Preparing for Long-Term Care Expenses: Everything You Need to Know
Did you know that if you’re 65 or older, there’s a startling 70% chance that you’ll require long-term care at some point in your life? And not just for a short period, but for over three years! These statistics highlight the importance of preparing for the possibility of long-term care expenses.
These two issues pose significant challenges:
1. Long-term care is expensive!
2. Unfortunately, Medicare does not provide coverage for it.
In this blog post, we will thoroughly explain how you can prepare for long-term care expenses.
Understanding Long-Term Care
The first question we need to address is — what is long-term care? The best definition comes from Medicare’s own website, which explains:
“Long-term care is a range of services and support for your personal care needs. Most long-term care isn’t medical care. Instead, it helps with basic personal tasks of everyday life, sometimes called ‘activities of daily living.'”
Most times, when people have long-term care needs, it’s not medical but personal care. So if you need help bathing, dressing, eating, or moving around due to physical impairment, you need long-term care services. Cognitive issues, such as dementia or Alzheimer’s disease, also necessitate long-term care. These needs can be met at home, in the community, in an assisted living facility, or in a nursing home.
Importantly, long-term care is typically what we refer to as custodial care as it deals with essential day-to-day tasks rather than medical care. Medicare was primarily designed to cover medical needs rather than custodial needs. Therefore, it does not cover long-term care expenses.
Key Takeaway: Medicare covers long-term care expenses only if they are medically necessary and are associated with a high likelihood of recovery.
Who Will Need Long-Term Care?
The next question is, who will need long-term care? Most of the statistics out there deal with the population of the baby boomers, those born between 1946 and 1964. If you fall within this age range, the following statistics are critical:
- 30% chance you will not need long-term care,
- 70% chance you will need long-term care.
Furthermore, the average stay in a long-term care facility is 3.2 years. For women, this average is slightly higher at 3.7 years, while for men it’s 2.2 years.
Therefore, if you’re within the baby boomer age range, it’s essential to start planning for potential long-term care expenses.
What are the Costs of Long-Term Care?
The third question to address is the actual cost of long-term care.
On average, the cost for a private room in a long-term care facility is $108,000 per year. This breaks down to about $9,000 per month. With the average stay being 3.2 years, this means the average person will need around $324,000 set aside for their long-term care expenses.
If we consider a semi-private room, the cost drops slightly to an average of $94,000 per year or nearly $8,000 per month. Despite the lower cost, we’re still looking at about $300,000 for the average stay in a skilled nursing facility.
These costs vary depending on location. For instance, New York, Connecticut, and Alaska are high-cost states with an average cost of $13,000 per month. In contrast, Missouri, Oklahoma, and Texas are among the low-cost states with a monthly average of $5,400.
Regardless of where you live, long-term care is exceedingly expensive, and with a high likelihood, you’re going to need it for a substantial period. Hence, it’s crucial to have a plan on how you’re going to cover those expenses.
Dealing with the Costs of Long-term Care
In dealing with long-term care expenses, several options are available. However, it’s essential to note that Medicare only covers things that are medically necessary. Therefore, it doesn’t cover the majority of long-term care costs since these are primarily considered custodial rather than medical.
Of the total annual costs spent on long-term care:
- 47% is paid by Medicaid (for low income, low asset individuals),
- 23% is covered by Medicare (usually when a custodial need arises together with a medical need),
- 23% is paid out-of-pocket,
- 4% is covered by the VA,
- Only 3% is covered by long-term care insurance.
For those who do not qualify for Medicaid and did not have a long-term care insurance policy, you’ll have to pay these costs out of pocket. As such, Medicare is primarily a federal program, while Medicaid is a federal and state combination program. For Medicaid, both your income and assets need to be considered low.
It’s critical to be prepared for long-term care expenses due to their high likelihood of occurrence and their substantial costs. While government programs like Medicare and Medicaid do partially cover these costs, they have stringent requirements and don’t fully cover the needs of most people.
Stay well-informed and savor a retirement filled with peace of mind.