Edited by: Adam Vega, CFP®
April 19, 2023
As your parents start to age, it's essential to consider how to provide and pay for their long-term care needs. Long-term care insurance can be a significant part of planning for these future expenses. In this article, we'll explore various options for long-term care insurance and other funding sources for your aging parents, including traditional long-term care insurance, hybrid insurance, self-insuring, Medicare and Medicaid, and VA Healthcare.
This article will also provide options and strategies for approaching insurance. This includes professional aid that can help you make important decisions surrounding funding and insurance policies, as well as resources that will help you to understand your aging parent’s eligibility for government assistance.
Traditional Long-Term Care Insurance
Traditional, comprehensive, long-term care insurance policies typically cover residential care facilities, as well as “home health care, adult day care, personal care, homemaker services, hospice service, and respite care” (California Dep. of Insurance). These policies typically offer various coverage levels and benefit options, allowing policyholders to customize their policies to suit their needs and preferences.
However, the cost of traditional long-term care insurance can be high, especially for older adults or those with pre-existing health conditions. Further, policies are rarely guaranteed from significant changes, such as increased premiums or decreased benefits. It's essential to weigh the costs and benefits of a traditional long-term care insurance policy against other funding options when considering this type of coverage for your aging parents.
According to Carrie Shwab, one situation when this type of insurance would be more beneficial is when purchased before the age of 60. The American Association for Long Term Care concluded that the average annual premium in 2021 for a couple of two 55 year old people is about $5,025. This may seem like a lot, but LTC insurance will cover the much greater expenses of the care your loved one will need in retirement, typically ranging from $20,000 to $96,000 per year, according to Genworth’s 2021 Care Survey. Preparing for LTC early will better serve you later on, allowing you to save a great deal of money that would be spent in a long term care crisis without insurance.
Hybrid long-term care insurance policies combine “a life insurance policy with a long-term care policy” (Forbes). These policies allow policyholders to access the policy's death benefit or annuity income stream to cover long-term care expenses if needed. If the policyholder never requires long-term care services, the policy's death benefit will be paid to the designated beneficiaries, or the annuity will continue to provide income.
Hybrid insurance policies may offer several advantages over traditional long-term care insurance, such as guaranteed premiums and “flexible premium payment options,” allowing you additional options to pay for the policy. Policy premiums can be paid lump sum, paid over a lifetime, or you can specify a period of time you feel comfortable paying - such as 10 or 15 years. There is also typically a cash component to the policy as well, meaning if the policy is ended early, the owners of the policy may have access to cash that the policy accumulates. Given the flexibility however, hybrid insurance policies may have a higher premium than traditional long-term care insurance policy and may not provide the same level of long-term care coverage.
Because of this, weighing your aging parents’ needs and financial situation will be important to identifying if hybrid long term care insurance is a good option for your family. If you decide to pursue hybrid insurance, working with an agent who specializes in long term care coverage will help you to ensure you are making the best decisions possible.
Self-insuring for long-term care involves setting aside funds to cover the costs of long-term care services if they become necessary, rather than purchasing a long-term care insurance policy. This approach can provide more flexibility in how the funds are used and may be more cost-effective for your aging parent, if they have significant savings or investments.
However, self-insuring for long-term care can be risky, as the costs of long-term care services can be high and difficult to predict. Forbes recommends “saving 3.1 years of the annual cost of a semi-private room for your area by age 85” since this is the likely amount of time your aging parent will stay in a nursing home or receive long term care.
Self-insuring doesn’t have to mean setting physical money aside. It can also be funded by money that exists in your parent’s “HSA, IRA, 401(k) plan, or brokerage investments,” (Forbes). This allows your aging parents to plan for self-insuring without having to take money out of each paycheck.
If your parents do decide to self-insure, take the time to understand if it is feasible for them financially and if it will be the best possible fit. It is a great option to save money in the chance that you need little to no long term care, but also allows you to plan for it if necessary.
Medicare and Medicaid
One important resource available to help cover the costs of long-term care for aging parents is Medicare. Medicare technically “doesn't cover long-term care," but it does provide some coverage for medically necessary skilled nursing facility care or home health care under specific conditions (Medicare.gov). For example, the parent must have had a qualifying hospital stay of at least three days, and a doctor must certify that they need daily skilled nursing care. If your aging parent meets these requirements, Medicare can cover a portion of the cost for up to 100 days in a skilled nursing facility or up to 60 days of home health care.
On the other hand, Medicaid is a much more comprehensive source of assistance for long-term care costs. Medicaid is known to be the “primary payer across the nation for long-term care services" (Medicaid.gov). It covers a wide range of long-term care services, such as nursing home care, assisted living, and home and community-based services. To be eligible for Medicaid, aging parents must have limited income and assets, and they must meet specific state requirements. Since each state has its own Medicaid rules and regulations, it is crucial to consult your state's Medicaid program to understand the exact eligibility criteria and services covered.
In order to maximize the benefits available from both Medicare and Medicaid for your aging parent's long-term care insurance, it is essential to understand the differences between the two programs and how they can complement each other. For instance, if your parent is eligible for both Medicare and Medicaid, Medicare will be the primary payer for any services covered by both programs. Medicaid, as the secondary payer, will then help cover additional costs, such as copayments or deductibles, that Medicare does not cover. By leveraging the strengths of both programs, you can help ensure that your aging parent receives the necessary long-term care without incurring significant out-of-pocket expenses.
Since Medicaid is the “primary payer” of long term care in the US, everyone with an aging parent in need of long term care insurance should review their eligibility (Medicaid.gov). Eligibility requirements differ from state to state and can be found here, on the Medicaid website. Make sure to speak with your aging parent and develop an understanding of their financial situation so that you can identify whether or not they qualify for government assistance in your state.
If you are on the verge of qualifying for Medicaid in your state, there are steps you can take to lower your assets and gain eligibility for government assistance. One common strategy Investopedia suggests is paying for your aging parent’s care with their net worth until their assets are depleted. At this point, they have typically reached the threshold needed for Medicaid, and receive care through Medicaid insurance moving forward.
Another option that Investopedia offers is creating asset protection trusts such as irrevocable trusts. To do this, your aging parent would irrevocably give up control of their assets and place it under a trustee’s control. This means that the trust can only be altered by their beneficiary, and they will no longer own control over their assets. In this way, your aging parent is able to shelter their assets so they will not harm their Medicaid eligibility.
If your aging parent is a veteran, VA healthcare will be a great resource for insuring their long term care. The Department of Veterans Affairs (VA) offers healthcare benefits to eligible veterans, including some long-term care services. These services may include in-home care, adult day care, assisted living, and nursing home care. VA healthcare benefits are typically based on factors such as the veteran's service history, disability status, and financial need.
According to American Veterans Aid, wartime veterans and their surviving spouses who are over 65 years old may qualify for “tax-free benefit called Aid and Attendance provided by the Department of Veteran Affairs”. This benefit is for aging veterans who struggle with basic daily living activities, including “bathing, dressing, eating, toileting, and transferring” (American Veterans Aid). Struggling with two or more of these ADL’s (activities of daily living) help to qualify a veteran for the Aid and Attendance benefit.
It's essential to review your aging parents' eligibility for VA healthcare benefits and determine the extent of long-term care services that may be available to them through this program. Keep in mind that accessing VA healthcare benefits may require navigating a complex application process, so it's crucial to plan ahead and seek assistance if needed.
When planning for your aging parents' long-term care needs, it can be helpful to consult with professionals who specialize in various aspects of eldercare planning. These professionals may include financial advisors, wealth managers, and elder law attorneys.
1. Financial Advisors
Financial advisors typically take responsibility for their clients’ estate planning, investments, tax planning, and retirement funds (Investopedia). Because of their involvement in financial planning, they can play a large role in helping you pay for your aging parent’s long term care needs.
In relation to long term care, financial advisors can help you evaluate your parents' financial situation and develop a comprehensive plan for funding their long-term care needs by providing you with “long-term solutions and insurance options that fit your budget” (Investopedia). This may involve reviewing their current assets and income, estimating future expenses, and determining the most appropriate strategies for funding long-term care services.
2. Wealth Managers
Similar to financial advisors, wealth managers have the ability to help you to identify the best practices surrounding funding long term care and manage your assets and savings. However, wealth managers specialize in managing the investments and financial assets of high-net-worth individuals and families, rather than “the average investor” (SmartAsset).
If your parents have significant assets, working with a wealth manager can help ensure that their investments are managed effectively to support their long-term care needs and preserve their wealth for future generations. In this case, wealth managers will be best suited to help you and your aging parent set aside the money necessary to pay for long term care.
3. Elder Law Attorneys
Elder law attorneys help plan for the rest of retirement. They can help guide you through the important decisions mentioned above, as well as other retirement concepts; long term care options, wills and estate planning, patient rights, durable power of attorney, preservation of assets, and medicaid insurance (APlaceForMom). In fact, an elder law attorney would be the person who can help your aging parent qualify for certain benefits, with their extensive knowledge on rights and eligibility
Consulting with an elder law attorney can help ensure that your parents' legal and financial affairs are in order and that they have appropriate plans in place for their long-term care needs. Additionally, they can help you to identify which type of long term care insurance would best suit your aging parents’ financial and legal situation.
In conclusion, planning for your aging parents' long-term care needs can be a complex process that involves multiple funding sources and professional assistance. It is important to evaluate all of your options:
- Traditional Long Term Care Insurance
- Hybrid Insurance
- Self Insuring
- Medicare and Medicaid
- VA healthcare
It is also important to utilize resources surrounding insurance and long term care funding, such as:
- Professional Help
By carefully considering the various long-term care insurance options and seeking professional help as needed, you can develop a comprehensive plan to support your parents' long-term care needs and ensure their well-being as they age.