Planning for future long-term care can be a daunting task that many of us choose to avoid thinking about. However, 70% of people aged 65 and older will have some sort of LTC event in their lifetime1, which makes planning for it all the more important.
In Sentinel’s most recent webinar, Dan Bernardo and Mike Dugal discussed the basics of LTC including what to plan for, how to prepare for the costs and what you should know moving forward. This article summarizes their insights.
In order to understand who needs LTC, it is necessary to understand what is considered an activity of daily living (ADL). This could include bathing, continence, dressing, eating, etc. A person is considered on their way to LTC if they are unable to do a number of these actions on their own.
There are different causes that can lead to LTCs, but they fall into two main buckets: physical in nature and cognitive in nature. A LTC event that is physical in nature is when someone’s body is failing them, while one cognitive in nature is when the body is sound but cognitive abilities are failing.
When it comes to planning for future care, most people are mainly concerned for potential costs. Depending on the level of care needed and where someone is receiving LTC will impact how much the costs are. There are a number of places one can receive LTC: at home, an assisted living facility, adult day care center or skilled nursing facility.
The low-end cost of an adult day care (specific to Massachusetts) would average around $19-20k. For cognitive diseases that require around-the-clock coverage, the average stay for a semi-private room could be $12-13k per month, with a private room going up from there2.
More people than not will need some sort of coverage at some point in their life, so planning for this care should be included in financial plans.
There are a number of ways one can pay for LTC.
Self-funding allows you more freedom to choose care. This may be an ideal choice if you can afford to pay for care indefinitely. However, you must be willing to liquidate assets if necessary and this may impact your ability to pass on assets to your family.
Government programs can serve as an alternative way for people to pay for their LTC. There are two main programs that can help with coverage: Medicare and Medicaid.
Medicare is federal health insurance that provides limited coverage for LTC services, with a benefits cap at 100 days. Medicaid is a safety net program that is designed for people with limited assets and limited income. In order to qualify, most people have to significantly draw down their assets and income.
Using insurance to pay gives you more freedom as to how you can receive your care. This is not a one-stop-shop, as policies can be customized to fit an individual’s needs to dictate what future benefits will look like.
The two main kinds of policies for LTC include standalone and hybrid policies. It can be challenging to determine which would cost more, as there are different benefits and costs for both.
For a standalone policy, the premium will depend on two sets of criteria: lifestyle and policy design. Lifestyle criteria includes age, health, gender and marital/partner status. Policy design criteria is daily/monthly benefit amount, benefit period/lifetime maximum, elimination period and inflation.
One size does not fit all – these policies can be designed in different ways that can affect the range of costs and benefits seen in the future.
One’s application for LTC insurance will be submitted to the carrier and consists of questions to answer about medical history and lifestyle. In order to qualify for LTC insurance benefits after experiencing a LTC event, a licensed physician must certify you are unable to perform two of the six ADLs and expect that to last for 90 days.
Hybrid policies are an alternative to traditional standalone policies. A key difference is that a hybrid policy has a death benefit associated with it, albeit a small one. With a traditional policy, if you never use the policy, you earn no benefits from it.
However, with a hybrid policy, the amount you paid into the policy will be returned at the end of life as a death benefit. This can be advantageous for people who are looking to get something back and reposition some of their assets.
1Modglin, Lindsay. “Long-Term Care Statistics 2022” The Checkup, 7 Sept 2022
2“Cost of Long Term Care by State: Cost of Care Report” Genworth Financial, Inc., 2023