Long-term Care Can Sap Assets

It’s not too early to start planning for future needs

By Deborah Jeanne Sergeant

Some people assume that Medicare or their health insurance will entirely cover their cost of nursing home care or at-home care. It won’t.

“Medicare will cover skilled nursing for full-time rehabilitation once they’re making progress, but not long-term care,” said Vicki M. James, Medicare broker with Medicare Easy in Rochester.

Other people think their children will be capable of caring for them in their old age or they will likely not need long-term care at all.

“About half of all people will need some form of long-term care and will need it for two and a half years,” said Annie McQuilken, certified financial planner with Forever Financial Advisors in Fairport. “The exception is Alzheimer’s or dementia, especially if they have early onset Alzheimer’s. They can be physically healthy many years but need full-time care.”

A fee-only financial adviser, she encourages clients to consider planning a means to cover the costs of long-term care for at least two years — about $200,000 a person — whether at home or within a facility. The cost of long-term care insurance has increased dramatically in the past 15 years, with many insurers no longer issuing new policies.

For people who want to protect their assets for a younger spouse or heirs, long-term care insurance may make sense.

“You don’t want the assets to be used for the care of the older spouse and the younger has many more years of life ahead of them and they don’t have the assets to live on,” McQuilken said. “A long-term care policy can be very important.”

She added that many clients choose to self-insure by including the cost of the long-term care into their legacy planning. That way, if they end up not needing long-term care, they can leave more assets to their heirs.

A shared care policy can provide coverage for whichever spouse needs long-term care. Hybrid life insurance policies can also cover the cost of care or else it pays a death benefit.

“It’s a life insurance policy where you can tap into the benefit early if you need long-term care,” McQuilken said. “I’ve also seen situations where people create a trust with a life insurance policy and their children pay for long-term care and the life insurance policy pays them back.”

“There are a lot of ways to pay for long-term care and long-term care policies are only one piece of the picture. They definitely have a place,” McQuilken added. “It’s important for people to understand the challenges of the financial model of this industry. It’s not a savings program.”

Without financial planning, people must choose between depleting their assets to cover care or relying upon family to provide care for as long as possible.

“A lot of people don’t want to be a burden on their kids,” said Bill Monte, long-term care professional and president of The Estate, Legacy and Long-Term Planning Center of Western New York in Rochester.

He said it can be important to look at family health history. Were many of the previous generation long-lived? What health issues do you currently face? Those applying for long-term health insurance must have good health to be approved for a policy.

Looking at finances is also key.
“Are you Medicaid eligible to pay for future long-term care?” Monte said. “Long-term care insurance is for people who do have assets to protect. But they have to have the health to qualify for it and the comfortable wherewithal to fund the coverage. If they have a multitude of comorbid conditions, they won’t be looked at favorably by a long-term care insurance company. They’ll have to look at other strategies.”

Applying while in the mid-50s to late 60s is still feasible for cost. However, those who are any older find that the premiums are very costly.

Monte said that assisted living is about 40% of the cost of nursing home and helps them conserve their resources for longer use.

“There are incentives to help pay for premiums from New York State and federal tax benefits,” Monte added.

Premiums for long-term health insurance can range from $2,000 to $5,000 per person, depending on coverage level and health. New York will offer a 20% income tax credit and for some people, the federal government will offer a small deduction.

Andrea Graham, long-term care specialist with Upstate Special Risk Services, Inc. in Rochester, said that close to 80% of claims filed occur outside of nursing homes.

“People do not choose to go to a nursing home—ever—when you can pay for the care to stay at home or enter an assisted care facility as opposed to a nursing home,” she said.

It does not have to be through a professional home healthcare agency. With a hybrid plan, the policyholder can cash in the policy for a qualified claim and pay someone for providing care—even a family member—or pay a home care agency.

Graham said many people manage home care by relying on family members living in the home for things like socialization, housekeeping and cooking, and a visiting professional for help with monitoring health, bathing and dressing.

Graham encourages people to sit down with family members to discuss options and preferences. People with $2 million or more of assets can likely self-fund about three to four years of care without lowering their spouse’s lifestyle. Someone with less should consider coverage.

“The whole thing here is to answer that question, ‘What do I want to do if I should be unable to care for myself?’ Sit down with your family and lay that out. Do I want to stay home? Do I want to make changes or downsize to a place with a walk-in shower and one-floor housing? Patio homes are a result of people choosing to realize that at some time in their life, that narrow staircase might not work out,” Graham said.

Living in a nursing home has become especially unfavorable because of the pandemic.

“Families might have been happy with mom being in a facility, but since they couldn’t visit for six months because of COVID, and those living there had no socialization, they go right downhill,” Graham said.

The pandemic has also underscored the challenges of curtailing outbreak of infectious diseases in facilities compared with living at home. Because nursing homes are regulated by the Department of Health—unlike assisted living facilities—residents must accept changes to their living environment such as living with residents who have COVID-19.

To qualify for Medicaid while still protecting assets, people must transfer assets five years before applying for long-term care, although a spouse is permitted to continue living in a house worth $700,000 or less.

On a very limited basis, Medicare may cover the first 100 days of nursing home care, but not any long-term care at home. Long-term care policies kick in once a person cannot perform two of the six activities of daily living: eating, bathing, toileting, dressing, transferring and continence.

Although the costs of long-term care insurance may be high, Dana DeLuca, brokerage manager at Kafl, Inc in Rochester, said that compared with the cost of care, “they’re coming out on top.”

The personal injury attorney denver says that insurance offers peace of mind and relieves the family of the challenge of providing care.

“One of the biggest things is it is a family issue,” DeLuca said. “People need to assess their long-term care needs, sizing up the likelihood they’ll need it and how much they’ll need and how long and where they want to receive their care. Armed with that information, they can know where that money will come from through policies or assets they have.”

Lizz Ortolani, licensed master’s in social work, is president of Ortolani Services in Irondequoit, and licensed in life, accident and health and certified in Medicare. She said that more people are going for hybrid life insurance policies because of the expense of long-term care insurance.

“It has a critical illness rider and that benefit might be tapped into for long-term care needs,” Ortolani said. “That way, if they use it for long-term care, it can be used for in-home or institutional care or pays out as a death benefit if it’s not used.”

She added that clients like that the premiums are more affordable and clients are guaranteed to receive benefit from it, either for care or for their heirs.

“If long-term care insurance isn’t used, that investment isn’t paid,” she said. “It’s such a high investment for many people. They both require underwriting so the younger you purchase it, the better the rates. Health conditions affect the rating.”