Matt Roberts, MFM, CFP®, CAP®, Chief Planning Officer
April 23, 2020
Last year I was inundated with questions about how to help with planning for a parent’s long-term care needs. As I presented at conferences, I would frequently get questions about how to pay for the rising costs for assisted living or skilled nursing care.
Unfortunately, in many of these cases, the solutions were not easy and often not what they wanted to hear. With the average cost of care over $250/day ($90,000+/year) and rising, it’s easy to understand why it’s such a hot topic.
In the U.S., there are three categories when it comes to preparedness for a long-term care event. These categories consist of people who 1) will need Medicaid, 2) have enough resources for retirement, but not quite enough for long-term care, or 3) have enough to self-insure any type of long-term care need.
According to research conducted by the AARP Public Policy Institute, approximately 65% of nursing home residents are supported primarily through Medicaid. This number will undoubtedly rise over time with an aging population.
No matter which group you fall into, having a plan is imperative.
For those seeking assistance through Medicaid for skilled nursing care, it’s important to understand the rules in the state where you reside. It’s critical to seek legal advice from an attorney specializing in elder care before taking action to qualify for Medicaid. In Iowa, in order to qualify for Medicaid, an individual must have $2,000 or less in “countable” assets and $2,349 or less in monthly income. For married couples where one spouse does not need care, $128,640 of assets can be kept in the non-applicant’s name. In discussions about Medicaid, I often get the question about gifting assets to family in order to qualify. In Iowa (and many other states), there is a five-year “look-back” period for gifts that could have otherwise been used to pay for care. Such a gift may result in the applicant being deemed ineligible for Medicaid.
Long-Term Care Insurance
If you have the time and resources to prepare for a long-term care event, there are often better solutions than spending down assets in order to qualify for Medicaid. A common solution is to purchase some type of long-term care insurance.
There are a variety of products that can help insure this risk. These include traditional long-term care insurance policies or a hybrid product (life insurance or annuity + long-term care insurance). The products being issued today are much different than the “old nursing home insurance.”
Newer policies commonly cover in-home care, assisted living, skilled nursing care, and memory care. The requirements for benefits are also more consistent. Policies written today will pay benefits if you are unable to do two out of the six activities of daily living (eating, bathing, dressing, transferring, using the bathroom, and continence). In my experience, people begin considering long-term care insurance in their 50’s and will purchase the insurance in their 60’s if they do at all. If it hasn’t been purchased by the time you reach 70, it’s typically cost prohibitive or you will no longer qualify for coverage due to health or age. Insurance isn’t always the answer, but it’s important to keep age in mind so that you can plan accordingly.
In certain, albeit rare, situations, it can make sense to self-insure. In essence, you are in a position to be your own insurance company. However, that doesn’t mean you don’t need a plan. First, it’s important to quantify the risk. To be conservative, I would plan on needing $250/day for five years. Without accounting for inflation, today’s cost would be approximately $450,000! With inflation, the numbers get too large to comprehend. Second, begin setting aside the funds now. Someone at age 50 should have around $300,000 of resources set aside just for this risk. Lastly, ensure that investing is according to the proper time horizon.
As always, your team at Syverson Strege is here to help you navigate all of life’s events. Please don’t hesitate to contact us if you are having concerns regarding your own situation or the situation of someone you care about.