Long-Term Care Insurance: Your Questions Answered

If you are over 65, there is a 70% chance that you’ll need some long-term care assistance in your lifetime. That means you’ll need help with basic activities of daily living—like dressing or feeding yourself—due to some form of disability or dementia before you die. Paying for this help is expensive, and there is a lot of misunderstanding about how these costs are covered. Medicare does not pay for these services. Long-term care insurance products have been around since 1974, yet less than 20% of Americans have this insurance protection.

Why buy LTC insurance? Our population is living longer than ever before. But the flipside of that is modern medicine tends to delay a natural death rather than extend a healthy life. The need for long-term care can have a significant impact on your nest egg.

What does extended care cost? Today, home care agencies in the Seattle area charge $30-35 per hour. (Ten hours a day of care can cost over $ 9,000 a month.) Assisted living communities range from $4,000 to $8,000 per month depending on the community and amount of care needed.  Nursing homes range from $9,000 to $12,000 per month.

What are the options if I need care? There are only four.

• Most people will rely on family members to provide the day-to-day care. The impact and burden on those family members is usually significant.
• Use nest egg assets and income to self-fund the care. This is a good option if you have sufficient wealth, though liquidating assets to pay for care can have huge tax consequences. But what happens if you need to sell family property that your spouse will need, or that was intended to be passed on to the family?
• Medicaid. This option is only available after a person has spent down their nest egg to poverty levels.
• Long-term care insurance: This provides tax-free income (or reimbursement) that pays for some or all of caregiving expenses wherever that care is needed.

Does my health insurance or Medicare cover long term care? No, these health insurance plans are designed for short-term rehab, prevention, and treatment for diagnosed health issues.

What does long-term care insurance cover? A LTC policy has a monthly limit of purchased benefits that covers home care, assisted living, nursing home, adult family homes, and adult day care. Most long-term care insurance benefits (80%) are used for in-home care.

What types of long-term care products are there? In this writer’s opinion, traditional LTC products are the best way to insure for the risk of long-term care.  Life insurance, hybrids (life insurance and LTC combined), and LTC annuities are also options.

Why don’t more people purchase LTC coverage? You must be in good health when you try to obtain coverage, so many people don’t qualify. Many people just can’t afford the premiums based on their lifestyle or budgets. Then there are those who think this will never happen to them or just don’t get around to addressing this risk.

Will the new Washington State Long-Term Care Trust Act be a real benefit to consumers? This law, passed in 2019, is the first of its kind in the United States—but the program won’t start paying benefits until 2025. Payroll deductions of 58 cents per $100 of income will start in 2022. A person must pay into the system for 10 years to get the benefit of $36,500. For someone who is not working or who has already retired, there will be no benefit. Most employees will see this deduction come out of their paychecks with only a few opt-out exceptions.

Why don’t some people use their LTC insurance? In my experience, many insurance policies are not utilized as soon as a person is eligible to begin receiving benefits. Some people do not want caregivers in their homes, or do not want to move from their homes into a safer environment like an assisted living community. This can put an unnecessary burden on a spouse or family caregiver when respite services and paid caregivers could be helping. It’s important to note: LTC insurance premiums stop when a claim is approved and opened. If you have LTC insurance, use it as soon as you are eligible.

Who should consider purchasing LTC insurance? Someone who wants to plan for the possibility of needing extended care, has good health, and can afford the premiums. Insurance lessens the impact of paying for care and helps preserve your resources. It also allows family members to provide more emotional and loving support without being burdened by the day-to-day responsibilities of care.

Are LTC premiums tax deductible? They can be if you own your own business or are self-employed. HSA and FSA accounts can be used to pay premiums. Some states allow for deductions or tax credits for owning coverage on their state income taxes.

What are the biggest headwinds for the long-term care industry?  Today, the best care communities have waiting lists of many months or even years. There’s a shortage of open beds in care facilities, and as our population ages, home care agencies are having trouble hiring enough staff to handle the increasing demand for caregivers. When someone is looking for help, one of the first questions asked by communities and home care agencies is “Do you have long-term care insurance?” I can tell you: There is an advantage to being able to say yes.

David Clemons has been assisting clients with long-term care planning solutions for over 18 years. He can be reached at dgcclem@earthlink.net  or 425-823-8961.