According to the U.S. Department of Health and Human Services (HHS), most Americans over 65 will need long-term care services at some point in their lives. Unfortunately, most Americans don’t have a good way to pay for them.
A 2020 survey by Genworth Financial found that professional long-term health care costs thousands of dollars per month — anywhere from $1,603 for adult day care to $8,821 for a private room in a nursing home. Yet according to a 2020 survey by The Ascent, more than half of Americans have less than $5,000 in savings. Professional long-term care services would burn through that amount in less than four months.
Most health insurance plans don’t provide any coverage for long-term care. However, you can buy long-term care insurance, also known as LTC insurance, to protect yourself against this cost. You pay regular premiums to the insurance company now, and it pays for all or part of your long-term care expenses when and if you have them
However, this coverage is also expensive. According to the American Association for Long-Term Care Insurance (AALTCI), the annual premium for a long-term care policy ranges from $1,400 to $3,100, depending on the policyholder’s age, health, gender, location, and coverage level. That’s much less than the full cost of long-term care, but it’s still more than many Americans can squeeze out of a tight budget.
If you’re currently struggling with high long-term care costs, you can get them under control by rethinking how you receive care and how you pay for it. And if you’re concerned about paying for long-term care in the future, there are several ways to make long-term care insurance more affordable. Timing your purchase, comparing prices, and making adjustments to your coverage can all cut the price significantly.
Reducing the Cost of Long-Term Care
Long-term care can take many forms. Some people need full-time nursing home care. Others can get by with a home health aide to help them with activities of daily living such as bathing or dressing. Other forms of care include assisted living, adult day care, and home care.
The costs of long-term care depend largely on what form of care you choose. In general, home health care is cheaper than staying in a care facility. Unpaid care from friends or family members is cheapest of all and has the advantage of allowing you to remain in your own home as long as possible.
However, if you need the kind of round-the-clock care only a live-in facility can provide, there are still ways to limit the cost. Government programs, such as Medicare, Medicaid, and state or community programs, can cover some of your expenses. You can also try to reduce costs by negotiating with care providers. And, if all else fails, you can consider relocating to a new area where care is less expensive.
Family Care
One way to deal with the cost of long-term care is to rely on unpaid care from friends and relatives, and most Americans do just that. According to HHS, this type of help accounts for about 80% of all in-home care. A 2020 study by AARP and the National Alliance for Caregiving reports that about 48 million Americans — nearly one in five American adults — had provided unpaid care to another adult in the previous year. On average, these caregivers spent around 24 hours each week on their caregiving tasks.
According to the study, caregivers have mixed feelings about providing care for relatives. Over 50% said the task gave them a feeling of purpose or meaning, but many also found it stressful. About one in four caregivers said providing care had a negative effect on their own health, and about one in five said they feel alone.
Along with the emotional stress, unpaid caregivers can suffer financially. More than half of them reported that they had worked fewer hours while caring for a loved one, and about one in 10 had to give up their jobs completely. One out of five caregivers said they had high levels of financial strain, three out of 10 had stopped saving, and one out of four had taken on more debt. One in 10 even said they had trouble affording basic necessities such as food.
In short, while unpaid care is by far the cheapest option, it also has major downsides. It’s a good idea to consider all of the effects family care could have on your loved ones, and on you, before deciding to rely on it.
Government Programs
Many Americans over 65 rely on Medicare to cover their health care needs. However, Medicare does not cover long-term care costs except in specific cases. In general, it only covers care for a limited time while you’re recovering from a specific injury or illness. You can learn more about the program’s long-term care benefits on the Medicare website.
Another major government health care program, Medicaid, covers all forms of long-term care — but only for certain people. In general, Medicaid only covers people with income below a certain level, which varies from state to state. Some states also limit eligibility to people with children or people with disabilities. Visit your state’s Medicaid website to learn what the rules are in your area.
In addition to these major programs, there are many programs at the state and community level financed by the OIder Americans Act (OAA). The OAA funds the Aging Network, an array of state, local, and tribal agencies that help older adults stay in their communities as long as possible. These organizations can help people over age 60 with long-term care needs such as transportation, meal preparation, adult day care, and home health services. You can find available programs in your community through eldercare.acl.gov.
The OAA also funds the National Family Caregiver Support Program (NFCSP). The NFSCP provides assistance to unpaid caregivers looking after older adults. It offers information about available services, help accessing them, counseling, training, and respite care — a chance for caregivers to take a much-needed break from their care responsibilities.
Negotiation
According to a 2020 article in U.S. News, most nursing homes set their prices based on the payment rates they can get from Medicare and Medicaid. That means there’s little wiggle room to negotiate for a lower price. However, it can’t hurt to ask. Occasionally, a facility is willing to accept a rate that’s lower than its official rate for private patients, but still higher than the rate it gets from Medicaid.
Assisted living facilities are a different story. They generally don’t accept Medicare, and they also face stiff competition. These factors make them more willing to negotiate. If the facility you’re looking at has no waiting list or has several rooms sitting vacant, there’s a good chance you can bargain for a better monthly rate than its advertised price.
The business of home health services is highly competitive as well. If you tell these agencies you’re shopping around, you can often negotiate a lower daily or hourly rate for home health care.
Relocation
Long-term care costs vary widely from state to state. For instance, according to Genworth, the monthly rate for a private room in a nursing home is more than six times as high in Alaska, on average, as it is in Oklahoma. If you don’t have access to long-term care benefits, or if the benefits you have are too low to pay for care in your area, moving to a cheaper area can be a way to cut your costs.
Relocating can have both advantages and disadvantages. If you have children or other relatives living in a different city where the cost of care is lower, moving there makes it easier for them to check in on you. However, if your whole family lives in your current area, moving away means they’ll either see you less often or have high travel expenses. Their additional travel costs might even be more than the amount the family can save on your care.
Moving to a new location also means you’ll have to change doctors. That can be a big problem if your current doctor has been seeing you for years and knows all about your condition. Before you decide to relocate, make sure you can find a good doctor in your new location and transfer all of your important medical records to them.
Reducing Long-Term Care Insurance Premiums
Thinking about ways to lower your long-term care costs can save you money even if you don’t need care yet. The lower you can get your estimated cost of care, the less coverage you’ll need from long-term care insurance. By lowering your benefit amount, you can lower your premiums as well.
However, this isn’t the only way to rein in the cost of LTC insurance. You can also lower your rates by making smart choices about when, where, and how you shop.
1. Buy at the Right Time
The price you pay for long-term care insurance depends on how old you are when you first apply for the policy. That’s because insurers typically offer discounts for people in good health. The younger you are, the better your health tends to be, and the less you’re likely to pay for LTC insurance. According to the AALTCI, a couple in good health buying a joint LTC policy at age 60 can expect to pay about 26% more for the same coverage than the same couple at age 55.
Moreover, once you buy a policy, your initial discount is locked in. Even if your health gets worse as you age, your premiums don’t rise to match it. As long as you stay with the same insurer, your premiums rise only modestly with age.
Thus, the longer you wait to buy LTC insurance, the higher your yearly premium will be. On the other hand, the sooner you buy, the more years you’ll have to pay premiums. The trick is to time your purchase so that you can get a decent rate without paying for more years of coverage than you need.
According to experts, the ideal time for most people to buy a policy is in their 50s. Once you turn 60, prices rise sharply, and so does your risk of being denied a policy. By making your purchase around age 55, you’ll get coverage when you’re most likely to need it at a reasonable price.
2. Compare Costs
LTC insurance premiums vary widely from provider to provider. According to the AALTCI, at 2020 premium rates, a 55-year-old man could pay anywhere from $1,876 to $3,081 per year for different LTC policies that offer essentially the same coverage. Thus, to get the best rate, you need to compare costs from several different insurers.
One way to do this is to hire an insurance specialist. You can find one through the AALTCI or ask your financial advisor for a recommendation. You can also use cost comparison tools from the AALTCI and Policygenius to get quotes from multiple insurers.
It also helps to have a point of reference before you start seeking quotes. Long-term care insurance calculators from insurers like Genworth and Mutual of Omaha can give you an idea what price you should expect to pay for coverage based on your age, health, and location. You can compare any quotes you get to this benchmark to make sure they’re reasonable.
3. Check Reviews
The premium isn’t the only factor to consider when you buy an LTC insurance policy. You also want to make sure you can trust the company to pay for care when you need it and not raise your premiums too much over time.
To find this information, check out consumer reviews for different companies at Consumer Affairs. Some reviews on this site are for insurance companies and others are for insurance specialists who help you with the shopping process. Combine reviews on this site with the quotes you get from different insurers to see which companies offer both good prices and good service.
4. Shop Through Your Employer
In general, employer-sponsored health insurance plans don’t cover long-term care. However, some employers offer separate long-term care insurance policies. About one out of three employers offered this coverage in 2018, according to Policygenius. Some of them cover part or all of the cost, while others offer it as an add-on that employees can pay for out of pocket.
John Power, a financial planner interviewed by Policygenius, says employer-sponsored LTC plans usually offer the best rates. Companies can often negotiate a group rate that’s lower than the cost of buying a policy on your own.
Also, it’s sometimes easier to qualify for LTC insurance if you buy it through your employer. According to AARP, some workplace plans don’t require underwriting, which means you can qualify for a policy without any medical screening tests. And it’s usually possible to keep your long-term care policy even if you leave your job, as long as you keep paying the premiums.
If your own employer doesn’t offer LTC coverage, check to see if a family member’s does. Some employers that provide this benefit allow spouses, parents, grandparents, and even siblings of employees to buy into their group policies.
5. Choose a Joint Policy
Couples can often reduce the cost of care by buying a single policy for the two of them. A joint policy typically has a single maximum benefit for both people. For instance, if the policy provides coverage for up to three years and one policyholder requires care for one year, that still leaves two years’ coverage for the other.
The AALTCI says a joint policy can cost anywhere from 15% to 40% less per year than two separate policies. It’s possible to get one even if you’re not married; some insurers also provide them to unmarried people living together or to related adults, such as siblings.
6. Lower Your Daily Benefit
The more LTC insurance you carry, the more you’ll pay for it, so it makes sense to avoid carrying more than you need. Cutting your coverage by half — for instance, cutting your maximum daily benefit from $200 to $100 — can cut your premium in half as well.
However, you don’t want to go overboard and cut your benefits to the point that they won’t meet your long-term care needs. The key is to figure out exactly how much coverage you’re likely to use and pay for that — and no more. The Genworth Cost of Care tool can help you find the typical daily cost of care in the area where you live. You can also use it to compare costs for other areas if you’re thinking about relocating.
When you’re thinking about how much coverage you need, don’t forget to account for inflation. If a room in an assisted living facility costs $140 per day now, it could easily cost $250 or more 20 years from now. You can protect yourself against this risk by choosing an LTC insurance policy with inflation protection, which automatically adjusts your insurance benefits by a set percentage each year to account for inflation. A typical amount is 3% to 5% per year, according to Policygenius.
However, adding inflation protection to your policy also raises your premiums. The higher the annual adjustment for inflation, the more your premium increases. Choosing a lower inflation provision — say, 3% instead of 5% — could lower your rates by 40% or more, according to Forbes.
7. Limit Years of Coverage
Along with the daily benefit, you can limit the number of years for which your policy will provide coverage. According to the AALTCI, you can save anywhere from 16% to 39% by choosing a policy that covers your costs for only three or five years, rather than a policy with a pricey lifetime benefit.
Again, the trick is figuring out how long you’re likely to need long-term care. According to HHS, the average time spent in long-term care is about 3.7 years for women and 2.2 years for men. However, your personal risk depends on factors like your family health history. If you’re at increased risk for a disease that causes physical or cognitive impairment, such as Alzheimer’s, you could need care for a longer period.
The AALTCI says more than 70% of all LTC insurance buyers choose policies with benefit periods of five years or less. The most popular choices are policies with three-year or five-year benefit periods. Only 18% of shoppers choose policies with a lifetime benefit. In fact, Larry Ginsburg, a financial planner interviewed by Policygenius, says most insurers no longer offer long-term care policies with lifetime benefits because so few people can afford them.
8. Choose a Longer Elimination Period
The AALTCI says you can cut your yearly premium by 20% or more by choosing a policy with a deductible, also known as a waiting period or elimination period. This is an amount of time you have to pay for your long-term care out of your own pocket before your coverage kicks in. The longer the waiting period you choose for your policy, the lower your premium will be. Most policies sold today have elimination periods of 90 to 100 days.
Increasing your waiting period is a good strategy for lowering your costs, but only if you can afford it. Think about how much money you have available to pay out-of-pocket care costs from sources like your retirement savings, an annuity, or support from family members. The more of the risk you can take onto your own shoulders, the more you can lower your long-term care insurance premium. The AALTCI notes that, in general, moderately short-term care that lasts only a few months is less intensive — and therefore less costly — than longer-term care, making the risk more manageable.
9. Use an HSA
You can make long-term care insurance premiums less burdensome by paying for them with a health savings account (HSA). These accounts avoid taxes three ways. You can fund them with pre-tax dollars, the balance stays tax-free as it grows, and as long as you use it to pay for qualified medical expenses — which includes LTC insurance premiums — it’s not taxed when you withdraw it. Depending on your tax bracket, this could save you anywhere from 10% to 37%.
However, this great deal comes with a few catches. First, you can only open an HSA if you have a qualifying high-deductible health insurance plan. Also, there’s a limit to how much you can withdraw tax-free from an HSA to cover premium costs, which varies based on your age. According to the IRS, this limit ranged from $430 per year for a person under 40 to $5,430 for someone over 70 in 2020. If you meet these requirements, you can open an HSA through Lively.
10. Combine Long-Term Care Insurance With Life Insurance
In some cases, you can get long-term care coverage as part of your life insurance policy. The main way to do this is through a hybrid plan. These plans are usually either whole-life or universal-life policies with a rider that covers long-term care. Each year, you can withdraw a certain amount from the policy to cover long-term care if you need it. Whatever you don’t use gets paid out to your heirs when you die.
The advantage of a hybrid policy is that even if you end up not needing long-term care, your heirs will still benefit from the policy. The downside is that these policies cost two to three times as much as a standard LTC policy, according to AARP. It’s often cheaper to buy separate life insurance and long-term care insurance policies for the same amounts of coverage.
There are other ways to use life insurance to cover long-term care costs. For instance, some policies have an accelerated death benefit (ADB). An ADB allows you to take a tax-free advance on your life insurance payout while you’re still alive under certain circumstances — for instance, if you have a terminal or life-threatening illness. Life insurance policies with ADBs often don’t require the same health screenings as long-term care insurance policies when you buy them.
The downside is that their payouts for long-term care are usually lower. According to HHS, ADBs that cover long-term care typically limit the monthly benefit for this purpose to around 2% of the policy’s face value for nursing home care and half as much for home health care. For instance, with a $200,000 policy, you could only withdraw up to $4,000 per month for nursing home care — not enough to cover the cost in many states. Also, ADB riders on life insurance policies typically don’t include inflation protection.
You can also use life insurance to pay for long-term care by selling your policy for its cash value and putting the proceeds toward your care. This option, called a “life settlement,” is usually only available to men over 70 or women over 74, according to HHS. If you do this, you must pay taxes on the proceeds of the sale, and there will be no cash payout for your heirs.
Final Word
The most important key to saving on long-term care costs is to plan ahead for them. If you’ve just turned 50, it’s easy to think of long-term care as something you won’t need to deal with for years or even decades. However, putting off this decision can be costly.
In the first place, long-term care insurance will be much cheaper if you buy now, in your 50s, than if you put it off for 10 years or more. There’s also a risk that you could develop health problems in the meantime that make you ineligible to buy a policy at all. If you plan to use LTC insurance to deal with future long-term care costs, the time to shop for it is now.
However, before you can start shopping for a policy, you have to know how much coverage you need. That’s why it’s important to think ahead about what your long-term care needs could be. Talk to your family about how much help they’re willing and able to provide, figure out how much help you could get from the government, and consider whether it’s worth your while to relocate for cheaper care.
Aside from saving you money, making a plan can preserve your peace of mind. By doing all the work to plan for long-term care now, you’ll know you won’t be blindsided by high long-term care costs in the future. And, in the unlikely event that you suffer an injury or illness in the near future that requires long-term care, you’ll be prepared to deal with it.
Source: moneycrashers.com
