Long-term care is one of those subject matters no one wants to think about, let alone talk about. It’s a lot like talking or thinking about death; we don’t like to do that either, even though we all know we’re going to die someday. Despite this certainty, I read this morning that 64% of adults don’t have a will. Many of those without a will say it’s because they don’t like thinking about death. Regardless of whether or not you talk about long-term care (or death), it's likely you will need long-term care someday because we all age. The only way you can ease the pain of this reality is by preparing financially for long-term care now.
Most people hope that they will live to a ripe old age, go to sleep one night perfectly healthy, in no pain, and simply not wake up the next morning. That’s how I want to leave this world. Unfortunately, we know only the very few lucky ones do that. We’ve all seen grandparents, parents, friends or other family members go through painful and extended illnesses at the end of their life.
Planning for Long-Term Health Care
Facing the fact that we may need long-term health care is one thing. How we plan for it is quite another—and maybe more difficult. If we face a serious illness that renders us unable to perform the basic activities of daily living (ADLs), we will need assistance, and it’s best to plan for it ahead of time.
Depending on the seriousness of our health issues, we have several options for making sure we get the help we need. We can have an unpaid family member or friend help us with some of the basic levels of care. We can have a nurse or home health care aide come to our house and help. There are a variety of adult day care services that can provide care during the day, and there are many types of long-term care facilities. (For related reading, see: Long-Term Care: More Than Just a Nursing Home.)
When I discuss long-term care planning with clients, almost every one of them says they want to be able to stay in their home for as long as possible. And the U.S. Department of Health and Human Services website about long-term care reports most people can live at home for many years with help from unpaid family and friends. In my family, Mom lived with my brother and his family for a year or so until they were no longer able to provide the level of care she needed.
When our health issues require skilled home care or full-time care in a facility, those services must be paid for somehow. Medicare provides only limited coverage for long-term care expenses. Medicaid will pay for most long-term care services, but to qualify you must have income and assets below a certain level. That leaves long-term care insurance or savings as the only options for a large number of people. (For related reading, see: A Quick Guide to Medicaid and Nursing Home Rules.)
Should You Buy Long-Term Care Insurance?
So, should we buy long-term care insurance? That’s a good question, and one that is getting more and more difficult to answer. The best answer for you depends on your unique situation. Many financial advisors don’t sell long-term care insurance, but they can provide advice to clients who are trying to decide whether to buy it or to accept the risk and self-insure.
Why is the answer to a relatively simple question becoming so difficult? Because of the changing nature of the health care industry and the long-term care insurance industry. First, some facts: In Florida, where I live, the Florida Health Care Association reports that the average cost for a private room in a nursing home is $96,725 annually. A semiprivate room averages $87,600 for a year. They also say that the average length of stay in a facility is 386 days. I’ve heard estimates (mostly from folks selling long-term care insurance) that the average stay is two or three years. That length of stay, at those prices, can obviously diminish your assets pretty quickly. And health care costs continue to go up.
So, we should buy insurance, right? I’m not sure. The insurance industry is trying to come to grips with long-term care. People are living longer, and health care costs are going up—a double whammy to the insurance companies. So, they are having trouble pricing the insurance at a level where it remains affordable but allows them to make a profit. Many of the larger, well-known companies have bailed out of the business, opting not to sell a long-term care product any longer. (For more from this author, see: How to Prepare for Rising Long-Term Care Premiums.)
My wife and I have long-term care insurance. But last year, to maintain the same level of benefits in our plan that we purchased a few years ago, our premiums would have risen 40%. I just read that many of the major companies are filing requests for additional premium increases of up to 50% again this year. It’s a lot to pay for a product that we hope we will never need.
Unfortunately, I can’t answer all of these question for you in one article. Make sure you consider the various factors that go into the decision and you understand all the moving parts of a long-term care policy. But ultimately, you will have to weigh all the information and apply it to your very personal situation to make a decision that’s best for you.
(For more from this author, see: A Health Savings Account Can Make a Big Difference.)