The Social Science Research Network recently released a study that shows American citizens over 65 are filing bankruptcy at a record pace.
From 1991 to 2016, bankruptcies increased a staggering 204%.
The study notes that a contributing factor to these bankruptcies is the out-of-pocket cost for health care even with the help of Medicare.
And when thinking about health care, the cost of long-term care needs to be addressed too.
According to the Centers for Disease Control and Prevention, 50% of all U.S. adults have one or more chronic health conditions, 25% of adults have two or more chronic health conditions and 70% of the top causes of death are related to chronic diseases.
A chronic illness is defined as lasting three months or longer.
Now imagine if a chronic illness were to beset you or a loved one at the beginning of your retirement years.
If this happened, how do you pay for these long-term care services, which are extremely expensive?
Long-Term Care Options
According to Genworth’s Cost of Care Survey, here are the 2018 national median annual costs for various long-term health care services:
- Homemaker services: $48,048.
- Home health aide: $50,336.
- Adult day health care: $18,720.
- Assisted living facility: $48,000.
- Nursing home care (semiprivate room): $89,297.
- Nursing home care (private room): $100,375.
Here are some options on how to pay for these services:
Option 1. Medicare — Under Medicare, up to 20 days of skilled nursing care is 100% covered following a hospital stay of at least three days.
From days 21-100, a daily coinsurance of $167.50 ($170.50 for 2019) must be paid out of pocket. After day 100 the cost of the skilled nursing is 100% paid out of pocket with no further coverage.
There are other stipulations and guidelines. For further details, please click here.
Option 2. Medicaid — Medicaid will cover long-term care expenses if your income and assets are below a certain level mandated by your state.
In many cases, you will need to “spend down” the majority of your assets before qualifying for this program. For further details, please click here.
Option 3. Accelerated death benefit from your life insurance policy — Some insurance companies allow policyholders who need cash to pay for their own terminal or chronic illness or long-term care needs to cash out their own life insurance policy.
On average policyholders are able to receive 25% to 95% of the policy’s death benefit.
In order to receive the benefit, the policyholder will need to meet the insurance company’s requirements proving that they are severely and/or terminally ill.
There may also be tax implications involved. And the death benefit that may have gone to beneficiaries will likely be greatly reduced or eliminated.
Please contact your insurance company for further details, as needed.
Option 4. Reverse mortgage — If you plan to stay in your home as long as possible and receive in-home care, then a reverse mortgage may be able to help finance that care.
If a person is 62 or older, does not plan to move from their home for many years and they would like to supplement their retirement income, then it is possible a reverse mortgage is for them.
Reverse mortgages supplement income by tapping into part of a home’s equity.
In general, it’s a loan against a principal residence that a homeowner does not have to repay for as long as they live in that home.
The homeowner should have significant equity in their home to apply for a reverse mortgage.
Option 5. Long-term care insurance — When we think of how to pay for long-term care services, a traditional long-term care insurance policy likely comes to mind.
These types of insurance policies are designed to pay for care not covered by Medicare, Medicaid or general health care.
In recent years, the number of sold long-term care policies has been on decline.
One of the drawbacks of long-term care insurance can be its high premium cost (which has been on the rise in recent years), and that its payout must be used for long-term care needs only.
Therefore, if the policyholder were to pass away without the need for long-term care services, the premiums paid over the years would have been for naught.
That is why hybrid long-term care insurance policies have become an attractive alternative.
A hybrid policy combines life insurance or a retirement-income annuity with a long-term care policy.
With these hybrids, at least you will be able to leave a death benefit to your loved ones or receive income from the annuity if the actual long-term care insurance policy is never touched.
The U.S. Department of Health and Human Services has a website dedicated to long-term care information. Please visit: www.LongTermCare.gov.
Until next time,
Amber Lancaster
Director of Investment Research, Banyan Hill Publishing