Meeting the Challenge of Financing Long-Term Care

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In an ideal world, younger individuals will plan for their retirement years. An ideal plan will provide not just a retirement income that allows a retiree to maintain a comfortable lifestyle, but funds assisted-living arrangements if the senior is unable to live independently.

Long-term care insurance may help seniors achieve the latter goal. As NerdWallet explains, long-term care insurance “helps cover the costs of that care when you have a chronic medical condition, a disability or a disorder such as Alzheimer’s disease.” It may contribute to the cost of in-home care, a nursing home, an assisted living facility, or an adult day care center.

Long-term disability insurance is another option. Disability insurance replaces a percentage of the insured’s income. Insurance benefits may fund the cost of care for individuals who suffer from early-onset dementia or another disability that requires long-term care. However, disability insurance typically stops paying benefits at age 65.

Ordinary health insurance does not cover long-term care. With very limited, short-term exceptions, neither does Medicare. In the absence of private insurance, seniors are often left with no choice but to spend their Social Security and retirement income, to use their savings, and to rely on other family members to fund long-term care.

When Resources Run Out

One of the many unfortunate results of a chronic condition like Alzheimer’s is that patients may need care for decades. No matter how carefully the patient plans, resources to pay for long-term care may eventually run out.

As NerdWallet explains, long-term care insurance will not fund necessary care forever. Policies typically limit the amount that will be paid each day and for the insured’s lifetime. When the insured reaches the lifetime limit — which might happen after four to six years of residential care — the insured will need to find other ways to fund long-term care.

Unlike Medicare, state Medicaid programs cover some institutional care. In addition to hospital care, Medicaid may pay for long-term institutional care in:

· Nursing homes for people who need regular nursing and other skilled services, including rehabilitative services.

· Residential intermediate care facilities for people who cannot care for themselves because of a mental disability.

· Institutions for mental diseases for people over the age of 65 who need psychiatric care (often in addition to nursing care).

Providers that are certified to accept Medicaid reimbursement for institutional care must generally provide room, board, and comprehensive care to patients at no charge to the patient. Medicaid is funded by the federal and state governments. While federal regulations set minimum standards that apply in every state, levels of service vary from state to state.

To some extent, eligibility for Medicaid also varies from state to state. The program is means-based, meaning individuals must be financially eligible for Medicaid benefits under federal and state law. Seniors must often spend down their assets on medical care and other permitted purposes before they become eligible. Seniors who give away assets to become eligible may be accused of fraud, making it important to receive sound legal or financial planning advice if seniors have assets but need long-term care services that they cannot afford.

The Pain of Medicaid Eligibility

Greg Marchildon of AARP Vermont explains the funding dilemma in stark terms: “Really the long-term care system is simply this, you spend yourself into poverty, you get onto Medicaid, you go to a nursing home.” Apart from depriving older people of the benefit of a lifetime of savings due to health conditions that are beyond their control, that formula depends on Medicaid operating as a viable safety net.

Vermont legislators are asking whether the state should find ways to allow aging residents to keep more of their savings while benefitting from Medicaid. Yet the number of older people who will need Medicaid for long-term care is expected to double by 2050, while the number of unpaid family caregivers available to help them is expected to decline. The growing need for Medicaid-funded long-term care services will put a strain on state budgets even if no steps are taken to make it easier for seniors to obtain those services.

There is no easy solution to the problem. Legislators in Vermont created a plan to help seniors age well at home by emphasizing home health care, transportation services, and other strategies to help seniors age in place.

Receiving care at home is less expensive than institutional care, but it can still deplete an older person’s resources. The cost of home health aides is rising as demand for their services increases. While family members frequently act as unpaid caregivers, adult children (usually women) often sacrifice careers to care for their parents, a choice that deprives the economy of workers.

In any event, some health conditions require constant care that is best provided in a long-term care facility. Comprehensive financing reform, including a shift in the cost of long-term care from Medicaid to Medicare (or to a new universal insurance program) might be politically difficult, but it may be the only viable long-term solution to the expanding need for long-term care.

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