The biggest surprise for many people when they turn 65 and enroll in Medicare is that it won’t cover custodial care in a nursing home.
Medicare is for acute illnesses that can be treated and fixed. For example, if you break a hip, get it repaired in a hospital and need rehabilitation in a skilled nursing facilty, Medicare will pay the bills.
But Medicare won’t pay for custodial care, where you need help, but not the kind of assistance or treatment provided by medically trained personnel. Custodial care means you can’t manage on your own, and you need help with some of the basic activities of daily living: using the toilet, dressing, getting in and out of bed, bathing, feeding yourself, and walking around your home. If there is no one to help you stay at home, you may find yourself in a nursing home, where the bills can run $70,000 a year and more.
You are responsible for paying all those bills. If you run out of money paying the bills, a process called “spend-down,” and have $2,000 left in your checkbook or bank account, you can qualify for Medicaid, the federal-state program that pays medical bills for poor people. Medicaid takes over paying the bills for many residents of nursing homes who have used up all their money.
No matter what age you are, it is easy to run out of money when you are paying for long-term, non-medical care. Bills mount quickly.
Genworth’s study showed these median (half pay less and half more) costs :
Nursing home, private room $79,935
Semi-private room, $72,088
Assisted living community, one bedroom apartment, $40,200
Adult day care community center $17,160
Homemaker aide $48,048
Home health aide $57,200
Genworth’s map will show the costs in your state.
There is insurance you can buy to help pay these bills, whether it is for a stay in a nursing home, or hiring someone who can cook, clean and shop for your ailing 90 year-old mother, and also drive her to appointments at the doctor’s office. This will protect financial assets to leave as inheritances to a spouse, or children, or grandchildren.
This is long-term care insurance. It’s an asset protection vehicle for the middle class. If you have $50,000 in life savings, it can disappear in less than a year in a nursing home and you qualify for Medicaid. If you have $5 million, invested at a moderate return of 4% a year, you will have $200,000 in income, plenty of money to pay for a nursing home.
People in between can consider the policy. Here is advice from the National Assn of Insurance Commissioners, the state officials who regulate the sales of policies:
“When will benefits be available?
Long–term care policies have an elimination period, which is the number of days you must need nursing home care or home health care before your policy pays benefits. A shorter elimination period will mean you pay a higher premium. Elimination periods may range from 0 to 180 days. In addition, a long–term care policy does not guarantee coverage unless you satisfy certain requirements. For example, most policies require that you be unable to perform a given number of daily living activities, such as dressing, bathing and eating without assistance. Also, most policies have a benefit trigger for cognitive impairment. For example: as a policyholder you can only qualify for these benefits if you are unable to pass a test assessing your mental functioning.
How much in benefits will the policy pay?
The benefit amount usually is a daily benefit ranging from $50 to $250 per day. You may choose a benefit period that is a specific number of days, months or years. A maximum benefit period may range from one year to the remainder of your lifetime. It is important to ask the person selling the policy if the benefit amounts will increase with inflation and if that coverage increases your premium.
Gender: Women are more likely to need long–term care because they have longer life expectancies and often outlive their husbands.
Family Situation: If you have a spouse or adult children, you may be more likely to receive care at home from family members. If family care is not available and you cannot care for yourself, paid care outside the home may be the only alternative. Different policies may cover different types of long–term care. It is important to buy a policy that will cover the type of care you expect to need and will be available in your area.
Are there exclusions?
- Every policy has an exclusion section. Some states do not allow certain exclusions. Many long–term care policies exclude coverage for the following:
- Mental and nervous disorders or diseases (except organic brain disorders)
- Alcoholism and drug addiction
- Illnesses caused by an act of war
- Treatment already paid for by the government
- Attempted suicide or self inflicted injury\
Some experts recommend you spend no more than five percent of your income on a long–term care policy.”
You can protect assets from the spend-down rules if you buy a “Partnership Policy,” which is available in 46 states.
The federal government’s long-term care website explains the partnership policies
“John, a single man, purchases a Partnership policy with a value of $100,000. Some years later he receives benefits under that policy up to the policy’s lifetime maximum coverage (adjusted for inflation) equaling $150,000. John eventually requires more long-term care services, and applies for Medicaid. If John’s policy was not a Partnership-qualified policy, in order to qualify for Medicaid, he would be entitled to keep only $2,000 in assets. He would have to spend down any assets over and above this amount. But because John bought a Partnership-qualified policy, he can keep $152,000 in assets and the state will not recover those funds after his death. John would only have to spend down his assets over and above the $152,000 in order to be eligible for Medicaid.
Suppose you purchase $240,000 of Partnership-qualified long term care insurance-possibly a policy with a $5,000 monthly benefit and a 4 year benefit period. ($5,000 x 12 month x 4 years = $240,000).Let’s say you need long term care, and your Partnership long term care policy pays you $240,000 in benefits. If this happens, Medicaid will “disregard” $240,000 of your assets in determining whether you qualify for Medicaid. You will not be required to spend-down to $2,000. Thus, in this example you can keep $240,000 in savings or investments and will only have to spend-down to $242,000 ($240,000 of policy benefits + $2,000 Medicaid rules).
Thus, your Partnership long term care insurance policy helps you in 2 ways, really:
- Your assets are protected should you ever run out of insurance
- While you are receiving your insurance benefits, you have acquired the time to “figure things out”, i.e. transfer assets, etc. should Medicaid ever be a foreseeable need.”
