6 Options (or not) for Funding Long-Term Care or Chronic Illness Costs
It is estimated that one year of home health care — which averages roughly $44,000 per year today — will cost approximately $96,000 by year 2032 (assuming a 4% rate of inflation, 40 hours/week).1
The unpredictability of a chronic illness or long-term care needs requires consideration of all the options available.
6 Options for Funding Expenses Connected to a Chronic Illness or Long-Term Care
- Health Insurance & Social Security. Actually, this is not really an option as Health insurance and Social Security do not cover costs associated with a chronic illness.
- Medicare. Medicare will cover only a portion of up to 100 days of chronic illness costs, and that is after 3 consecutive days in hospital under a treatment plan. It covers first 20 days, and subsequently requires a copay for the next 80 days, if those days are eligible for Medicare.
- Medicaid. Medicaid covers chronic illness care costs for individuals with assets of $2,000 or less, depending on the home state. Care may also be limited to care provided in a nursing home.
- Adult Children. There are significant financial, physical and emotional burdens on families who provide the care-giving. Many family members do not have expertise in elder care needs, nor in the dispensing of medications.
- Out of Pocket. Using savings or selling assets is an option. However, assets that are depleted will not be available for the living expenses of a healthy spouse. Once assets are depleted, the patient has no control over the quality or conditions of care.
- Risk Management Solutions. Carving out a portion of assets today to fund a chronic illness or long-term care expenses tomorrow can go a long way in protecting retirement income sources and ensuring an acceptable standard of care. A life or annuity insurance policy that covers expenses for chronic illness or long-term care allows clients to proactively manage risks to a portfolio of assets and to the quality of care received.
3 Risk Management Solutions to consider are:
- Traditional LTC Stand-Alone Insurance Policy. Stand-alone long-term care insurance policies are the traditional insurance policies familiar to many. LTC policy premiums must be paid annually–though, with most, premiums are waived when benefits under the policy begin. An insured age 55 may be paying premiums for many years before taking any benefits, if any. Because women live longer than men, all other things being equal, premiums are generally higher for women on these policies.
- Life Hybrid Policy. Clients who feel queasy about purchasing an LTC stand-alone policy they may never use, may consider a life insurance hybrid policy with a chronic illness rider. Hybrid policies allow the death benefit to be accelerated during lifetime to cover chronic illness costs, if and when needed. This way, if the rider is never exercised the heirs will receive the death benefit as a tax-free inheritance. However, there are no inflation adjustments available with hybrid products, like there are for traditional LTC policies or Linked Benefits, as discussed below. Note that with hybrid products, any death benefit available to heirs will be reduced by the amount of the LTC or Chronic Illness benefit used.
- Linked Benefits Policy. A Linked Benefit policy, also referred to as an asset-based policy, allows clients to reposition a small portion of assets to address potential long-term care expenses for one or both spouses. Clients can contribute a one-time lump-sum into an annuity policy and receives 2x to 3x the amount contributed in the form of insurance coverage for LTC expenses, if and when needed. There is also a death benefit for beneficiaries on these policies, assuming the full LTC benefit is not used.
1 | Market Survey of LTC costs, Mature Market Institute, November, 20
