Courtesy of Janet Campbell
A rapidly-aging population and the ever-increasing cost of care means that a lot of Americans will be forced to figure out how to pay for long-term care. Those who delay preparing and planning could be in for a difficult time and high debt levels: the average cost of a private nursing home room is $75,000 annually, and the median cost of engaging a licensed home health aide is about $152 a day. It is projected that these costs will only continue to climb as the Baby Boomer generation ages, which means that now’s the time to begin structuring a financial plan. The cost of delaying is simply too high. Here are a few options to consider as you look to the future.
Medicare Advantage plans
Seniors are all too aware that the older we get, the more our healthcare costs tend to rise. For that reason, many people 65 and older have a Medicare plan, but unfortunately, it won’t cover all of your medical expenses. That’s a big reason why 1 in 3 Medicare recipients have a Medicare Advantage (or Medicare Part C) plan to help pay for some long-term care costs, like dental and vision care, as well as prescription medications. If you already receive Medicare, it’s worth your while to look into an Advantage plan, especially because some of them offer $0 premiums. If you’re getting close to age 65 or are currently eligible for Medicare, be aware of enrollment dates and requirements so you’re prepared ahead of time; depending on the type of plan you get, your disability status and your employment history, you initial sign-up date will vary.
Long-term care insurance
This is one of the more obvious alternatives, but it’s often considered a cost-prohibitive option by many people. Long-term care insurance does become more expensive the longer you wait to enroll (for example, a yearly premium may cost you approximately $2,000 if you go this route at age 55). Many financial advisers recommend not waiting so long, and that there’s nothing wrong with taking out a policy in your 30s or 40s, especially if it’ll save you hundreds of dollars a year in premiums.
A life insurance policy rider can give you early access to death benefits to help pay for long-term care. This allows you to access benefits early if you meet certain criteria, such as being diagnosed with a cognitive impairment. Benefits paid out early are deducted from the payout to beneficiaries after the policyholder’s death. Also, be aware that you may be able to sell a life insurance policy to free up cash for long-term care expenses.
A 2015 Department of Health and Human Services study found that most Americans required fewer than two years of long-term care, and that saving $70,000 could be sufficient to meet the need. Setting aside part of your investment earnings or long-term, interest-bearing savings can carry you a long way toward meeting that financial objective, and it’ll keep you from having to come up with an annual or monthly premium payment.
If you have a high-deductible health insurance policy, you may be eligible for a health savings account (HSA) to help defray the cost of rising long-term health care expenses. HSA contributions roll over from year to year, and withdrawals can be made tax free as long as you use them to pay for healthcare expenses – that includes long-term care insurance payments. Contributions are tax deductible up to $3,450, and nearly double that if you have a family plan.
Medicaid is an alternative to Medicare, which does not pay for long-term care. Medicaid covers long-term care expenses if you’ve gone through all other financial resources, though eligibility differs from state to state. One problem is that you’re limited as to where you can go if you require nursing home care, since not every facility accepts Medicaid.
Long-term care can be prohibitively expensive, but that doesn’t mean it has to put a strain on your financial resources. Preparing early, whether that means buying long-term care insurance or starting a health savings account, is an excellent way to be ready if you or a loved one needs long-term care.