Navigating the Long Term Care Maze

Member Group : Lincoln Institute

For seniors, the single greatest risk to their retirement security is an unexpected long-term care expense, especially where there is a surviving spouse. Some chose to self-insure while others transfer the risk to an insurance company. But many are still unaware of the need itself. Here to explain the basics is Doug Keegan of Harris SBSB.

Doug, many of us are still unaware of long-term care? Can you first explain what it is and how it differs from say a medical-related expense?

Sure, Lowman. Long-term care refers to services and support needed by those who have chronic health conditions or disabilities. Think of Alzheimer’s disease. Remember how former President Ronald Reagan suffered from Alzheimer’s for 10 years before he passed away. As his disease progressed, he most likely needed round-the-clock care. I mean you couldn’t expect Nancy Reagan to get him in and out of bed or to help him around the house without her risking her own health. She needed help. And that’s what long-term care provides. Help with daily activities of living. As you can probably imagine, all this personal attention comes at a price. Long-term care is expensive.

But circling back to the types of long-term care, there are basically three levels: (1) skilled, (2) intermediate, and (3) custodial. Skilled care is generally round-the-clock care that’s given by professional health care providers such as nurses. Intermediate care is also given by professional health care providers but on a less frequent basis than skilled care. Custodial care is personal care, which is care given by nurses’ aides or home health care providers who give assistance with what are called activities of daily living such as bathing, eating, and dressing. The most common type of long-term care provided is home-based or custodial care.

You mentioned that long-term care can get expensive. Is this why it’s so important to plan for long-term care?

Yes, it’s expensive. And it can impose a significant reduction in the standard of living for the surviving spouse. So while no one expects to need long-term care, it’s important to plan for it nonetheless. According to the Department of Health and Human Services, 40% of people over age 65 will need long-term care services. So you may ask, OK, but for how long and at what price? Unfortunately, the cost varies. However, we do know that of those who have already filed a long-term care claim, 92% of them, that’s right 9 out of 10 were for less than three years. So, most people, if they do go on claim, only need long-term care for three years or less. Now, with regards to price, according to the Department of Health and Human Services a 1-year nursing home stay is about $68,000, or $5,000 a month. This price can vary again depending on where you live and the type of care you need. But remember most people don’t go into a nursing home right away. Most people stay at home use the services of a home health care provider. These providers cost anywhere from $18 to $35 an hour. So, again, depending on your need, the price will vary. But just taking a look at the statistics and what I just covered, you’re looking at anywhere from $100,000 to $300,000 depending on your need and the quality of care you’re willing to buy.

So, while the cost varies, there’s no doubt it’s expensive. And think about Murphy’s Law. If Murphy comes knocking on your door and you’re like Ronald Reagan and you need care for 10 years, your cumulative cost could be well over $600,000. That’s why it’s so scary for the surviving spouse because they could find themselves in a horrible financial situation after the first spouse’s long-term care needs are met.

But doesn’t Medicare pay for long-term care?

Lowman, that’s a good question because that’s what most people think. Truth is Medicare provides only limited coverage for long-term care services such as skilled nursing care or physical therapy. And although Medicare does provide some home health care benefits, it doesn’t cover custodial care. And that’s the type of care most people will need. Medicaid, which is often confused with Medicare, is the joint federal-state program that generally pays for qualifying long-term care expenses. Currently, two-thirds of nursing home residents rely on Medicaid to pay some or all of their long-term care expenses. But to qualify for Medicaid, you have to spend down your assets. And this is where it gets tough for the surviving spouse because they could go from having a nice middle class lifestyle to one of poverty in a very short period of time. But there is even a bigger issue looming, who’s going to pay for nursing home care for the baby boomers? Just last week, Douglas Elmendorf, the Director for the Congressional Budget Office, said that there is a fundamental disconnect between the services people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues we’re prepared to send to the government to finance those services. He said we are on an unsustainable path and something needs to be done if our country is to avoid serious long-term damage to the economy.

What about just paying for the care out of pocket?

You can do that. But again because the cost is so high, many people can’t afford it. Also, we’re living longer, so the risk of not being able to afford it out-of-pocket actually increases as we age because we’re spending down our retirement savings.

So you’re suggesting that a solution may be to partially insure the risk?

That’s right. Look, not everyone will be able to afford the best coverage and frankly not everyone should get the coverage. But I think most of us should at least consider some coverage. Generally if someone’s net worth is under $200,000, buying coverage is simply not very cost-effective. For those with assets above $200,000 but below $750,000, the decision to buy coverage is first and foremost an asset protection decision. In this case, the focus is to make sure that if something happens, it won’t have an adverse impact on the family’s finances. Of course, the decision will no doubt represent a lifestyle trade-off because the premiums aren’t cheap and those premiums will have to be paid either from current income or from assets that are being used to directly generate income. But that trade-off is by far made up if a long-term care need arises.

For those with above $750,000 but below $2,000,000 the decision is rarely about being able to afford access to care, it’s more about protecting assets for a surviving spouse or for heirs. And once you get above $2 million, the decision is more often about maintaining net worth with a broader goal of maintaining a higher standard of living or a certain legacy for children.

What about the cost?

The cost of a long-term care policy depends primarily on you age and health. In general, the younger and healthier you are when you purchase a policy, the lower your premium will be. A sweet spot is for those between the ages of 50 and 55. But you can apply for the coverage even in your 70s. It’s just by then you most likely will have some medical issues and of course you’re older. But cost also depends on the benefits you chose. If you’re willing to pay more out-of-pocket in terms of a deductible, the lower your premium. The same goes for length of coverage. Think of it terms of a bucket of money rather than years. If you buy $100 a day in coverage for three years, that will give you $360,000 of coverage. If you increase or decrease your bucket of coverage, the price changes. So there are many variables surrounding policy design.

So should I buy long-term care insurance?

I recommend everyone go to This is a non-profit organization dedicated to informing the public about their insurance choices. You will find a lot of information on long-term care at their website. But the decision will ultimately come down to each person’s situation and financial needs. You’ll have to take a look at your budget and see what you can afford. My thinking is it’s better to have something than nothing. And I also would recommend you work with an insurance agent who can broker who has experience working in long-term care and who can get competitive quotes from all the major carriers.