An estimated 70% of people over age 65 will need some kind of long-term care.
Not all of these people will need to enter a nursing home. For many, the preferred care would be received at home. It is the inability to do the activities of daily living because of a physical or cognitive reason that triggers the need for this care.
Six activities are considered when making this evaluation: transferring, continence, toileting, bathing, dressing and eating. When someone cannot do two of these alone, it often signals the need for aid. These are what trigger LTC policies.
When Medicare was created in 1965, it was designed to help people over age 65 to get better. It was not designed for illnesses such as Alzheimer’s and other diagnoses that last long term.
Medicare does not pay for long-term care. It might provide up to 20 days’ coverage for short-term recovery, if you have been admitted to a hospital for three or more days. Up to additional 80 days might be available by paying a daily co-pay. After day 100, there is no long-term care coverage from Medicare.
While this might be valuable for rehab from a stroke or hip fracture, it does not cover care you may need for the rest of your life.
Medicaid is the only other government program for long-term care, but you must spend down most of your assets to qualify for help from this program. Even then, Medicaid covers a nursing home only, in a specially licensed facility and usually in a semi-private room with another resident. If you prefer treatment at home in private, Medicaid will not be the answer.
If you have assets you want to protect, you’d better have a plan. The Pension Protection Act, passed in 2006, might offer help. In some cases, it allows you to withdraw cash value from existing life insurance or annuity to purchase LTC coverage. Sometimes, you can completely exchange annuity for a LTC policy on a tax-free basis. On some policies, you can accelerate the death benefit tax free to pay for long-term care.
Traditional LTC insurance, where you make monthly payments, is not used as much as it was years ago. Many insurance companies have left the industry and premiums have often increased at an alarming rate. These types of policies often were “use it or lose it.”
Most people hope to never need a nursing home. Sometimes after paying for years, people find they can no longer afford the coverage. This is a difficult decision. Newer types of coverage can eliminate some of these issues.
Because there is a five-year lookback period, you must plan ahead. The odds of needing care increases every year as we age.
While this subject is important to every senior, it may be even more important to women, who make up the majority of a nursing home population. This is because women often marry men several years older than themselves, and women often outlive men of the same age by four to six years. When a husband needs help, the wife is available. Often, when a woman needs help, she is a widow.
Be proactive and have a plan to deal with this important possibility.
Gary Boatman is a Monessen-based certified financial planner and the author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”
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