The 4 Solutions for Long Term Care: Self Insurance


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The need for long term care services is going to explode as baby boomers continue to age. The big question that this presents is how are these services going to get paid for? Medicare does not pay for them.  At Cardinal, we believe there are 4 solutions to paying for long term care. In this 4 part series, we will explore all of them.

Self-insurance, like the name implies, means providing funding for the entire long term care bill from your income and assets. Many people just assume they are going to go this route, other get put on this route because it is too late to qualify for any of the other 4 solutions to long term care. Self-insurance may be your only option if your health conditions limit your ability to qualify for insurance. Careful planning is required so your family members will know what to do when, where to take the money from, and how you want to be taken care of.

There are two consequences of not planning for long term care costs. The first is the financial consequences. By not having a plan and allocating anything from your portfolio to pay for care, you are risking entire portfolio, all the money you have worked hard to save over the years. The second consequence is personal, not to you, but to your loved ones who are going to step in and take care of you. Taking care of chronically ill people often makes healthy caregivers chronically ill. Providing care doesn’t bring families together, it often tears apart. Having a plan, whether it be with an insurance product or for self-insurance, can alleviate a lot of the consequences.  

How does self insurance for long term care costs work?

Self-insurance isn’t just paying the long term care bill on your own, it involves actively planning for these costs. With a plan, you are going to look at your monthly income first, the money that you have coming in every month that could be diverted to pay for care.  We start with your Social Security check and any other income you receive that is reliable. We deduct ongoing monthly expenses that won’t go away if you are receiving care. How your bills change depends on what type of care you are receiving. For example, if you are at home, food and utility bills will continue, but if you move into a nursing home or assisted living facility, these bills will be dramatically reduced or eliminated all together.  The net number is then applied toward the long-term care bill and what’s left is the monthly dollar amount needed to fill the gap.

To begin paying the gap, we add up your financial assets, paying out of interest first, principal second. We recommend using your remaining IRA money first, because the assisted living or nursing home bill will give you a big tax deduction as a medical expense. If you are in a facility long enough to drain your assets, and your income will not cover the cost of care, Medicaid will have to become part of your plan, which we discuss below.

How much does self-insurance for long term care cost?

We mentioned earlier, one of the two consequences of not planning for long term care is financial. This is because long term care is expensive. A nifty cost-of-care survey is available on the Genworth website. You can plug in your city and state and it will show you average costs in your area—it even includes an inflation factor and projects costs into the future. For example, in Raleigh, North Carolina, in 2018, a private room in a skilled nursing home averages $95,995 annually and a semi-private room averages $85,501. Assisted living costs $69,000 and adult day care costs $14,300. A home health aide caring for you in your home 44 hours per week costs about $46,904 a year. These numbers knock a pretty good hole in even the best-thought-out financial plans, and does not include costs for bills and expenses you will have on top of care costs.

It is more affordable to self insure a single person as it is not uncommon for one spouse to need long-term care while the other remains healthy. In this situation, the couple’s financial resources will need to cover the costs of maintaining the household for the healthy spouse while also paying for long term care. With a single person, all funds can be diverted to pay for care. As you can see, self insurance and a plan for it is going to depend on your personal situation. What worked for someone else is not going to necessarily work for you.

Self-Insurance and Veteran’s Benefits

If you are a veteran, or a veteran’s spouse, one part of your plan for self insurance could include the Veterans Aid and Attendance program. This special program pays an additional monthly pension benefit to qualifying beneficiaries who need home health care or are housebound. Like Medicaid, a number of qualifications must be met to participate in the program. Veterans who served during wartime and received an other-than-dishonorable discharge could qualify for the program. Additional financial and asset qualifications must also be met. Though most senior centers around the country offer assistance completing the application, that assistance is severely limited. The volunteers are prevented from giving financial or legal advice. The planning services provided by professionals may carry a charge, but the Department of Veterans Affairs prohibits charging a fee to help file the Aid and Attendance paperwork. You can search for accredited representatives and attorneys on the VA website.

Self Insurance and Medicaid 

Self insurance also involves planning for Medicaid if you believe you might need to go that route. Medicaid—the federal government health insurance program for low-income people—will provide long-term care (in a Medicaid-approved bed) after you have spent your assets down to a very low level (it varies by state). If you qualify for Medicaid, it will only pay for long-term care if your assets amount to around $2,000 or less. You are not allowed to give your assets away to qualify for Medicaid.

Most states have a partnership program that allows you to purchase a partnership-approved long-term care insurance policy. A partnership policy allows your estate to retain a higher level of assets and still go on Medicaid.  If you have to use Medicaid, it is best to enter a facility as a private payer and transition to Medicaid after you have used your own money. This means even the other 3 solutions to paying for long term care are going to require some form of self insurance for some people.

For any client, Cardinal can devise a sound financial strategy to cover the costs of long-term care and reduce the risks to the individual and the family, even if the strategy does not involve purchasing insurance. It is much better to have a financial planner doing this work for you now than to have a nursing home administrator doing these calculations when you are being admitted.  One way or another, Cardinal can figure out an effective financial strategy for protecting you against the cost of long-term care and protecting your family from the consequences.

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