Medicare pays healthcare for seniors through the various Medicare Parts. But one area where Medicare is lacking is long-term care. This is becoming a bigger issue as more and more people live longer lives. Long-term care refers to places like nursing homes or assisted living centers. Unlike skilled nursing facilities or home health care agencies, there is potentially no end to how long a person could possibly stay in a nursing home. We will be discussing the options available to you as you plan out your or your loved ones' retirement healthcare needs.
Hospice care. I want to distinguish hospice care from long-term care. Medicare pays 100% of hospice care. There are, however, two exceptions to what Medicare will pay. First, Medicare will charge $5 copayments for each drug that the hospice supplies to relieve pain. Second, there is a 5% charge every time a patient receives respite care. Respite care is essentially a short-term stay in a hospice facility to give family members a break from caring for the dying family member; if family members are indeed caring for him.
Pay privately. Basically, you just pay for the long-term care out of pocket. This is the simplest option but the most costly. In Michigan, the average cost of nursing home care is $200 to $250 per day, or roughly $6,000 to $7,000 a month. In other words nursing home costs for the year tally around to $70,000 to $84,000. The average stay in a nursing home for long term care patients is about 2.5 years. So all in all, the bill for the nursing home visit could be in the ballpark of $175,000 to $210,000. This seems like a horrendous number (which it is) but theoretically, it’s doable. For example, if you sold your house and traded it for a small apartment, liquidated stock accounts, retirement funds, and life insurance policies, and contributed your monthly income to the cost you could possibly pull it off. The only problem is that you have just sold off your entire life’s savings.
Long-term care insurance. Purchasing an insurance policy represents the private strategy to offset the extensive costs of nursing home care. Long-term care insurance policies are usually governed by state law. In Michigan, long term care policies are controlled by M.C.L. 500.3901. An upside to a long-term care policy is that premiums paid towards the policy are deductible up to a certain level on your federal income tax. I.R.C. 213 allows you to deduct “eligible long-term care premiums” up to a given amount according to your age. For example, if you are 40 years or younger, you can deduct up to $340. As you get older you can deduct more. For example, if you are 70 years or older you can deduct up to $4,420 in long-term care insurance premiums. There are several tax strategies you can use to offset the cost of your insurance premiums. Consult a qualified elder law attorney or tax accountant when setting up your long-term care strategy.
Evaluating policies. When deciding on a long-term care insurance policies consider these factors. First, what are the levels of care that will be provided? Generally there is skilled and unskilled care. Most people in nursing home require the unskilled type such as bathing, cooking, cleaning, etc. Skilled facilities are covered in Medicare if the stay is short enough. Make sure the basic unskilled level of care is provided.
Second, how much will the policy pay? More likely than not, the policy won’t pay the full amount of care. Instead it will provide a daily benefit. Compare this to the total cost and make sure you can cover the difference. Also see if they have an adjustment clause, meaning, will they pay more based on increases in inflation.
Third, are any medical conditions not covered by the policy? Make sure that your potential diseases would be covered. Most policies (as required by Michigan law at least) do not cover alcoholism. Alzheimer’s disease cannot be excluded.
Finally, ask if rates will increase. The long-term care insurance industry is actually a very young industry so insurance companies aren’t exactly sure what to charge for premiums. Make sure to find out how their rates have increased by asking for some statistics from the company.
Medicaid Planning. Applying for Medicaid long-term care represents the government strategy to offset extensive costs of nursing home care. The downside is that there is a maze of requirements to Medicaid and you’ll probably want an attorney to guide you through it. The gist of Medicaid long-term care is that you have to meet their requirements. The requirements are primarily about how much property you own and how much income you make. If your net worth and monthly income exceeds the allowed amount by Medicaid you will be excluded from their long-term care program. There is a sizable market in elder law for Medicaid planning. What happens is an attorney will analyze your estate trying to get a number on how much you’re worth and then using techniques allowed by the Medicaid law to move your assets around so you can qualify for Medicaid. The purpose of all of this is to preserve some of your assets for yourself (in case you get out of the nursing home) and for your posterity.
Long-term care is becoming a major area of senior healthcare planning. The large gap left by Medicare’s lack of long-term coverage places the onus on you to be ready for the completely possible event that you’ll need long-term nursing home care.
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