Determining if you need Long Term Care Insurance in Addition to Medicare

What You Need to Know About Long-Term Care

“I Never Thought It Would Come To This”

As the admissions coordinator of our local nursing home, I hear this phrase almost every day. Not one of my residents ever envisioned spending their final years in an “old folks home”. And because of that, none of them was financially prepared.

The current daily rate to live in a nursing home is averaging $200 per day (but could double in the next 10 years). That’s $6000 per month, or $72,000 per year. If your mother or father required this kind of care would they have the funds? Would you?

“But I Have Medicare!”

A popular misconception is that Medicare covers long-term care. Families are shocked to learn that they don’t. Medicare may cover rehabilitation (physical therapy, etc.) if the patient is coming out of the hospital after an acute event like suffering a stroke, breaking a hip, or recovering from surgery. But they only pay for a maximum of 100 days and only 20 of those are covered at 100%. If you still qualify after that, they may pay 80% for the next 80 days. And then it’s either straight out-of-pocket or Medicaid, if you qualify.

But Medicaid is no easy solution. In California, to even qualify, a single person may have liquid assets of no more than $2000, and any monthly income they receive must be paid to the facility to help offset the cost to the State. If the person is married, the couple’s assets (a home and vehicle are exempt) must total no more than $101,640. The spouse that remains at home is allowed a maximum monthly income of only $2541.

Any remaining income is paid to the facility as “Share of Cost”. Could your Mom or Dad live on that? Plus, Medicaid does not consider other living costs such as utilities, upkeep of the home or yard, the spouse’s medical costs, or even the gas it takes to come and visit your husband or wife. Penalties for cashing out life insurance, or for early withdrawals of CD’s and the like, come right out of your pocket, too.

A Great Way to Spend All Your Money

So let’s say your widowed Mom needs long-term care (93% of our Residents are female) after suffering a stroke. She has investments worth $75,000, a life insurance policy with a cash value of $40,000 and $5,000 in her savings account. She was doing okay, financially. But in order to qualify for Medicaid, she would have to cash-out her life insurance policy and “spend down” all but $2000 of her $120,000. At $6000 a month, she could afford only 19 months of care (average length of stay is 30 months). And all of her assets would be gone.

And before you think about “moving” her money the minute you think there might be a need for long-term care, think again. Medicaid examines the financial paper trail for the previous 5 years to make sure her assets haven’t been “dumped” just in order to qualify. And to make matters worse, many facilities don’t even accept Medicaid patients because they pay less than what they can get from private-payers. I have to turn away Medicaid residents every day. What happens to them? They either remain at home and at risk; move in with a loved one (who may have to quit a job to care for them); go to another county; or end up at the county hospital. And in health care, you often get what you pay for.

Is Long-Term Care Insurance an Option?

Long-term care insurance might be an option for you if you have assets greater than $250,000, or your parents live too far away for anything other than a nursing home to be the answer. But there is a sweet spot of time when you should buy. If you buy while you’re still young (in your 50’s) the premiums you pay could far exceed any benefit you might need (remember that average stay of 30 months).

Much past your 60’s and your premiums could be outrageous. Matt McGrath of the wealth management firm Evensky & Katz tells us that you can expect to pay an annual premium of around $2000 per year if you’re in your 50’s, and $8000 or more if you’re 70 or older. But be warned that if you’ve been diagnosed with dementia (including Alzheimer’s), schizophrenia, or use a walker or wheelchair, you won’t find anyone that will insure you, according to Brian Peterson of NextGen Advisor.

Do Your Homework

Long-term care insurance is a rapidly changing product. Ten years ago there were hundreds of companies offering policies. But because of the dramatically changing cost of health care, that’s down to about 5 or 6 big names. Here are some things to look for, as suggested by Fred Brock, in his book, “Healthcare for Less Than You Think”:

Make sure the company has been in business for at least 15 years and has a proven track record for long-term care insurance.
Ask how often they’ve had to raise premiums. As more “boomers” enter the market, they’ve found their potential payouts increasing, and are raising rates to cover those expenses.

Find out their financial strength by checking their ratings at sites like,, or
Invest in an inflation rider. Healthcare costs are expected to rise between 5% to 7% every year.  Check with your State Insurance Commissioner to see if there are any state regulations governing the premiums.

It’s a tough choice, to be sure. But ignorance is not bliss when you talk about how, and where, you might spend your last years. Arm yourself with as much knowledge as you can find, and make an appointment with your Estate Planner, Attorney, or Financial Advisor. I don’t want to see you sitting across from me saying, “I never thought it would come to this”.