Long-term care insurance is a complicated topic. If your assets are low, you may not need it because you will qualify for Medicaid with little fuss and you probably need the money you would spend on premiums to live. If you are wealthy, you’re probably better off spending your own money on long-term care, given the cost of the insurance.
If you’re in-between – if you have assets to protect but aren’t worried about the estate tax – you’re in the sweet spot for long-term care insurance. You have enough that it will be difficult to qualify for Medicaid, but not so much that you could easily afford private-pay long-term care. After all, a semi-private nursing home room can cost $47,000 to $270,000 per year. Some nursing homes will not accept Medicaid patients. Others will accept Medicaid, but only for patients who paid their own way for a certain amount of time.
Long-term care insurance pays for assistance with “activities of daily living,” the term used to describe such things as dressing, eating and using the bathroom, and for nursing services. This may be at your house, at an assisted living facility or in a nursing home. Different policies cover different services, usually on a daily basis. Some policies adjust the daily rates based on inflation, while others pay a fixed amount determined when the policy is purchased. Long-term care insurance can help people stay in their houses longer and protect their assets better than if they need Medicaid.
Nevertheless, many people would rather take their chances with Medicaid than buy long-term care insurance. That’s in part because long-term care insurance can be expensive. When it first hit the market, the insurance companies wanted to get market share, so they priced the policies low – a little too low. Some of the issuers have left the market, and others have raised their rates. The market isn’t as easy to navigate as it could be.
Valerie Rind, author of the forthcoming book Gold Diggers & Deadbeat Dads: True Stories of Friends, Family, and Financial Ruin and blogger at Gold Diggers & Deadbeat Dads, recently shopped for long-term care insurance and was surprised by the complexity. “It’s not like auto insurance. You can’t get a quick quote, and there are no cheap policies that are worth having,” she says. “There are so many variables.” The big variables are the length of time before a policy kicks in, the amount of coverage, and the amount of inflation protection. Other factors include your age and your health when you apply.
Medicaid is a huge cost in most states, and most states don’t have extra money. The legislatures want to encourage people to buy long-term care insurance rather than using Medicaid as the backstop. Most states now have Medicaid partnership plans for long-term care insurance; residents who have these plans will have greater asset protection should they need Medicaid to help pay for long-term care. This gives people with some assets, but not a lot of assets, an incentive to buy long-term care insurance. Some states even allow for reciprocity, should you buy the plan in one state and then move to another. The American Association for Long-Term Care Insurance has detailed information on the offerings in each state. Of course, this adds to the complexity.
Your retirement savings come first. If you’re on track toward that, it makes sense to consider long-term care insurance. But when should you buy? The older you get, the more the policy will cost and the more likely you are to need it. But buy it too soon, and you may end up paying too much in premiums.
Doug Nordman, who blogs about financial issues for current and retired members of the U.S. military, is a fan of long-term care insurance. He handles the affairs for his father, who has a long-term care insurance policy, but Nordman does not – yet. ” I’m only 53 years old and I’m eligible for the Federal Long-Term Care Insurance Program as I’m retired military,” he says. He’s also watching the industry’s pricing and underwriting. “Policy premiums usually rise sharply around age 60, so in five years I’ll do the math and write a check,” he says.
Rind recommends doing a lot of research before talking to an agent so that you understand the options. She also found that married couples should buy policies together. “It may be a lot less expensive than buying separate policies at different times,” she says.
If you are 60 or older, it may be too late to buy an affordable policy. If you are under 50, you probably need to concentrate more on retirement savings. But if you’re in that double sweet spot – old enough, but not too old; rich enough, but not too rich — take a hard look at long-term care insurance.