PID 1439

What Is Long-Term Care?

What is Long Term Care?

Robert T. Coleman IV, CLTC®, CFP®, CIMA®

Many people associate Long-Term Care with a nursing home, when really nursing home care is just one of many options. Understanding the financial complexities associated with a Long-Term Care event can help protect one’s family and assets.  Various types of care, services, and locations fall under the umbrella of long-term care, and the person scheduling and coordinating care needs to know these details, and above all, have a plan for how to pay for the necessary care.

A common misconception is that Long-Term Care events are covered by health insurance, Medicare, the VA, or a disability income policy.  However, the only true source of funding for Long-Term Care is paying for it yourself, through Medicaid (not to be confused with Medicare), or with Long-Term Care Insurance.

Medicare and Private Health Insurance are designed to help someone get better and will only pay for care when there is an expectation of recovery, which is why they are used to pay for Skilled Care (after a three-day hospital stay) but not Custodial Care. Skilled Care is provided by doctors, nurses, and physical therapists (highly skilled professionals).  Custodial Care helps you with the “activities of daily living,” including eating, bathing, dressing, using the restroom, and transferring.  Depending on your condition, assistance is important, but does not require help from a professional in the Skilled Care category.

The only time the government will pay for long term care is if, or when, someone qualifies for Medicaid.  To qualify for Medicaid, among other metrics, a person must deplete their assets to meet their state’s standards of income at which they are considered unable to support themselves. At that point, Medicaid only provides Long-Term Care in a nursing home setting.

According to the American Association for Long Term Care, over 52% of Long-Term Care claims start in the home rather than a nursing home. Studies have shown that people want to retain as much of their independence as possible and are most comfortable at home. In addition to nursing homes and home care, other care providers include assisted living facilities, adult day centers, and community based supporting services like Meals on Wheels, grocery delivery services, and transportation services. If someone needs continuous custodial care, it is frequently delivered in a community setting, not in a nursing home.

While the Veterans Administration does offer Long-Term Care assistance for veterans and their spouses, it is limited and extremely difficult to obtain. Eligibility for VA Long Term Care services is determined based on a person’s required ongoing treatment and the availability of the service in their location. Financial eligibility, service-connected (VA disability) status, and ability to pay are also major contributing factors to an applicant’s eligibility. Like Medicaid, the VA will typically only provide care in a nursing home setting (of the VA’s choosing), if at all.

Disability Income Insurance generally protects your income for specific period, usually ending when you are 65 years old. There can be financial loss requirements in addition to physical qualifications to receive disability benefits from a disability income policy. A disability policy replaces lost income; it does not directly pay for care or provide relief for a Long-Term Care event. According to the American Association for Long Term Care, over 85% of new Long-Term Care claims are filed by people 70 years or older.

Most people will self-fund their Long-Term Care expenses. So, if a Long-Term Care event was not addressed in their retirement plan, having to pay out of pocket could easily derail their plan. Assets and income that were intended to pay for retirement will be diverted to pay for care, increasing annual withdrawals from investment portfolios and rapidly reducing assets. South Carolina’s average cost for a private room in a nursing home is just over $82,000 a year. Without the proper planning, this expense could cause a person to quickly outlive their assets.

A Long-Term Care event affects both the person receiving care and their family and friends. Who will be responsible for coordinating and scheduling care? Who is managing finances and paying the bills for care? Are family or friends stepping in to help with the custodial tasks to cut down on the cost of care?

A Long-Term Care Insurance Policy will provide income to pay for both Skilled and Custodial Care in the location an individual chooses. A Long-Term Care policy can preserve other savings and assets to be used for their intended purpose: retirement or legacy. Once on claim, many policies will provide a “Care Coordinator” to manage the scheduling of care between different providers and services. A Long-Term Care insurance policy doesn’t completely remove the family’s involvement during the event, but it can significantly minimize the financial and emotional impact of the situation by reducing the uncertainty of the future.

Self-funding, Medicaid, and Long-Term Care Insurance are the only true methods that will pay for care, and each can be appropriate in certain circumstances. However, if someone wishes to remain in control of the type of care, the services, and the location they receive care, they should address their ability to self-fund care or explore Long-Term Care insurance options. It is extremely important to make an informed decision on how one would fund a potential Long-Term Care event before it happens, and then communicate that decision so that family understands your wishes. The emotional challenges of a Long-Term Care event are not easy, but there are fewer stressors when finances have already been addressed.