For Laurie Craigen, the realities of senior medical costs hit hard when her grandmother needed hospice care.
“It was a stressful time for the family because we were trying to figure out how to keep her comfortable and at home without running out of funds,” recalls Craigen, an associate professor in the mental health counseling and behavioral medicine program at Boston University’s Chobanian & Avedisian School of Medicine.
The family used the equity from Craigen’s grandmother’s home to cover the cost of care, but had she lived just a little longer, the money would’ve run out. That was the turning point for Craigen.
“I realized I’m single,” she says. “I don’t have the same thing she did. If I can’t take care of myself, I don’t know if there are people that feel a responsibility in the same way that I did.”
Craigen’s solution: investing in long-term care insurance.
[READ Understanding the Different Elder Care Options]
What Is Long-Term Care Insurance?
Long-term care insurance policies, sold by private insurance companies, are designed to cover the costs of long-term care needs and services you may incur later in life.
“Most long-term care is not medical in nature but includes help with the tasks of daily living, like bathing or dressing or preparing meals,” explains Whitney Stidom, vice president of Medicare operations with eHealth Inc., a health insurance broker and online resource provider headquartered in Santa Clara, California. “Long-term care services can be extremely costly, and many individuals and families cannot afford to pay for them without assistance.”
Assisted living, for instance, averages $64,200 annually, according to Genworth Financial’s 2023 Cost of Care survey. A home health aide costs about $75,500 per year, and a private room in a nursing home runs just over $116,000 annually.
Long-term care insurance policies can also vary depending on factors like where you live, your age, health conditions, gender, marital status and the benefits you want to purchase.
What Is a Hybrid Long-Term Care Policy?
Hybrid long-term care insurance policies cover long-term care, but they also pay a benefit to your family or another designee after you die.
Many conventional long-term care insurance plans, on the other hand, have a “use it or lose it” rule, which means if you don’t end up needing long-term care, the money you’ve paid into the plan is forfeited.
There are many different types of hybrid plans, and how exactly they work and what they cover can vary greatly depending on the specific policy.
[Read: 11 Signs Your Aging Parent Needs Senior Care]
What Does Long-Term Care Insurance Cover?
Most long-term care insurance policies include some coverage for services such as:
— Adult day care or respite care.
— Memory care.
Long-term care insurance, however, won’t cover all the expenses you’ll encounter in retirement. For example, long-term care insurance won’t cover rent at a care facility like assisted living. Rather, you must have a “health-qualifying need,” such as dementia, cancer, cardiovascular disease or another chronic condition, says Jesse Slome, executive director of the American Association for Long-Term Care Insurance in Westlake Village, California.
[READ Assisted Living Costs and How to Pay]
Does long-term care insurance cover assisted living?
Long-term care insurance does cover expenses associated with an assisted living facility, but exactly what’s included can vary by policy.
Does long-term care insurance cover in-home care?
Policies vary, but long-term care insurance typically covers at least some of the costs associated with in-home care, such as:
— In-home skilled nursing care.
— In-home physical or occupational therapy.
— Assistance with activities of daily living, such as bathing and toileting.
— House cleaning, meal prep and other homemaker services.
What does long-term care insurance not cover?
Depending on the policy, long-term care insurance may not cover:
— Rent, unless you have a qualifying medical need.
— Care provided by family members.
— Expenses that Medicare or a private health insurance plan pays for, such as a hospital stay or surgical procedures.
Does Medicare or Medicaid Pay for Long-Term Care?
Many people assume Medicare — the federal health insurance program for adults age 65 and over — will come to their rescue when they need long-term care. But Medicare probably can’t help you, Stidom says.
“Medicare is primarily designed to cover medically necessary services, such as hospital stays, doctor visits and certain skilled nursing care, but only for a limited period of time and under specific conditions,” she points out. “Most costs associated with long-term care are not covered by Medicare.”
Medicaid, on the other hand, may be more helpful. A joint federal and state health insurance program for low-income families, people with disabilities and older adults, Medicaid can help cover certain long-term care services, such as nursing home care and home-based care for eligible individuals.
However, Medicaid may not kick in until you’ve spent down all your assets, which means that you’ve liquidated any assets to help pay for care.
“The rules to qualify for Medicaid vary state by state,” Stidom adds.
Some people who meet certain requirements may be enrolled in both Medicare and Medicaid at the same time. Often referred to as “dual eligible,” these individuals have lower out-of-pocket costs and access to special benefits. Most dual eligible people have an annual income of less than $20,000, and about 20% of Medicare beneficiaries are dual eligible. These folks “will also find most of their long-term care costs covered,” Stidom says.
Who Needs Long-Term Care Insurance?
Long-term care insurance can help just about anyone who is concerned with how they’ll take care of themselves later in life.
If you have a chronic condition, such as diabetes or multiple sclerosis, making plans to ensure you have the money to care for yourself later in life can be especially important.
Those whose financial situation puts them somewhere in the middle — you probably won’t be able to save enough money to cover the rising costs of care, but you’re also unlikely to qualify for Medicaid — may also benefit from taking out a long-term care insurance policy.
Determining whether long-term care insurance makes sense for you is highly personal, and you should discuss this option with your family and a financial advisor.
How Much Does Long-Term Care Insurance Cost?
The cost of long-term care insurance policies depends on what you’re purchasing and other factors, such as how old you are when you purchase the plan.
“A couple buying an average policy would save $1,000 a year by buying at age 50 versus waiting until age 60,” Slome points out.
Craigen pays $425 per month, and the money is automatically deducted from her account. It is expensive, she says, but because she started paying in her early 40s, she’ll be finished with the term payments by the time she’s about 65. She views it as an investment in her and her family’s future.
“I don’t want to make anyone feel obligated to take care of me,” she says.
Pros and Cons of Long-Term Care Insurance
When you’re taking the long view, there are plenty of pros to long-term care insurance. This starts with peace of mind, Craigen says. She knows that as long as she keeps making her monthly payments, she will be able to afford whatever care she needs down the road. Craigen adds that with her policy, there’s an option to pull funds out if she needs them prior to retirement. So, if she’s in an accident, for example, and needs care, she can tap into the fund then.
But there’s no such thing as a perfect solution, and there can be some cons to long-term care insurance. They can be pricey, and keeping up with monthly payments can be difficult if your employment situation changes or you’re faced with other financial challenges.
You also have to be careful that you fully understand exactly what’s covered by the policy you’re purchasing. There can be a wide range of costs and benefits to each plan, so compare each one, and make sure you understand what you’re signing.
Are there any tax advantages to long-term care insurance?
Jonathan Gassman, principal at Prager Metis CPAs in New York City, notes that some items related to long-term care may be tax deductible, but there are specific rules about when and how deductions can be taken.
“An expense must be medically related, such as costs for diagnosis, cure, mitigation, treatment or prevention of disease or ailment and preferably prescribed or ordered by a physician, but not always,” Gassman explains.
In addition, medical-related tax deductions only apply to your out-of-pocket costs. That means you can’t deduct any expenses that are covered or reimbursed by Medicare, Medicaid or any other kind of insurance, including expenses you pay with the proceeds from a long-term care insurance account.
But there can be some tax advantages, Gassman says.
“Tax-qualified long-term care insurance benefits come to you tax-free,” he explains. “Insurance companies that pay long-term care insurance benefits are required by the Internal Revenue Service to provide claimants with a 1099 LTC form. Make sure you give this to your accountant as there are special forms to complete.”
It’s always best to check with a certified financial planner or tax expert for advice on how to manage any tax liabilities you incur or any deductions you may be eligible to take.
Is Long-Term Care Insurance Worth It?
For Craigen, the answer to this question is a resounding yes, followed by a deep sigh of relief. Witnessing how challenging it was for her grandmother and her parents to face the expenses of increasing health care needs motivated her to find a way to take care of herself.
“It’s comforting to know that I’m prepared,” she says.
Your priorities, needs and potential challenges could look quite different, but for many people, having a long-term care insurance safety net can help them feel ready to face whatever life throws at them.
Bottom Line
Craigen recommends finding a trusted financial advisor to walk you through the ins and outs of long-term care insurance — “with an emphasis on the word ‘trusted'” she says.
In all cases, it’s critical to do your homework and make sure you understand what you’re buying. If something isn’t clear or doesn’t make sense, don’t sign a contract — ask for clarification first.
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What Does Long-Term Care Insurance Cover? originally appeared on usnews.com
