, a lump sum payment or a combination of those. This is an attractive option for many, although most financial organizations recommend a private counseling session because few homeowners understand the process.
Reverse Life Insurance and Life Settlements
Life Insurance Policies can offer a straight-forward method for getting the value from your life insurance policy. Some companies offer “advanced death benefits” that pay you a portion of your life policy’s face value if you contract a fatal disease, need long term care, are unable to perform ADLs and are confined to a nursing home. Each such policy carries its own limits, which generally total no more than 50 percent of the face value of the policy. Likewise, the amount you can spend for nursing home care is often capped at 2 percent of the face value, while home care may be limited to 1 percent.
A more flexible approach is to use your life insurance policy via what’s known as life settlement. A person looking for money to pay for long term care can simply sell his or her qualified life insurance policy and receive a cash payment. The life settlement process imposes no restrictions on how the money can be used, however the value received will be influenced by the age of the policy holder and his or her health, as well as by the face value amount of the policy.
Whole life, universal life, variable life and term life insurance policies can all qualify for life settlement. The key to obtaining cash from your life insurance policy, much like appraising a fine wine that’s rested on the shelf for many years, lies in having it properly evaluated and qualified. Reverse Life Insurance provides such evaluations and can put you directly in touch with those who can make you cash offers for your policy. If you are seeking to pay for your long term healthcare or that of a loved one, contact us to learn more about your particular policy.