The Vastly Underrated Risk of Long-Term Care in America

When it comes to planning for the future and retirement, there is one crucial aspect that is often overlooked: long-term care.

While we often tend to focus on investments, estate planning, and saving for retirement, The cost of long-term care is a potentially devastating financial blow. It can consume entire retirement incomes and destroy a family’s life savings in just a few years.

And Americans are grossly underinsured for it. 

In this article, we will delve into the depth of this issue, providing detailed statistics and exploring the potential consequences of failing to plan for long-term care needs.

The Undeniable Reality – Staggering Statistics on Long-Term Care

 Long-term care is a critical consideration that should not be ignored. Let’s take a closer look at some eye-opening statistics:

1. Approximately 70% of people turning 65 will need some form of long-term care in their lifetime. This means that the majority of individuals will require assistance with daily activities such as bathing, dressing, and eating at some point in their lives.
2. Around half of all today’s 50-year-olds in the United States will experience a nursing home stay before they die.
3. The national median cost for a private room in a nursing home was about $108,405 annually, according to the 2021 Genworth Cost of Care study. 
4. The average duration of service for long-term care insurance claimants is 835 days, according to the National Care Planning Council. This demonstrates that long-term care needs are not short-term situations but often require extended periods of support.
5. Half of U.S. 50-year-olds will experience a nursing home stay before they die, and one in ten will incur out-of-pocket long-term care expenses in excess of $200,000. 
6. Only around 10% of today’s 62-year-olds own long-term care insurance protection. 
7. Historically, the cost of long-term care services rises 3-5% annually. This steady increase in costs emphasizes the importance of planning ahead to ensure adequate coverage.

Medicare and Medicaid – Misconceptions and Limitations

There are common misconceptions surrounding the coverage provided by Medicare and Medicaid for long-term care. It is essential to understand the limitations of these programs:

• Medicare only covers long-term care if you require skilled services or rehabilitative care. It does not cover non-skilled assistance, which makes up the majority of long-term care services. This means that unless you require medical treatment or therapy, Medicare will not cover the costs of long-term care.
• Medicaid will cover long-term care costs, but only if you have already spent down nearly all your assets and income. In other words, you need to be indigent or become so through spending on healthcare to qualify for Medicaid coverage. This can have significant financial implications and may require you to exhaust your savings before receiving assistance.

The Consequences of Being Uninsured

Failing to plan for long-term care needs can have severe repercussions. Consider the following potential consequences:

• 13% of those who are 65+ today will incur out-of-pocket long-term care costs exceeding $250,000. These expenses can quickly deplete savings and significantly impact your financial security.
• 50% of Americans will experience a “major” long-term care event lasting at least two years. Without adequate insurance coverage, individuals may face significant financial strain during this extended period of care.
•  A couple can spend over $1 million in out-of-pocket expenses for long-term care if they don’t have insurance. This staggering amount highlights the potential financial burden that can be placed on families without proper planning
• 25% of seniors who are not insured for long-term care end up spending all of their assets on healthcare. This means that individuals who fail to plan may lose their hard-earned savings and assets, leaving them with limited resources for their remaining years.

The Hidden Trap: State Medicaid Asset Recovery Programs

One often-overlooked aspect of relying on Medicaid for long-term care is the state’s asset recovery program. Many people don’t realize that states can recoup Medicaid expenses by putting a lien on your assets, including your family home.

• States can recover all the costs spent on your Medicaid benefits after your death.
• This recovery process can include placing a lien on your family home until the state recoups what it spent on your care.
• Asset recovery doesn’t just affect you; it can have a lasting impact on the inheritance you leave behind, affecting your children and grandchildren.

Safeguarding Your Assets: How Qualified Long-Term Care Insurance Protects You

If you don’t want the state laying claim to your assets, there’s a proactive step you can take: investing in qualified long-term care insurance.

• Qualified long-term care insurance policies are designed to provide you with coverage that Medicaid would otherwise offer, thereby reducing your need to rely on Medicaid.
• If you don’t end up requiring Medicaid, the state’s asset recovery program has nothing to recoup, safeguarding your family home and any other assets.
• Even if you do require Medicaid after your insurance payouts are depleted, having such a policy can often lower the amount the state seeks to recover.

The Clock is Ticking: Why Early Planning Is Crucial

When it comes to long-term care, time is of the essence for several reasons:

Preserve Your Insurability

• The younger you are when you apply for long-term care insurance, the better the rates you’ll receive. More importantly, you’re more likely to be approved.
• As you age, you’re more likely to develop health conditions that could either dramatically increase the cost of insurance or disqualify you from getting a policy altogether.

Avoiding the 5-Year Medicaid Look-Back Period

• If you do decide to “spend down” assets to qualify for Medicaid, you have to be very careful about the timing. Medicaid has a five-year “look-back” period where they review asset transfers. If you’ve moved assets out of your name to qualify, and it’s detected during this period, you could be penalized with a period of ineligibility.
• Planning well ahead of this 5-year period can offer more flexibility in how you manage your assets, allowing you to structure them in a way that both preserves your wealth and still qualifies you for Medicaid if necessary.

Planning Ahead – Your Best Defense

Given the statistics and the limitations of government programs, planning ahead becomes not just prudent but essential. Here are some steps to consider:

• Consult an Expert. Talk to a financial advisor who specializes in retirement and long-term care planning. They can provide guidance tailored to your specific needs and help you navigate the complexities of insurance options and government programs.
• Evaluate Insurance Options. Investigate different long-term care insurance policies and obtain multiple quotes. You can look at tax-qualified stand-alone long term care insurance policies. These provide a tax deduction and help protect your family’s against Medicaid asset recovery programs in case your long term care insurance benefits run out and you do require Medicaid assistance.
  You can also look at a variety of hybrid life insurance/long term care products, which provide flexibility and substantial purchasing power.
  For those more focused on retirement income, there are some annuity products available which also have features that help you pay for long term care. 
• Start Now. The average age of purchasing long-term care insurance is 57, but rates are generally more favorable the younger you are. Starting early ensures that you can secure coverage while you are still in good health and potentially save on premiums.

The Bottom Line

Long-term care is an under-recognized crisis in America that demands attention. Failing to plan for long-term care needs can have severe financial consequences.

By understanding the statistics, limitations of government programs, and the potential impact of being uninsured, individuals can take proactive steps to protect their financial future. Don’t ignore the importance of long-term care planning – it’s an essential part of a secure and stable financial plan!

Lastly, I invite all of you to take action. Do it now, because anyone can have a health setback at any time that could make it difficult or impossible to qualify for long-term care protection. Contact the Personal Benefits Manager who sent you this emailed newsletter, and ask them for a long-term care consultation and planning session.

Together, your PBM and you can identify your needs, find any holes in your long-term care plan, find ways to protect your assets, and you’ll receive recommendations and quotes on long-term care insurance.

Consultations are free, so there’s no reason to delay!  Our PBMs and I are all looking forward to hearing from you. 

Here’s to your health and wealth,

Wiley P. Long, III
President – MediGap Advisors

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