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Long-Term Care Insurance

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What is long- term care?

Many people conjure up an image of a nursing home when they think of long-term care. But long-term care does not always mean institutional care. Instead, it is primarily custodial care-personal, hands-on assistance to individuals who need help with the activities of daily living, or ADL's. ADL's are routine things that healthy people don't give a second thought to: bathing, dressing, eating, using the toilet, getting into and out of bed or a chair. The need for long-term care may be due to physical limitations or disabilities resulting from injury, illness or the normal aging process. It can also be due to a cognitive impairment resulting from a stroke, for example, or Alzheimer's disease.

And while such care is provided in nursing facilities, assisted-living facilities, and adult day care centers, the majority of long-term care takes place in the recipient's home. Usually, in fact, it is provided by unpaid family members or friends.

If you think long-term care is primarily needed by the elderly, you're correct - but barely. Nearly 41% of long-term care is provided to people under age 65 who need help taking care of themselves after an accident of stroke or as a result of chronic illness or debilitating diseases.

What are the chances you'll need long-term care?

This is a tough question. It's clear that the longer you live, the more likely it is that you'll need help at some point. Overall, approximately 70% of people who live to age 65 will require some long-term care services at some point in their lives. That means that only three in ten of us will live out our lives without the need of such assistance.

Will you need care someday? None of us knows for sure, but family history could be a good indicator.

One thing is for certain: The potential need for long-term care is a risk that all Americans face - and one that can take a heavy toll on your family and your wallet.

How Much Does Long-Term Care Cost?

Paying for long-term care services can be surprisingly expensive. While many people depend on family members and friends to help provide care in the recipient's home, providing such care can exact an enormous physical and psychological toll on the caregiver. (If you're currently managing, or have ever managed, the needs of a loved one, you may consider this an understatement.) Once paid care is required, the cost can be high, and over time can threaten a lifetime of savings.

Studies are regularly done to track the cost of care. The most recent survey by John Hancock in 2011, for example, found that the average cost of a private room in a nursing home in the United States was $235 a day, or $85,775 a year. A semi-private room wasn't much cheaper, at an average of $207 a day, or $75,555 a year. (The gap is likely skewed somewhat by the fact that some facilities report prices for one-bedroom units as single rooms.) Remember that these are average costs. The cost in your area could be quite different. Also, costs can vary widely among facilities in the same area.

How long might you need care?

Again, it's impossible to say. The latest statistics show that the average stay in a nursing home for current residents was 876 days, or about 2.4 years. (And keep in mind that doesn't account for how many years of care the person may have received at home prior to entering the nursing home.) Multiplying 876 days by the average daily cost for a private room gives you a staggering tab: $205,860 in today's dollars. With inflation (averaging 4.1% based on the Consumer Price Index over the 50-year period ending December 31, 2010), that dollar amount could grow to $450,000 in twenty years and close to $680,000 in thirty years. Despite the precise-sounding nature of these figures, as with the average cost, the average stay statistic can be misleading because it blends a wide range of lengths of stays. Some residents spend just a few days in a nursing home for rehabilitation after being hospitalized for, say, an operation or a broken limb. Others may be in residence for years suffering from Alzheimer's disease.

Since most long-term care is not delivered in nursing homes, it's important to know the costs of care in alternative settings.

The John Hancock survey found that:

  • The national average cost of an assisted-living facility was $3,270 a month in 2011, or $39,240 a year.
  • The average cost for home health aides was $20 an hour.
  • The average cost for adult day care (centers that offer the opportunity for social interaction and, sometimes, health care on an hourly, half-day, or full-day basis) was $61 a day.

National Averages for LTC Services

Nursing home: private room$85,775
Nursing home: semi-private room      $75,555
Assisted living facility$39,240
Home health care aide$20 / hour
Adult day care$61 / day

Who Pays the Bills?

While a great deal of long-term care is provided by unpaid family members and friends, the Health Policy Institute at Georgetown University reported in 2007 that the latest statistics show that more than $200 billion is spent each year on long-term care in the U.S.

Where did the money come from? As the pie chart shows, the largest share - 48.9% was paid by Medicaid. Another 20.4% was paid by Medicare. Most of the rest was paid out-of pocket by the care recipient and his or her family or by private insurance.

Those statistics might lead you to think that, if you need long-term care, the government will pick up the tab.

Think again.

Medicare generally kicks in for those age 65 and older and only pays for short-term care that is medically necessary, such as temporary stay (no longer than 100 days) in a skilled-nursing facility for rehabilitation following surgery. Neither Medicare itself nor Medicare-supplement (medigap) insurance policies cover custodial care. In fact, the government now includes a note in your annual Social Security statements that says, "Medicare does not pay for long-term care, so you may want to consider options for private insurance."?

Medicaid is intended for the poor, and generally covers those with very little income and assets. While income and asset levels vary by state, most states require people to spend down assets to as little as $2,000 before they can qualify for Medicaid assistance. (Married couples have higher asset allowances, as long as one spouse is healthy enough to remain at home.) Coverage is mainly for care received in Medicaid-approved nursing homes. In the few states where Medicaid does cover home-based long-term care expenses, it is on a limited basis. In recent years, tough new rules have gone into effect to prevent people from transferring assets in order to qualify for Medicaid and shift long-term care costs to the state.

Therefore, the high cost of long-term care is likely to fall on you, either by relying on your life savings, tapping benefits of a long-term care insurance policy, or both.