Preparing for Tomorrow: Navigating Long-Term Care Options and Planning Strategies

My grandmother passed away last April at age 97. She was feisty and did not like the fact that the aging process was preventing her from doing the things she had been doing all her life. I’ll never forget her frequent proclamation, “Getting old is not for sissies!” She also told me she regretted not having a plan for her care when she was no longer able to live safely on her own. She just didn’t think about it. Life was too busy caring for family and working but now she needed it and there was no plan. She was heartbroken to leave her home of 75 years to move in with my aunt. If you put yourself in those shoes, I’m sure you can sympathize with her devastation. Like most people, she wanted to age in place. I know if my grandma could do it all again, she would have planned for in-home care so she could have stayed in her own home, perhaps until the very end.

Discussions around long-term care can be emotional, but it’s important to begin these conversations early. Long-term care planning should be a part of your overall personal risk management plan and should begin as early as your forties. It’s important to communicate your expectations to your loved ones and plan well in advance. It’s difficult, if not impossible to start planning when you’re in the middle of a major life event that might require long-term care. In addition, options may become limited at that point.

What is Long-Term Care

Long-term care is a variety of medical and non-medical support services for individuals who need assistance with the activities of daily living. These tasks include bathing, continence, dressing, eating, toileting, and transferring. The need may be temporary or permanent, depending on the person’s condition. Liz Quinn of LTCI Partners says this is often misunderstood. People envision they will be “drooling on the couch.” In reality, it means assistance is required to perform these activities safely. For example, you can no longer walk or shower without the risk of falling and injuring yourself.

The Risk

The odds are not in your favor. Long-term care is a reality that many families will experience. If you reach the age of 65, you have nearly a 70 percent chance of needing long-term care at some point in your lifetime. There’s no way to determine how long your long-term care may last. Statistically, the average length of stay in long-term care for women is 3.2 years and 2.2 years for men. Just over 20 percent of residents will require 5 years or more.

Planning for Long-Term Care

Long-term care doesn’t necessarily mean a nursing home. In many cases, care is provided in your own home by informal caregivers such as family members. Home-based care can also be supplemented by formal caregivers who are paid for their services. These caregivers include nurses, home health care aides, therapists, and other professionals. They can help older people with many aspects of health care, including giving medications, caring for wounds, helping with medical equipment, and providing physical therapy.

Continuum of Care

As most members of the elderly community prefer to age in the same place, Continuing Care Retirement Communities (CCRCs), sometimes called Life Plan Communities are a popular option for retirement. There are about 2,000 nationwide and 120 Michigan-based CCRCs. A CCRC offers a full spectrum of care including independent living, assisted living, rehabilitation, memory care, skilled nursing, and hospice care. As the community members age, they move through the various stages of care but stay with the same facility. Residents pay a one-time entrance fee and a monthly fee, which may include utilities, housekeeping, renter’s insurance, real estate taxes, or a food allowance. Many CCRC contracts offer a lifetime promise that residents are guaranteed care for the remainder of their lives, even if they outlive their financial resources. This provides peace of mind both for the resident and their loved ones. It is important to note that CCRCs will not accept applicants who do not meet their health requirements. You must be able to live independently when you arrive.

Costs

Determining your future long-term care costs is not an easy task. There is no magic formula because every person will be different. The cost depends on where you receive long-term care, how long you stay, and the required care level. According to Genworth, the average cost of a private room in a nursing home in the United States is $120,450 per year. The average cost of a private room in Michigan is $141,732 per year.

Long-term care costs will only continue to rise. Inflation and a shortage of skilled workers in the industry are the two largest inputs for the increasing cost of long-term care. According to Genworth, the national average of long-term care inflation varies by type of care. Between 2021 and 2023, the national average inflation for assisted living facilities was a whopping 18.89 percent! During the same timeframe, the average inflation rate of a home health aid was 7.14 percent, and the cost of a one-bedroom nursing home increased by 4.92 percent. A scenario produced by Genworth predicts the monthly cost of home healthcare services will increase 119% from $2,860 in 2023 to $6,267 in the year 2043 in the Grand Rapids, Michigan area.

Long-Term Care Insurance

According to a local insurance expert I spoke with, you are never going to get it exactly right with the exact coverage needed from the first day to the last day. One way or another, you will end up under or over-insured. The best option you have is to get the coverage that feels right for you. When considering long-term care insurance, you must address the three Cs: the cost of the policy, the contract – the devil is in the details, and the company.

Stand Alone

A comprehensive, stand-alone long-term care policy is a “use it or lose it” policy. However, if you do end up using it, the coverage is comprehensive. It will cover in-home care, respite care, training your caregiver, and home modifications, and can be indexed for inflation. On the downside, stand-alone policies are subject to rate increases. In Michigan a stand-alone long-term insurance buyer must sign a waiver acknowledging their premiums may increase.

The number of insurance companies that offer traditional stand-alone long-term care policies has declined drastically from approximately 125 in 2000 to only six today, listed here alphabetically: Banker’s Life, Mutual of Omaha, National Guardian Life, New York Life, Northwestern Mutual, and Thrivent.

It is more difficult to qualify for a long-term care policy now than it has been in the past. In 2021 about 30 percent of applicants aged 60-64 were denied. For applicants aged 70-74, the rejection rate was 47 percent. Even for people in their fifties, about 20 percent were denied. If applicants have chronic health conditions, a history of stroke, diabetes, or psychiatric illness, these are all grounds for denial.

Hybrid

Most life insurance companies offer whole life insurance with various types of long-term care riders. If you have life insurance, you should review your existing policy to see if it will cover any long-term care event. It is vitally important to comparison shop between insurance carriers as premium costs and benefit options can vary significantly from carrier to carrier. Hybrid policies allow you to use some of the death benefit toward long-term care if you meet the contract provisions for a triggering event. In most contracts, the triggering event is when an individual can no longer perform two out of the six activities of daily living, as determined by a licensed physician. The more paid out for long-term care, the less the final death benefit to the designated beneficiary. However, your beneficiary will receive the full death benefit if long-term care is never needed. Also, hybrid policies offer a fixed premium so there is no worry that premiums will increase later. One thing to watch out for is a rider with a back-end load. This will reduce your ultimate benefits when needed.

Tax Benefits

If you itemize income tax deductions, premiums may be tax deductible if the policy meets the federal government’s tax-qualified requirements. Premiums must be guaranteed renewable, and any refunds or dividends must only be used to reduce future premiums or future benefits. If the contract provides a cash surrender value or if the kind of care received would be covered by Medicare, premiums are not eligible for tax deduction. Most life insurance policies with long-term care riders don’t qualify. If the policy qualifies, and the premiums exceed 7.5 percent of adjusted gross income (AGI) they may be deductible on your federal income tax return. The amount of the deduction depends on your age. The American Association for Long-Term Care Insurance published the 2024 age limits and maximum deduction amounts. For example, a person aged 40 or under can receive a $470 deduction, while a person over 70 could receive a $5,880 deduction.

Self-Funding

The term “self-insurance” is a misnomer. Insurance is pooled resources of many to reduce risk for the few. If you are retaining 100 percent of the risk of long-term care, a better way to describe it is self-funding. This is an option for high-net-worth individuals who have enough wealth to pay out of pocket for their own long-term care needs. If you’ve got a spouse or dependents, self-funding may not be the best choice. Also, it must be considered that paying long-term care costs out of pocket for an extended time can significantly reduce or eliminate the wealth you transfer to your desired beneficiaries.

Health Savings Accounts

Health Savings Accounts (HSAs) are a powerful tool in planning for long-term care costs and can be used to fund long-term care costs directly or to pay for long-term care insurance premiums. People enrolled in high-deductible health plans can contribute pre-tax dollars to their HSA up to an IRS maximum amount. There is no required minimum distribution for an HSA, so contributions can grow tax free for years. Distributions are tax free for qualified medical expenses such as long-term care. Alternatively, HSA distributions are tax free to pay for long-term care insurance premiums subject to the same age-based dollar limits as an itemized income tax deduction discussed previously.

Medicaid

Medicaid-eligible individuals in Michigan may not have more than $2,000 in countable assets, including cash, bank accounts, IRAs, investments, and second homes. Income eligibility limits monthly income to $2,829, with patient liability being a portion of this. Medicaid also considers home equity when determining payment for long-term care services. There is a 60-month look-back period for assets you have divested, meaning you have given away for less than fair market value. Medicaid limits your options. Not all facilities accept Medicaid. Also, your estate may be required to pay back Medicaid from probate assets.

Conclusion

Planning for long-term care is crucial to ensure a secure and comfortable future. Starting early is essential as waiting until the need arises can lead to stress, financial strain, and limited options. It’s essential to have open discussions with your loved ones regarding your preferences and expectations. Consider having a written long-term care plan alongside other estate planning documents, such as your power of attorney for financial matters and medical power of attorney. If you have a long-term care insurance policy, ensure that loved ones understand the coverage, the triggering events, and any elimination period associated with the policy.

Adult children providing care for their elderly parents often find themselves “sandwiched” between their parents’ needs and raising their own children. Taking care of elderly parents can be emotionally exhausting and may require time off work. One approach is to purchase a policy that covers a brief period of long-term care. This allows loved ones to hire professional care staff during that time. When the policy terminates, loved ones can continue paying staff using available resources. Remember, small steps now can lead to a safer and happier future. As with all your other estate planning components be sure to review your long-term care plan regularly.