Long-Term Care: You’re On Your Own

Americans who think Medicare will cover their long-term care expenses are mistaken. Have you priced long-term health care insurance?

Nursing Home Application

Five Figures to Consider

70% chance of someone over age 65 eventually needing some long-term care services
15% of population will have long-term care expenses that exceed $250,000
$215,000 is the median household wealth at age 65
0 is the amount of long-term care services covered by Medicare
11% of Americans carry long-term care insurance

Aging baby boomers are rocking family finances and shocking the healthcare system with unanticipated long-term care expenses that leave them and our government burdened by the financial realities of elder care. Current federal proposals to reduce government healthcare expenditures will stress state budgets further, making it more difficult to subsidize care. Families with any means should consider long-term health insurance to avoid Medicaid dependency if faced with debilitating illness. Policymakers can secure Medicaid for the poor by considering new ways to encourage the middle class to plan for and finance their own long-term care.

About 70% of people who turn 65 this year, will eventually need help with everyday tasks like dressing, eating, going to the toilet and taking a shower.  For older adults and their families, the care costs can take a sizable toll on quality of life and personal finances; 15% will incur long-term care expenses in excess of $250,000. This expense is staggering when compared to the $215,000 median household wealth of adults age 65 and older.

One reason Americans are unprepared? They thought the government would pick up the tab. According to a survey conducted by Genworth Financial roughly two-thirds of respondents anticipated that Medicare would cover part or all of their future long-term healthcare costs. Afraid not. Medicare provides zero coverage for this kind of care. Its benefits allow limited “long-term care” (up to 100 days after initial hospitalization per benefit period plus an additional one-time use of 60 “lifetime reserve” days) with a doctor’s order and if there is an expectation that the patient will recover and could benefit from skilled care such as physical, occupational or speech therapy. If recovery levels off, the condition is viewed as chronic and is not funded by Medicare. That could leave you with an annual bill as high as $97,452 for a private room in a nursing facility. How could you prepare for such an expense? By following the lead of 11% of Americans who have purchased private long-term care insurance, which for a person age 65 has a median annual cost of $4,496.  For the average 65-year-old, however, whose median household income is $47,432 the cost may be untenable, particularly if there are two people in the household. That is why an increasing number of older people are turning to Medicaid. LTSS now accounts for one-third of all Medicaid spending and for 70% of Medicaid spending on “dual eligibles” (beneficiaries eligible for both Medicare and Medicaid). By 2026, federal spending on long-term care will add $36 billion to the annual cost of Medicaid, which currently has a total budget of $553 billion.

Medicaid was conceived to help “the deserving poor,” and it does. But it has also turned into a safety net for the elderly middle class who deplete their financial resources in order to meet Medicaid eligibility requirements for long-term care, which vary from state to state but usually allow no more than $2,000 in assets outside of a car and a primary residence. There is a whole legal industry known as Medicaid Planning to help people qualify. Some call that a gross gaming of the system; others call it estate planning for the middle class. Either way, Medicaid is now the primary payer for more than 60% of the nation’s long-stay nursing home residents and provides 40% of the costs for LTSS. The elderly and disabled account for 25% of Medicaid enrollees but receive 70% of its benefits. People covered by Medicaid for nursing facility care are required to contribute up to 20% of the state’s cost of care from their monthly income, be it from Social Security, IRAs or a reverse mortgage. States also recover some of the costs of LTSS and other related Medicaid services from the estates of most beneficiaries. Still, the government usually comes up short given that the median spending per disabled Medicaid enrollee is $16,859 a year and the average lifetime contribution of a recipient is $35,000.

How do we fix our current system, which disincentivizes savings and threatens Medicaid’s ability to care for the young and impoverished? One answer is to increase access to long-term care insurance. This would reduce overall Medicaid spending and prevent Americans from depleting their financial resources just to qualify for Medicaid. With insurance, people who otherwise would enroll in Medicaid would never need the program. For others, insurance would delay Medicaid enrollment reducing Medicaid spending for their care. Two primary options exist to increase insurance coverage. The government and employers could provide incentives to individuals to enroll in private or public insurance programs. Such programs tried by states have proved challenging in the past because premiums aren’t low enough to attract middle-income individuals who otherwise turn to Medicaid. The alternative would be mandatory long-term care insurance, which would likely have lower premiums because it would include a greater pool of people, cover a higher proportion of LTSS spending and further reduce the number of people who “spend down” to qualify for Medicaid. However, Congress just removed the healthcare mandate associated with the Affordable Care Act, so a long-term care mandate looks like a long shot. States could require it, though. The Long-Term Care Partnership Program, a federally supported state-operated initiative allows individuals to purchase a qualified long-term care insurance policy or coverage to protect a portion of their assets that they would typically need to spend down prior to qualifying for Medicaid coverage. In states that adopted LTC Partnerships, purchases of long-term care insurance by the elderly rose an estimated 3%. Importantly, LTCP programs decreased the reported use of Medicaid by 18% among those with a college education.

FIVE FIGURE THINKING
Americans need to solve the long-term care crisis – for themselves and for the government pocketbook. Our current system disincentivizes saving.  Early and responsible planning with improved access to long-term care insurance would protect assets of older adults and reduce government expenditures.

Sources

National Institutes of Health, The Henry J. Kaiser Family Foundation, 2017 Genworth Cost of Care Report, BiPartisan Policy Organization, Medicare.Gov, The Scan Foundation, U.S. Department of Health and Human Services, Population Reference Bureau, U.S. Census Bureau, AARP Public Policy Institute