05 Jan The Pros and Cons of Long-Term Care Insurance
When and Whether to Get It, and What Happens When You Don’t Have It
By Giulia Pines
When my father was diagnosed with Lewy body dementia in January of 2020, it took us months to process what this would mean for our family, our future, and our finances. After discussing the situation with his doctors, we quickly turned to a social worker who could help us plan for what would undoubtedly be long and harrowing years ahead. Bankruptcy came up as a chief concern, since long-term care can deplete a family’s finances quickly. The average cost of at-home care in the United States is $4,500 per month, and the average monthly cost of nursing home care is $7,900, according to the American Association for Long-Term Care Insurance. Speaking to a representative at my father’s workplace, my mother was relieved to learn that many years ago my father had given his family a tremendous gift without telling us. Perhaps motivated by watching both of his own parents suffer from dementia, he had signed up for long-term care insurance.
As it turns out, my father’s motivation was a common one among older Americans who have this type of insurance. “People don’t want to have their spouse suffer the physical or financial consequences of the other spouse needing care,” explains Washington State–based long-term care insurance specialist Scott A. Olson, who saw firsthand just what a difference long-term care insurance can make when his mother-in-law became ill. Fortunately, she too had a policy, so her three children did not have to argue over finances, sell off assets, or elect a caregiver among themselves. “There are financial benefits but also emotional benefits, meaning [a spouse or child] is not going to be put in a hard spot of having to decide whether or not to use retirement savings or try to care for [a loved one] themselves, which is a daunting task.”
With Americans living longer than ever, planning for care in the later years of life has become ever more crucial. But according to an annual compendium of long-term care statistics released by financial services firm Morningstar, only 11 percent of Americans over 65 hold long-term care insurance policies. It is also reported that occupancy in skilled nursing facilities has declined 10 percent in the past year, largely as a result of the COVID-19 pandemic. Meanwhile, 37 percent of American seniors are projected to have long-term care costs during their lifetime, with 9 percent of Americans incurring more than $250,000 in such costs. The financial risks of going without a long-term care policy are significant, so why don’t more people have one? The answer, as with many types of insurance in the United States, is complicated.
As New York State licensed clinical social worker Lillian Medina explains, many Americans believe long-term care insurance is covered by Medicare, but this is not the case. It might seem strange that a public program designed to cover the medical needs of seniors would ignore such a crucial component of elder care, but long-term care falls under the rubric of personal care, also known as “custodial” care or “assistance with activities of daily living,” according to Medicare.gov. Medicaid, on the other hand, does cover long-term care, but most of the desirable facilities—whether for assisted living or full memory care—do not accept Medicaid and can charge up to $10,000 a month. The conundrum for a young, healthy person is the system’s lack of stability: Will you end up paying a significant sum over your lifetime for a policy from an underwriter who goes bankrupt in the face of skyrocketing costs? Will you trust in Medicaid, which, at least in New York State where Medina lives and works, is also in dire straits? With a record number of nursing homes closing, will there even be a place for you by the time you’re old enough to need long-term care? “We are living longer, and our medical care is not as reliable with all the political issues within the health-care system,” Medina says. “I simply don’t know how it will unfold over time.”
In addition, long-term care insurance can be costly, Olson explains, unless offered through your employer. Even then, it can involve an extensive and invasive list of health-care questions and review of medical records to correct for what’s called “anti-selection” in actuarial terms: the idea that people who sign up for a policy are already going to be the sickest and neediest ones. Meanwhile, Olson continues, those who sign up for individual policies are mistakenly treating it like another form of health insurance. They’re trying to predict their future health before they sign up, whereas long-term care insurance should be treated as a purely financial decision. As Olson points out, it’s all about protecting assets.
Without any kind of long-term health- care policy, if you fall ill in old age or get a dementia diagnosis, the worst kinds of clichés about selling the family heirlooms or having to move out of your house end up being pretty close to real life. “They ask for the deed to your home,” says Medina, “and the home goes.” A lien is basically put on whatever you have. This continues until your assets are depleted to the point where you can, in fact, qualify for Medicaid, which currently has an asset limit of $15,900 for a single person or $23,400 for a married couple in New York State (income thresholds and asset limits vary across states). For those who don’t want to lose everything, it’s time to hire a lawyer. That’s because, to qualify for Medicaid, you don’t have to be penniless; you just have to appear to be.
“People with money see this on the horizon and try to plan for it,” says Medina. “They get on the Medicaid system by hiring special lawyers, who instruct them to shift around their properties. They’ll move assets until their assets are low enough. They want to look impoverished on paper.” Surprisingly, this practice is not illegal. It is a major impetus behind the formation of a trust, a legal entity to which your assets belong while you are still living. A trust protects your assets from being eaten away by long-term care costs if you don’t have insurance and preserves them for your heirs. Shift your estate into a trust early enough, Olson explains, and you’ll be able to enroll in Medicaid, which will only look back five years to determine your net worth. Although laws differ from state to state, spousal right of refusal offers some relief as well. This allows the spouse of a person who requires care to legally refuse to pay the bills.
Often, those who suffer most are those stuck in between: not professionals with access to long-term care policies, not wealthy enough to pay for a lawyer to move their assets, yet not poor enough to qualify for Medicaid. “The real story is the middle part,” says Medina. “You have some assets but not quite enough to pay.” Call it the long-term care donut hole—one a great many middle-class Americans may end up falling into in the coming years. As costs of care rise, along with insurance costs, those without long-term care insurance set up years ago may find themselves with a tough choice: relinquish those assets into a trust or watch them get chipped away if long-term care becomes necessary.
Racial disparities in long-term care insurance also fall along sadly familiar lines, as the article “Preparing for LTC Financing Reform: How Can Racial Disparities be Addressed?” details. Because the median net worth of older African Americans is about a fifth that of older white Americans, they are less likely to have been able to afford hefty premiums for long-term care insurance and are more likely to qualify for Medicaid outright. But this means that once African Americans require care, they will not have access to the kinds of private care settings and higher levels of service only long-term care insurance pays for. Statistically, African Americans are likely to experience disability earlier than white Americans too, meaning they will require long-term care earlier and longer, but the care they receive will likely be substandard in comparison.
The COVID-19 pandemic laid bare such disparities in care, but it may have also had another unattended consequence. As COVID barreled through nursing homes across the country, it became clear to many that assisted living facilities were not where they wanted to spend their later years. “COVID did help to bring to the forefront how important it is to plan for care at home,” says Olson. “A lot of people think long-term care insurance is nursing home insurance, and it is not.” The truth is, insurers have every incentive to try to keep those needing care out of nursing homes, which are far more costly than a home health aide. Remembering his experience with his mother-in-law, Olson recounted how her insurance policy paid for modifications to her home, including grab bars and a walk-in shower, as well as a home health aide, who charged $150 per day instead of the $220 a nursing home was asking for. “Most claims are for care received at home,” he says, “so one of the best ways to have a plan to stay home is to have long-term care insurance.”
As for me and my family, things have slowed into a fairly predictable rhythm. We hired the same wonderful woman who cared for my grandfather until the end of his life to assist with my father three days a week. She often arrives in the morning with my father’s favorite deli lunches, and she owns a car she can use to drive my father to his medical appointments. There are good days and bad days, and we miss the person he used to be. But after one month of care, my father’s long-term care policy kicked in. My mother won’t have to sell the apartment they’ve lived in for more than 40 years. In the meantime, I’m looking into buying my own long-term care insurance policy. DW
Giulia Pines lives in New York City and writes on health, business, finance, and, occasionally, food and travel.