How to Pay For Senior Care — Part 1 of 3: Assets (Cash) and Insurance
It may not be the most pleasant experience to think about, but it’s one of the most important financial issues you’ll face during your retirement: How will you pay for senior care if your family can’t take care of you?
Several funding methods exist today to pay for senior care. The most common are assets (cash), insurance (long-term care insurance or life insurance), VA benefits or Medicaid, reverse mortgages, and trusts.
In this first of article of Aging Tree Illustrated’s three-part series, “How to Pay for Senior Care,” we are focusing on paying for senior care with assets (cash) or insurance. (Check back in February for background and information on paying for senior care with Veterans Administration benefits and Medicaid, and in March for funding sources that include reverse mortgages and trusts.)
The information presented in these articles should be used as a navigational tool, and should not replace professional counsel by your trusted attorney, financial planner, insurance agent, and/or accountant.
Paying for senior care is a very real challenge and concern for retiring senior Americans across the country. Depending upon a person’s or family’s assets, ability to care for each other, health and other factors, the options vary in price and opportunity.
Let’s start with the basics.
Know your starting point. There are several important steps that experts recommend you attend to before exploring funding options for senior care. These include ensuring you are 1) getting the most from your Social Security benefits; 2) checking your veterans’ aid and attendance benefits, if applicable; 3) and assuring your financial records are in order. These financial records may include your sources of income, assets, Social Security and Medicare benefits, insurance policy details, bank information, tax returns, wills, mortgages and debts, just to name a few.
Understand the definition of “senior care.” Senior care, as referenced in this article, includes independent living, assisted living, continuing care retirement communities, memory care facilities, nursing homes, hospice care, and in-home care.
Home healthcare aides, homemaker services, and services in adult day health care centers cost less.
Know the primary funding categories. In general, there are four primary funding sources to assist in paying for senior care: 1) government programs, including Medicaid and veterans benefits; 2) insurance coverage, including life insurance and long-term care insurance; 3) private assistance from foundations or pharmaceutical companies; and 4) personal property and assets, including a family’s resources and home equity.
A word about Medicare. Several experts we interviewed for this article mentioned Medicare and the confusion that surrounds it for many of their clients when it comes to paying for senior care. Bottom line: Medicare does not pay for senior care.
Barbara Coenson, an Elder Law attorney based in Lake Mary, has counseled clients regarding Medicare and has witnessed the confusion regarding what it covers.
“As people are getting toward retirement, they often use Medicare and only think in terms of Medicare for covering healthcare,” she says, “But Medicare is a health insurance program that’s in place for people to get better.
“Sometimes, you need healthcare, but you’re not getting better,” adds Coenson. “That’s where Medicare coverage ends.”
Coenson gives an example.
“Let’s say someone is in rehabilitation, and Medicare pays for 100 days of rehab, but they only used 30 days,” explains Coenson. “But, after 30 days, they still require someone to help them with their care, so they transitioned into long-term care. That’s the point at which Medicare stops paying.
“This catches a lot of families off guard because, all of a sudden, they have to reach into their pockets and transition to home health care, or an assisted living facility or nursing home,” she adds. “This is when families say, ‘What are we going to do now?’”
Coenson says long-term care insurance policies can help seniors transition from Medicare use into assisted living or other senior care, and provide a funding source as families plan the next steps.
LONG-TERM CARE INSURANCE
According to the 2012 long-term care insurance Price Index, as available via The American Association for Long-Term Care Insurance, the costs for long-term care insurance can vary significantly (each below represents a daily benefit of $150 for 3 years):
Long-term care insurance rates for single, age 55
- Average cost: $2,000 per year
- Low cost: $1,764
- High cost: $3,446
Long-term care insurance rates for couple, both age 55
- Average cost: $2,466 per year (combined)
- Low cost: $2,080
- High Cost: $4,824
Long-term care insurance rates couple, both age 60
- Average cost: $3,381 per year (combined)
- Low cost: $2,794
- High cost: $5,637
The Association states most people apply for long-term care insurance between the ages of 55 and 64.
Like other insurance products, many factors are considered when companies calculate long-term care insurance premiums. For example, your age, gender, current health, past health issues, and your family history of health issues play key roles.
“When I counsel people, we review their medical history, we examine the likelihood they will be looking for some senior care placement, and we talk about the alternatives,” says DeLand-based attorney Astrid de Parry.
“In past decades, there was an opportunity to look for help in the family (for senior care) when extended family models were more common,” she adds. “People could reach out to family members. Sometimes, that is still an option, but not as often. The best plan is to have a plan and not leave it to chance.”
Barney Lane, Certified Financial Planner ™ in DeLand, agrees. “Many clients do not picture themselves going into a nursing home; they picture themselves being cared for in their homes,” he says, adding that in-home care often is covered in long-term care policies.
“I like to counsel my clients through these options,” says Lane. “For example, I may want to get taken care of in my home when I’m older, but my wife might not be able to. That’s why folks need to plan around it.”
Looking at all the alternatives and understanding the costs and benefits of every policy are keys to selecting long-term care insurance. If you anticipate you may prefer in-home care, look into that option when you are selecting a long-term care insurance provider. If instead you anticipate you’ll prefer or need a facility, get the details. Ask yourself: What are my goals and how does the product fit them? Your trusted consultants should steer you toward the best solution.
“Some of my clients have been fortunate to have purchased long-term care policies, and there are some good products out there that help them quite a bit,” says de Parry. “What is best and right for any single individual depends on that person’s circumstances.”
Experts say cash-value life insurance policies are not designed for long-term care coverage; they are designed as a death benefit. They do have a cash value, but that cash value comes to fruition upon the policyholder’s death, oftentimes to be used for the needs of family members who survive him or her.
However, several universal life policies (“hybrid” policies) on the market are designed to pull from a death benefit over several years. These policies not only provide a death benefit, but also an opportunity to pay for long-term care via a policy rider. They typically must be purchased at an earlier age, for example, before the age of 50.
Some annuity policies have long-term care riders that can be added to those contracts, too. These vary in type, costs, and benefits.
Lane says the biggest risk when it comes to using assets to fund senior care is a longevity risk: people can outlive their assets. He says this comes into play when we spend more than we have to fund the number of years we live, or we experience a health event in that timeframe and it’s not covered by insurance.
Says Lane, “You don’t want to be in a situation where you’re home alone and your assets are running out.
“The past days of people retiring with a pension are coming to an end, and there are few guaranteed lifetime benefits,” says Lane. “Our challenge is to determine how to make a client’s assets last a lifetime.”
Thomas B. Fleishel, Certified Financial Planner ™ in DeLand, also has insight regarding using annuities to fund senior care.
“If a client doesn’t need every bit of their assets for retirement income, they may be able to afford to carve off a portion for long-term care,” says Fleishel. “Asset-based long-term care policies use the assets to leverage the money for long-term care benefits. That money can be removed for use in long-term care without being taxed.”
According to Fleishel, approximately 40 percent of Americans will need long-term care after the age of 65. So, he urges clients to look into the future as clearly as possible when it comes to how they’ll fund care in their final retirement years.
Says Fleishel: “If you don’t have coverage for senior care, and you’re living on a fixed income, what will you do financially? Don’t let this devastate your family.”
See Part 2 of 3 – How To Pay For Senior Care (Medicaid and Veterans Benefits)
Aging Tree Illustrated’s three-part series, “How to Pay for Senior Care,” continues in upcoming issues. Check back in February for background and information on paying for senior care with Veterans Administration benefits and Medicaid, and in March for funding sources that include reverse mortgages and trusts.
Please contact Aging Tree with any questions or guidance at 1-866-320-8803.
Vickie Pleus, APR, CPRC
Vickie Pleus, APR, CPRC, is the president of VP Communications, a public-relations consultancy based in DeLand, Fla. VP Communications provides integrated marketing communications, public relations, social media, corporate writing and more to small businesses and nonprofit organizations.
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