SGE’s recent article entitled “How to Pay for Long-Term Care” explains that although long-term care (or “LTC”) insurance can be a good way to pay for long-term care costs, not everyone can buy a policy. Insurance companies won’t sell coverage to people already in long-term care or having trouble with activities of daily living. They may also refuse coverage, if you have had a stroke or been diagnosed with dementia, cancer, AIDS or Parkinson’s Disease. Even healthy people over 85 may not be able to get LTC coverage.
The potential costs of long-term care be challenging for even a relatively prosperous patient if they are forced to stay for some time in a nursing home. However, there are a number of options for covering these expenses, including the following:
- Federal and state governments. While the federal government’s health insurance plan doesn’t cover most long-term care costs, it would pay for up to 100 days in a nursing home if patients required skilled services and rehabilitative care. Skilled home health or other skilled in-home service may also be covered by Medicare. State programs will also pay for LTC services for people whose incomes are below a certain level and meet other requirements.
- Private health insurance. Employer-sponsored health plans and other private health insurance will cover some long-term care costs, such as shorter-term, medically necessary skilled care.
- LTC insurance. Private LTC insurance policies can cover many of the costs of long-term care.
- Private savings. Older adults who require long-term care that’s not covered by government programs and who don’t have LTC insurance can use money from their retirement accounts, personal savings, brokerage accounts and other sources.
- Health savings accounts. Money in these tax-advantaged savings can be withdrawn tax-free to pay for qualifying medical expenses, such as long-term care. However, only those in high-deductible health plans can put money into health savings accounts.
- Home equity loans. Many older adults have paid off their mortgages or have a lot of equity in their homes. A home equity loan is a way to tap this value to pay for long-term care.
- Reverse mortgage. This allows a homeowner to get what amounts to a home equity loan without paying interest or principal on the loans while they’re alive. When the homeowner dies or moves out, the entire balance of the loan becomes due. The lender usually takes ownership.
- Life insurance. Asset-based LTC insurance is a whole life insurance policy that permits the policyholder to use the death benefits to pay for care. Life insurance policies can also be purchased with a LTC rider as a secondary benefit.
- Hybrid insurance policies. Some LTC insurance policies are designed annuities. With a single premium payment, the insurer provides benefits that can be used for care. You can also buy a deferred LTC annuity that’s specially designed to cover these costs. Some permanent life insurance policies also have LTC riders.
While long-term care can be costly, most people will not face extremely burdensome long-term care costs because nursing home stays tend to be short, since statistics show that most people died within six months of entering a nursing home. Moreover, the vast majority of elder adults aren’t in nursing homes, and many never go into them.
Reference: SGE (Dec. 4, 2021) “How to Pay for Long-Term Care”