Long Term Health Care

By Maurice Stouse

According to the Centers for Disease Control and Prevention, average life expectancy for Americans was 68 in 1950, 74, in 1980 and today? It is 88 years old.  Many Americans might live 20 to 40 years in retirement. Studies by the National Clearing House for Long Term Care Information and the Department of Health and Human Services say the chances that someone over 65 years old will need some form of long term care is 70%.  The costs of such care can add up very quickly.  The average annual cost for a nursing home stay today is over $80,000 per year and assisted living costs are over $43,000 (according to the National Alliance for Caregiving in collaboration with AARP). The impact of this on retirement savings can be significant.

Anticipating such expenses and planning for them is increasingly occupying retirement planning. Medicare and most health care policies cover little to none of the costs of long term care. Typically they cover short term rehabilitative care. Medicaid, an option for many, has certain hurdles that must be overcome in order to qualify (including the spending down of assets).

Long term care typically takes three forms: Nursing home care (skilled care), assisted living facilities (intermediate care) and home health care (custodial). In order for someone to qualify for benefits at one of these facilities, a prospective patient has to meet a minimum number of daily living activities (DLA’s) that cannot be done on their own. These activities are: Eating, bathing, toileting, continence, transferring (getting in to a bed, a chair or a wheelchair) and dressing. Typically, in order to qualify for benefits, someone needs to have assistance with at least two of the six daily living activities.

Funding options for long term care include one’s own financial resources, the assistance of family or friends and/or long term care insurance. Using one’s resources could prove challenging as the cost of assisted living continues to grow. Many Americans rely upon family and friends (78% currently). Lastly, many turn to what are now three options of funding via long term care insurance.

Traditional long term care insurance pays for what Medicare will not. The problem is that long term care insurance increases with age and in recent years premiums have gone up substantially. It is term insurance, with a monthly premium.  A second option is to have a rider on a life insurance policy. Typically these policies could pay up to 2% of face value in monthly benefits ($6,000/month on a $300,000 policy for example). The paid benefits reduce the death benefit in this case. Lastly, there is asset based long term care insurance. In this scenario, life insurance or annuities are used to provide a long term care benefit. When and if needed, the monthly benefit is paid and could continue for several years. For example, the insured could buy a policy that covers a six year long term benefit. The benefits are tax free. The insurance company would reduce or exhaust the death benefit before extending the additional benefits.

To learn more about and the funding of long term care, talk to your advisor or call a Raymond James financial advisor.

Maurice Stouse is a Financial Advisor with Raymond James and he resides in Grayton Beach.  His office is located at Raymond & Associates, Inc., 34851 Emerald Coast Parkway, Suite 200, Destin, FL 32451. Raymond James advisors do not offer tax advice. Please see your tax professionals. Raymond James & Associates, member New York Stock Exchange/SIPC. Phone 850.460.1995. Email: Maurice.stouse@raymondjames.com.

Views expressed are the current opinion of the author and are subject to change without notice. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts will occur. Investing always involves risks and you may incur a profit or a loss. No investment strategy can guarantee success.