Planning for the long term

When planning for retirement, thinking about planning for medical treatment and expenses, long-term care, and possible nursing home stays might not be the first thing that pops into someone’s mind. However, these costs might take the biggest bite out of the budget later in one’s life. But with proper planning, anyone can be prepared for these possible expenses.

There are different levels of care someone may need or want as they progress into retirement. The care may range from in-home services to staying in a nursing home, and the pricing for those different services will vary based on the level of care being provided. For example, as one ages, they may simply want a homemaker to provide hands-off services, such as shopping, cleaning, or running other errands for them. This person can act as a companion to help with simple tasks. In 2016 the national average for these simple services was $20 an hour.At the opposite end of the spectrum, nursing-home care in a semi-private room was an average of $225 a day ($6,844 a month), and a private room was $253 a day ($7,698 a month), in 2016.Other services such as adult day health care centers, assisted living facilities, or board and care homes will fall somewhere in the middle of this pricing scheme. Although the numbers may appear overwhelming at first, there are plenty of ways clients can tackle these growing expenses through savings and investment plans or governmental benefits.

Government Programs

​Social Security is a well-known retirement program that provides income to those who are eligible. Those who are eligible may include retirees, a worker’s surviving spouse, a retired worker’s children under the age of 18, or an insured worker who became disabled before retirement and the survivors of insured workers who pass away.
Many aging individuals who are eligible to receive Social Security rely on this forincome. However, this may not be enough for these individuals to maintain their pre-retirement standard of living and finance their long-term care. For example, “[f]or 2019, the maximum monthly Social Security retirement benefit for a worker retiring at the full retirement age of 66 years is $2,861.” But “the estimated average retirement benefit for retirees is only about $1,461 a month.” However, there are certain government programs that can help with medical and long-term care expenses.

When it comes to health care, Medicare is the federal government’s principal health care insurance program for individuals 65 years-of-age or older, under 65 years-of-age and receiving Social Security Disability benefits, or who have end-stage renal disease. Medicare is broken down into parts A-D. “Part A covers hospital stays, Part B covers physician fees, Part C permits Medicare beneficiaries to receive their medical care from among a number of delivery options, and Part D covers prescription medications.”

“Medicare covers medically necessary care for acute care, such as doctor visits, drugs, and hospital stays.” Acute care refers to care that the program’s administrators view as reasonable and necessary to diagnose or treat an illness or injury—“[r]ecovery is the primary goal of acute care.” Therefore, except in very limited circumstances, Medicare does not pay for most long-term care or personal-care services.
​Although Medicare is the principal health care insurance program for the above-mentioned individuals, it only pays for about half of the medical costs for eligible individuals after all of the deductions, copayments, and coverage exclusions. In order to fill these voids, individuals may purchase a “Medigap” insurance policy. Medigap policies may not fill all the gaps in Medicare, but it could help.

​Unlike Medicare, Medicaid provides for long-term care not covered by Medicare or other medical plans. It is a joint federal and state government program that “covers medical care, like doctor visits and hospital costs, long-term care services in nursing homes, and long-term care services provided at home, such as visiting nurses and assistance with personal care.”

Medicaid is designed to help individuals who have low income and assets. Therefore, Medicaid beneficiaries must meet certain financial requisites in order to qualify. Financial eligibility for Medicaid is based on an applicant’s income and countable resources. Federal requirements govern who may be eligible to receive Medicaid benefits overall, but states are given “considerable leeway in how they operate their programs”—meaning “eligibility rules and services that are covered vary from state to state.”

​Finally, veterans may also be able to receive assistance through the Department of Veteran Affairs. “The Department of Veterans Affairs . . . pays for long-term care services for service-related disabilities and for certain other eligible veterans, as well as other health programs such as nursing home care and at-home care for aging veterans with long-term care needs.” The Department of Veterans Affairs may also pay for veterans who do not necessarily have a service-related disability but are in need of financial assistance for necessary care.

Other Options

​Often people choose to save for retirement throughout their lifetime using investment tools such as an individual retirement account. However, there are other options that may help individuals finance their long-term care.
​One option for people wishing to prepare for financing their long-term care is long-term care insurance. Long-term care insurance covers those “long-term care services and supports, including personal and custodial care in a variety of settings such as [one’s] home, a community organization, or other facility.” Because of the variety of benefits one could choose from, long-term care insurance is a great option to consider when thinking about long-term planning. 

However, long-term care insurance may be too expensive, or the client might not be able to qualify for coverage. The cost of long-term care insurance is often based on:

• How old you are when you buy the policy.
• The maximum amount that a policy will pay per day.
• The maximum number of days (years) that a policy will pay.
• The maximum amount per day times the number of days determines the lifetime maximum amount that the policy will pay.
• Any optional benefits you choose, such as benefits that increase with inflation.

Furthermore, long-term care insurance premiums may be lost if the policyholder ends up not needing any long-term care. However, individuals may opt out of the long-term care insurance to invest in short-term care insurance instead. This coverage will often be cheaper than its long-term counterpart because it only covers up to one year of care. Therefore, this may be an option for someone who waited too long to purchase long-term care insurance.

​Certain life insurance may also be used as a way to help finance long-term care. This can be achieved by investing in a life insurance policy that has a cash value and will allow the client to borrow against that cash value of the policy later when long-term care may be necessary. This option also allows the policyholder to name a beneficiary to receive the remainder of the benefit upon his or her passing.
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Another option for long-term care planning may include entering into an annuity contract. “In exchange for a single payment or a series of payments, the insurance company will send you an annuity, which is a series of regular payments over a specified and defined period of time.” This may be structured as an immediate annuity or a deferred long-term care annuity. With an immediate annuity, the “insurance company converts . . . the single premium payment into a guaranteed monthly income stream for a specified period of time or for the rest of your life.” Under a deferred long-term care annuity, however, “[t]he annuity creates two funds: one for long-term care expenses and another separate fund that . . . can [be] use[d] however [one] desire[s].” Generally, the rules of the annuity will govern how much someone can access from either fund and when. Furthermore, certain health criteria must be met to qualify for a deferred long-term care annuity.
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All in all, there are numerous options to structure financing long-term care. The most important thing is to listen to your client’s needs and utilize resources available to help themplan.

Helpful Resources
 

National Academy of Elder Law Attorneys (NAELA): NAELA is an association of attorneys who are dedicated to improving the quality of legal services provided to people as they age and with special needs. The Academy sponsors continuing legal education programs on Elder Law for attorneys throughout the year and provides publications and educational materials to its members on a wide range of Elder Law topics. More information can be found at naela.org.

Elder Law Answers: Elder Law Answers provides general information and resources for Elder Law and Estate Planning questions. More information can be found atelderlawanswers.com.

Eldercare Locator: The Eldercare Locator is a nationwide service that connects older Americans and their caregivers with trustworthy local support resources. Since 1991, the Eldercare Locator has been linking those who need assistance with state and local agencies on aging, as well as community-based organizations that serve older adults and their caregivers. Whether help is needed with services such as meals, home care or transportation, or a caregiver needs training and education or a well-deserved break from caregiving responsibilities, the Eldercare Locator is there to point that person in the right direction. More information can be found ateldercare.acl.gov.