Why planning for long-term healthcare now can help you be prepared later.
If you haven’t started saving for the long-term healthcare you may need as you age, you’re not alone. According to the AARP, as many as 7 in 10 Americans will eventually need long-term care, and most of us dramatically underestimate the costs.
There are steps you can take now to ensure you’re prepared for what’s to come. Read on, talk to a financial planner, explore your options and talk to your family. Creating a plan now will ensure that you have the care you need in the future.
What is long-term care?
Long-term care refers to services and support that meet one’s health and personal care needs over an extended period. Long-term care can include assistance with the main Activities of Daily Living or ADLs: bathing, dressing, eating, ambulating/transferring, toileting and continence. Also, the Instrumental Activities of Daily Living, IADLs (more complicated tasks that are important to living independently but not necessarily needed on a daily basis): Using a phone, managing medications, preparing meals, and types of long-term care include in-home care, assisted living, skilled nursing facilities and hospice care. These types of care are typically not covered in health insurance plans or by Medicare.
Since healthcare is the single biggest expense in retirement, it’s important to plan for how you will pay for long-term care now. There are four main ways people pay for long-term care:
- Long-term care insurance
- Medicaid-funded long-term care
- Saving and setting aside funding aside from or in addition to long-term care insurance
- Relying on loved ones, often one’s children
What is long-term care insurance (LTCI)?
Long-term care insurance (LTCI) helps cover the costs associated with long-term care services. While LTCI plans are often expensive, if you can afford them, they can be tremendously helpful for those diagnosed with a serious illness.
There are also newer, more affordable products called asset-based or hybrid policies, which combine features of traditional long-term care insurance and life insurance into one policy.
When comparing plans, keep these key questions in mind:
- What services are covered: for example, whether memory care facilities are covered
- What the benefit amount is: typically a dollar amount per day or month during the benefit period
- What the benefit period is: the length of time the plan covers (typically ranging from one to five years)
- Whether there is an elimination period: a waiting period where you’re responsible for paying for care before the benefit kicks in (similar to a deductible)
- What premiums cost: amounts vary based on age and health of the beneficiary, coverage options, and the amount of coverage
- Whether the policy has inflation protection: many policies offer an inflation protection option to help account for the rising cost of services over time
- Eligibility requirements: criteria varies among insurance providers and policies
What is Medicaid-funded long-term care?
Medicaid-funded long-term care is a joint state and federal program that acts as a safety net for those who cannot afford the costs associated with long-term care services. In 2020, more than 30% of Medicaid’s $597 billion spent was on long-term care services. You must have limited income and assets to qualify, and you also need to demonstrate a medical need for long-term care services. In addition, not all facilities accept Medicaid patients.
Start planning now: financial advisors, estate planners and aging agencies can help.
It’s never too early to start saving. This is the most important step, as it will give you the financial resources you need to pay for your care. You can save money by investing in a long-term care insurance policy, contributing to a health savings account (HSA), or simply setting aside money in a savings account.
Next, do some research: read up on your options, and talk to friends and family who may have experience with long-term care decisions.
It’s smart to rely on financial advisors, estate planners and local aging agencies like your state’s Division of Senior Services, who can help determine whether you qualify for Medicaid-funded long-term care and, if not, discuss what other types of coverage you might need. If you’re within range of qualifying for Medicaid, an advisor or planner can help you structure your finances in a way that complies with Medicaid eligibility requirements.
Talk to your family.
The burden of caregiving, especially when planning has not taken place, often falls on loved ones, at tremendous emotional and financial cost to them. A report published earlier this year estimated that family caregivers in 2021 provided $600 billion in unpaid care. Another study found that caregiving may shorten the lives of adult children caring for aging parents by as much as eight years.
Your loved ones may have desires that differ from yours, and talking through all of your options while you are well will reap tremendous benefits when the time comes that you need care. Planning for long-term healthcare can be a complex and challenging task, but it is one that is essential for ensuring your financial and emotional well-being in the future. By taking steps to plan ahead, you can help to ensure that you have the resources you need to live a comfortable and independent life, no matter what the future holds.
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