Long-term care can be one of the biggest expenses of retirement. Yet few people plan for it.
If you’re 65, you have just about a 50-50 chance of entering a nursing home at some point. The average cost of a private room now exceeds $75,000 per year, and the average length of stay is almost 2 1/2 years. That adds up to more than $185,000.
One reason people don’t give much thought to the high cost of long-term care is that they figure they won’t have to pay for it. If and when the time comes, they tell themselves, Medicare will pick up most of the tab, the same as it does for hospital stays and doctor visits.
But that’s not the case. It can be a real eye-opener to discover that Medicare typically doesn’t pay for long-term “custodial care” — the kind of personal care that helps you with such day-to-day tasks as getting in and out of bed, bathing, dressing and eating.
Medicare does cover some skilled nursing or rehabilitative care if a physician orders it after a hospital stay of at least three days. You pay nothing during the first 20 days of your care and then part of the cost for the next 80 days. After 100 days, you’re responsible for all bills.
So, since Medicare won’t cover long-term custodial care, what are the most common options?
Private long-term care insurance. Such policies were once seen as the most promising way to finance long-term care. But sharp premium increases in recent years have made the coverage more difficult to afford. Shopping for long-term care insurance requires planning ahead. If you wait until you need it, you may not get it, since people with disabilities may not qualify.
Life savings and other personal resources. Long-term care residents often cover their expenses out of their own pockets, tapping their savings and investments or perhaps even home equity. The high cost of such care, however, can quickly exhaust those personal resources. Many people go through their nest eggs much more quickly than they had anticipated.
Medicaid. Let’s look at this option more closely, since it finances a large share of long-term care in this country. Although the program is usually seen as the state and federal safety net that provides health care coverage to the poor, it also pays for the long-term care of millions of older and disabled Americans after they have impoverished themselves.
Over the years, policymakers have debated whether the government should create a publicly financed program specifically to help pay for the nation’s long-term care costs. In the absence of any emerging political consensus, Medicaid remains the public insurance program that most closely addresses that growing social and economic issue.
As anyone requiring long-term care learns, there are strings attached to Medicaid’s assistance. You must meet stringent asset and income limits.
Although the eligibility rules vary from state to state, you generally can keep no more than a home, your personal belongings, a car and a small amount of savings — often no more than $2,000. Nor can you give away assets or sell them for less than market value to qualify for Medicaid. The state will look at your financial records for the past five years to check for any improper transfers. If it finds one, your eligibility will be delayed.
Also, in many states, you can have only a meager income. Long-term care residents who have been approved for Medicaid coverage must contribute much of their income — such as from Social Security or a pension — toward the cost of their care, after deducting a small allowance for personal needs, the cost of health care insurance premiums and, for couples, an allowance for at-home spouses.
And finally, after you die, Medicaid has the right to seek reimbursement from your estate for what it has spent on your long-term care.
As you can see, there are no easy answers when it comes to covering the cost of long-term care. But learning now about your options will pay off if and when the day arrives that you can’t look after yourself. To find out more, you may want to consult a financial adviser or retirement planner. You also should consider visiting with a counselor from your state’s Health Insurance Assistance Program. In Texas, the number is 1-800-252-9240.