The dilemma of long-term care

‘You can lose all of your money,’ says Paula Tracy, right, of Center Harbor, whose mother Mary lives in a memory care unit at a cost of $7,500 a month. (Photo by Allegra Boverman)

When Brenda Schmieder of Concord needed to move her mother into an assisted-living home in 2017, her late father’s veterans disability benefits and her mother’s savings covered the $5,000-a-month bill until her mother’s death about a year and a half later. It’s a much different story for many children and spouses in Schmieder’s position.

More often, a lack of planning and insufficient assets leave families with few options for their loved one’s final years of care, which is likely to be expensive. One year at an assisted living facility in New Hampshire has a median cost of $56,000 a year, according to Genworth, a national insurance company known for its annual “cost of care” survey. The median annual cost of a semi-private room at a nursing home is $124,000.

Families are surprised to discover that health insurance and Medicare will pay little, if any, long-term care expenses. Caring for a loved one at home is often stressful and eventually unmanageable. Assisted-living facilities can be wonderful — if you can afford them. Long-term care insurance is considered one of the better protections, but relatively few people have it. There is always Medicaid — once a loved one’s assets are down to $2,500. But it can be hard to find a facility that accepts it.

“Most people have no idea how this works,” said elder law attorney David Craig of New Boston. “They live their lives and don’t think about it. Then it all kind of hits the fan, and these families are just desperate for help.”

The U.S. Department of Health and Human Services projects that 70% of Americans age 65 and older will need long-term care for one to three years. Yet, only 35% of Americans age 40 and older have set aside any money to pay for that care, according to a study by the Associated Press and the National Opinion Research Center at the University of Colorado.

‘All of your money’

Paula Tracy of Center Harbor is one of them.

After her father died in 2007, Tracy took in her mother who was showing signs of forgetfulness. As her mother’s condition worsened, the arrangement interfered with Tracy’s job and strained relationships within her own family. She put a baby monitor in her mother’s room to keep tabs on her safety. The weekend her daughter graduated, Tracy paid $2,500 for in-home care because it was unsafe to leave her mother alone.

Tracy needed another option by 2017 after her mother wandered from home twice and tried to jump out of a moving car. Tracy and her sister ruled out a nursing home over concerns their mother would be warehoused, not cared for. They instead chose a memory care unit at the Meredith Bay Colony Club in Meredith at a cost of $7,500 a month.

It’s exceptional care, Tracy said, but perhaps not a final solution. Her mother’s savings will pay for four more years of care. And although her mother is 89, she has no health problems other than her cognitive condition. If necessary, Tracy could turn to her own savings.

“You can lose all of your money,” she said.

Tracy and her husband had a long-term health insurance plan through his employer until the company dropped it. The couple didn’t continue the coverage because the premiums felt too expensive. Costs vary greatly depending on the scope of coverage but can average $2,700 a year, according to the industry research firm LifePlans.

Tracy has chosen not to worry about her own future health needs.

“[Mom] lives in the moment,” she said, “and I try to live in the moment.”

Combination of assets

There are ways to pay for long-term care expenses, but not without planning ahead. Randall Billmeier, a financial advisor with Northwestern Mutual in Maine, specializes in long-term care planning. He advises clients to start considering their options once they reach 50.

He said the top reason people give for doing strategic long-term care planning is to take the burden of care off the shoulders of loved ones.

“From a numerical standpoint, we should all be born and start paying premiums on [long-term insurance] from birth,” Billmeier said. “But that’s not practical. We live in the real world, so we fit it in on an individual basis.”

In most cases, families pay for long-term care with a combination of assets:

• Personal savings provides the most flexibility when it’s time to choose a long-term care option. Savings can be used for in-home care, adult day care, assisted living or the nicest of nursing homes. But it’s a long-term option for very few. The Center for Insurance Policy and Research reported in 2016 that one half of households with workers 55 or older had no retirement savings.

• Veterans disability benefits like those Schmieder’s mother received can be used for any long-term care services. However, the non-disability benefits available to veterans are more limited and will cover in-home services and adult day care but not rent at an assisted living facility.

• If a loved one owns a home, he or she can take out a reverse mortgage and use the lump sum or monthly payout for long-term healthcare needs. The money is repaid when the home is sold or passed on to an heir.

• Medicare will pay for some long-term care, but only under limited conditions. It covers skilled nursing care in a facility but not help with the daily living activities that make up the bulk of long-term care services such as help with dressing and toileting. And coverage for even skilled nursing care is limited. Medicare covers all expenses the first 20 days in a facility but charges a daily co-pay of about $170 for the next 80 days. Then coverage stops.

• Medicaid is a last resort, but one many people require. As of 2018, Medicaid provided care for 62% of nursing home residents, according to the Centers for Medicare and Medicaid Services.

To qualify for Medicaid, an individual can have no more than $2,500 in assets. And because many assisted living and private nursing homes do not accept Medicaid, there are far fewer choices for care, especially high-end care.

• A hybrid life insurance policy combines life insurance with long-term care insurance and guarantees that benefits will be paid, either as a death benefit or for long-term care insurance. (Long-term care insurance on its own pays out only if the policy holder uses long-term care services.)

The reassurance of a guaranteed benefit comes with a cost. A person who spends $4,000 a year on standalone long-term care insurance may spend $14,000 a year for a hybrid plan.

• Long-term care insurance provides some protection against long-term care costs, but it also has its limits. Your premium will depend on the limits you can afford.

When do you want your benefits to kick in? How much money do you want each month? How long do you want to receive it?

No one receives coverage until he or she has “qualifying” experiences: either a cognitive impairment such as Alzheimer’s disease or a need for help performing at least two of the six “activities of daily living,” which are bathing, dressing, toileting, transferring (moving without help from a bed to a wheelchair, for example), eating and continence.

Even then a policy does not immediately start covering the cost of care — or the full bill.

Choosing a long-term care insurance policy is a balancing challenge. Policy premiums depend on the monthly benefit amount, the inflation option and when benefits begin.

When clients tell Billmeier long-term care health insurance is too expensive, he tells them some insurance is better than none. People are most motivated to purchase long-term care insurance when they have watched someone in their family have to dismantle a lifetime of savings, he said.

“The emotional and financial costs for long-term care is one of the largest unfunded liabilities we have,” Billmeier said. “For many, insurance is the perfect solution. If they haven’t done any planning, it’s usually because they don’t think it will happen to them or they are not able to afford the premiums.”