Delicate Questions to Ask About Long-Term Care – and How to Pay for it

Gavin Magor

Thinking about your long-term care options isn’t something many of us want to do. It involves asking delicate questions – of ourselves and our loved ones. Given the surging cost of care, one of the most important frankly is “How will I pay for it?”

That’s where we at Weiss Ratings can help. But let’s start with a few important questions of our own:

When you hear the words “long-term care,” what do you think of? Do you think about medical care or equate the term with “nursing home care?” While long-term care often does include medical care, it also includes a range of health, personal care, and social and supportive services provided by non-skilled medical staff in a variety of settings.

Much of this needed care and the associated costs will become an uninsured private responsibility falling to you and/or your family. In 2017, the average daily rate for home care services was $70, according to a Genworth survey. That works out to more than $25,500 per year!

Enter long-term care insurance. It’s one of several options that could both help pay for some of these costs AND relieve the burden of care from your family when you can no longer perform normal activities of daily living.

So, what are the types of long-term care needs and services?

 1. Custodial care, or supportive care, is by far the most common type of care in the U.S. Someone without medical training helps you with activities such as getting out of bed, walking, eating, and bathing. Homemaker services can provide companionship and assist with activities such as shopping, transportation, light housekeeping, or similar tasks.

 2. Intermediate care is more serious and includes occasional nursing and rehabilitative care supervised by skilled medical personnel. It also includes basic medical procedures that are required sporadically, and not on a 24-hour basis.

3. Skilled care is the highest level of care and the most expensive. A doctor prescribes care by a skilled nurse or therapist on a 24-hour-per-day basis.

You can receive these three levels of care in many forms, including:

* At Home. Most people prefer to stay at home as long as possible. If you have the financial resources, you can receive custodial, intermediate, and skilled care at home.

* In an Adult Day Care Center. The concept of adult day services is similar to that of child day care. Seniors are dropped off at the facility in the morning where they participate in activities and needed therapeutic services so their adult children can keep their full-time jobs.

* In Assisted Living Facilities. The philosophy of assisted living is to allow you the right to make choices about your health and safety. These facilities emphasize supervision and assistance as needed, rather than on a scheduled basis. They typically provide help with activities of daily living, and if private nursing duty is needed, you can arrange and pay for it yourself.

* In Nursing Homes. Nursing homes can be either skilled nursing facilities or intermediate care facilities. Skilled nursing facilities, in which registered nurses provide 24-hour nursing services, emphasize medical care with restorative, physical, and occupational therapy.

* Through Hospice Care. This type of care is provided in your home or in a hospice facility, and is exclusively to manage pain and symptoms of terminally ill patients. Medicare covers hospice care provided in your home only.

* In Continuing Care Retirement Communities. These types of communities combine housing, healthcare, and social services across a continuum of independent living to nursing home care. Three types – all inclusive, modified, and fee-for-service – provide various levels of care at varying costs.

 So, how does long-term care insurance come into play? Let me start with an important few words of caution: Among the 50 states, no consistent definition exists for adult day care centers, assisted living facilities, or other community-based facilities. When you’re shopping for a long-term care policy, you should therefore get the definitions of the various facilities from the insurer whose policy you are considering. Then visit the facilities in your area to make sure they meet the definitions.

Next, ask yourself the following questions when considering long-term care insurance:

 Do you want to leave an inheritance to your heirs?

If not, allocate your savings or assets to cover long-term care expenses and then, if necessary, purchase a long-term care policy for remaining needs.

 Do you have family who can take care of you?

If you have an adult child or other family member that could act as a caregiver, you may not need the coverage of a long-term care policy. Or you can purchase one with fewer benefits at a cheaper price.

 What is your medical history?

Much depends on your health status, the medical history of your family, and your lifestyle. If you’re concerned you may get a chronic health condition, then long-term care is likely.

 Can you afford it?

To answer this one, you’ve got to know your current budget and have a handle on your future financial situation as well.

 What about Medicaid?

The Medicaid program was designed to serve those who cannot afford to pay the expenses of long-term care themselves. Medicaid will cover your nursing home expenses if your assets and income are below a specific level defined in your state.

If you’re not already at that level, you can get there by spending down your assets or transferring them to someone else. But there is a five-year look-back period for all transfer of assets. Importantly, the penalty period of ineligibility does not begin until a person applies for Medicaid and is determined eligible.

In order for Medicaid to pay for nursing home care, the facility must be a certified Medicaid provider in the state. If you live in Connecticut, Indiana, New York or California, your states have formed Partnership Programs whereby you can purchase certain approved long-term care policies. Once you have exhausted the benefits from the policy, Medicaid takes over.

 Does your employer or association offer a group policy?

You should check into them, but they’re often not the best deal because true group policies don’t require any medical underwriting. In order to cover possibly large claims, they’re priced higher than what you could get an individual policy for if you are in good health. You’ll also only get a small benefit selection that may not fit your needs.

That said, some employers or other groups offer individual policies which are medically underwritten, but which offer a group discount with the carrier — plus all the benefit choices that would normally be available.

 Do I need a tax-qualified, long-term care policy?

Not necessarily. Benefits you receive on qualified policies, up to a certain limit, are nontaxable. The limit in 2018 is $360 per day, or up to $131,400 annually, and it goes up every year with the medical portion of the consumer price index.  You can also deduct the premiums you pay each month.

However, there are two restrictions. First, the premiums and other medical expenses have to exceed 10% of your adjusted gross income. Second, there’s a limit on the total long-term care premium that you can deduct depending on your age

Is your policy qualified for all these tax deductions? If you bought it before January 2, 1997, yes. If not, it must meet certain federal requirements.

Is the use of a Reverse Mortgage an option?

There’s a good chance that the equity you have in your home is the largest single asset you have. A reverse mortgage is a way of tapping into home equity without creating monthly payments like a home equity loan, and you don’t have to pay the money back during your lifetime. Instead of making payments, the cash flow is reversed and you receive payments from the bank. If you do not pay the interest, it will accrue against the value of the home.

Any interest paid is deductible against income, just like standard “forward” mortgage interest. The loan is not due and payable until you sell, move out permanently, or pass away. At such time, the balance of borrowed funds is due with any additional remaining equity belonging to you or your beneficiaries.

What about Annuities?

Over the past several weeks, I’ve had a lot to say about annuities – and I trust you’ve found that guidance valuable. Well, there has been a recent trend towards using annuities as a vehicle not just to provide retirement income, but also long-term care coverage.

If your financial advisor believes that this is a good option for you, then it’s worth considering because it can combine two functions at the same time. Naturally there are costs to be weighed, costs that may be hidden in the fine print. But that is why we recommend using a fee-for-service independent financial advisor.

Bottom line: Long-term care is expensive, and figuring out how to pay for it is challenging. But the time to make these decisions and plan for your future is now, not when you need the services. Consider this an important task to complete, along with health directives and powers of attorney that should all be prepared while you are still completely healthy.

In the meantime, as always, be sure to check the safety rating of any insurer you use on the Weiss Ratings website.

Think Safety,

Gavin Magor

Gavin has more than 30 years of international experience in credit-risk management, commercial lending and insurance, banking and stock analysis and holds an MBA. Gavin oversees the Weiss ratings process, developing the methodology for Weiss’ Sovereign Debt and Global Bank Ratings. Gavin has appeared on both radio and television, including ABC and NBC as an expert in insurance, bank and stock ratings and has been quoted by CNBC, The New York Times, Los Angeles Times, and Reuters as well as several regional newspapers and trade media.