Published November 2001

Long-term care can be costly — are you prepared?

By Mary T. Decker
Guest Columnist

As we get older, we find ourselves increasingly aware of the possibility of needing long-term care. Whether for ourselves, a spouse, our parents or other family members, the issue of long-term care is one that most of us will be forced to deal with eventually. Unless the family is very wealthy, the problem of how to finance long-term care can be a difficult one to solve.

What is long-term care? Long-term care means regular assistance with medical care or personal needs because of a prolonged illness or disability. The medical care may include such things as nursing, medicating or physical therapy. The personal needs may include help with daily activities such as eating, dressing, bathing or moving around.

The cost of long-term care depends on how much care is needed and where it is provided. At one end of the spectrum, you might have the help of a family member and need a minimum of additional at-home care for $5,000 to $10,000 a year.

If your needs increase, you could move into an assisted-living facility, where the average cost is $2,000 to $3,000 per month.

Later on, you may need to enter a nursing facility for daily medical and personal care. The cost of nursing facilities can run as high as $6,000 per month, or $72,000 per year. With the average stay in a nursing home of 2.4 years, this could mean a total cost of $172,800 or more.

So, where does this money come from? If you are covered by Medicare, there is a very limited amount of coverage for long-term care. Medicare will only pay 100 percent of the cost of nursing-home care for the first 20 days. From day 21 to 100, the resident must pay co-insurance of $99 per day. After the first 100 days, Medicare offers no coverage for long-term care at all.

Medicaid is a federally funded program, administered by the states, to help pay for medical care for financially needy people. For those who qualify, Medicaid covers many long-term care costs, including home care and almost all levels of nursing-facility care for an unlimited time. To qualify for Medicaid, a person must have low income and very few assets. Planning for Medicaid qualification through the transfer of assets raises many legal as well as ethical issues, and is beyond the scope of this article.

One way of leveraging the dollars needed to pay for long term-care is to buy long-term care insurance. The potential advantage of insurance is that the funds used for premiums can be significantly less than the actual cost of the long-term care benefits received. In addition, all or a portion of the premiums could be tax-deductible. However, the cost of long-term care insurance increases dramatically with age. In order to get the most benefit, you have to buy a long-term care policy before you need it. While you may never need the coverage, long-term care insurance can offer the same peace of mind that comes from having homeowners, automobile, and life insurance.

If the family does not qualify for Medicaid and has no long-term care insurance, the only remaining option is to use cash to pay for long-term care. The source of cash might be current income or a savings account. In some cases, investments or perhaps real estate may need to be sold in order to raise the necessary cash. Loans, including interfamily and reverse mortgages, are another option.

Planning for long-term care before it becomes a family crisis is an important part of maintaining control over your financial well-being. For further information and help with deciding which option is best for your family, I recommend that you consult with your financial adviser.

Mary T. Decker is a certified public accountant and financial planner and a board member with Hascal, Sjoholm & Co. P.S.

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