Personal Finance

Which Of Your Responsibilities As A Caregiver Depends Largely On Where You Live?

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 16 minute read

Most Americans over the age of 65 will require long-term care services at some time in their lives, as reported by the U.S. Department of Health and Human Services (HHS). However, the majority of Americans do not have adequate financial resources to cover their costs.

Genworth Financial conducted a poll in 2020 and discovered that the average monthly cost of professional long-term health care ranges from $1,603 for adult day care to $8,821 for a private room in a nursing home. But more than half of Americans had less than $5,000 in savings, according to a 2020 poll by The Ascent. In less than four months, the sum would be completely consumed by the cost of professional long-term care services.

When it comes to long-term care, most health insurance policies just don’t cover the cost. In order to offset this expense, however, you can invest in long-term care insurance, often known as LTC insurance. In exchange for present-day premium payments, the insurance firm will, if and when you ever need it, cover your long-term care costs in full or in part.

But the price tag for such protection is high. The average yearly premium for a long-term care insurance policy is $2,100, however this can vary widely based on the policyholder’s age, health, gender, region, and coverage needs, as reported by the American Association for Long-Term Care Insurance (AALTCI). Even while that’s a significant discount off the total cost of long-term care, it’s still more than many people in the United States can afford.

How you receive care and how you pay for it may need to be rethought if you are currently battling with high long-term care expenditures. Moreover, if you are worried about how you will pay for long-term care in the future, there are a number of strategies that can help reduce the cost of this insurance. You may save a lot of money by timing your purchase well, shopping around, and adjusting your coverage.

Long-Term Care Cost Reduction

There are several models of providing care throughout the long term. There are others that require 24 hour nursing care every day. Some people just need a home health aide to get by, since they require little assistance with basic tasks like showering and dressing. Care settings other than nursing homes and hospitals include adult day care centers, home health aid, and assisted living facilities.

What kind of care you opt for has a significant impact on the total cost of long-term care. As a rule, it is more cost-effective to get health care at home than in an institutional setting. The lowest cost option is care provided by friends or family members for free, which also has the added benefit of letting you keep your independence and stay in your own home for as long as possible.

However, there are still options for reducing costs if you require the type of round-the-clock care that can only be provided by a residential care facility. Medicare, Medicaid, and other government programs at the federal, state, and local levels may help pay for part of your medical bills. Attempting to bargain with healthcare providers might also help you save money. If it doesn’t work, you may always go elsewhere with cheaper healthcare options.

Family Care

Most Americans rely on care provided by friends and family members at no cost to themselves as a means of coping with the high expense of long-term care. Most (80%) of all home care in the United States is provided in this fashion, according to HHS. It was estimated in 2020 by the AARP and the National Alliance for Caregiving that roughly one in five American adults (48 million) had provided unpaid care to another adult in the preceding year.

These carers devoted around 24 hours each week to caring duties, on average. Findings suggest that carers have conflicting emotions when caring for loved ones. More than half of those surveyed said the work offered them a sense of significance or purpose, while many also said it was stressful. Roughly one-quarter of carers report that giving care has harmed their health, and roughly one-fifth report feeling alone as a result.

Unpaid carers may experience financial hardships in addition to emotional strain. While caring for a loved one, over half of respondents said they had to cut back on their hours at work, and approximately 10% said they had to quit entirely. One-fifth of carers reported severe financial stress, 30% had ceased saving, and 20% had taken on additional debt. Ten percent of those surveyed had difficulty paying for food and other needs.

While unpaid care may be the least expensive choice, it comes with significant drawbacks. Before opting to rely on family care, it is important to think about how doing so can affect your loved ones and yourself.

Government Programs

Many seniors in the United States rely on Medicare to pay for their medical expenses. However, with few exceptions, Medicare does not pay for the expenses associated with long-term care. In most cases, it will only pay for a set period of time during treatment for a specific accident or disease. Details on Medicare’s coverage of nursing home stays and other long-term care needs can be found on the program’s website.

Medicaid, another main federal health care program, covers all types of long-term care, but only for qualified individuals. Income eligibility requirements for Medicaid vary by state. Eligibility may also be restricted in some states for those who have children or impairments. 

To find out more about Medicaid in your state, you may look it up online. The OIder Americans Act funds a wide variety of smaller initiatives at the state and local levels in addition to these larger ones (OAA). The Aging Network is a collection of state, municipal, and tribal agencies that receive funding from the OAA to support older persons in remaining in their homes and communities for as long as feasible.

Transportation, meal preparation, adult day care, and home health services are just some of the long-term care requirements that these organizations may assist with for those over the age of 60. On eldercare.acl.gov, you may research the many local assistance options that are at your disposal.

National Family Caregivers Support Program is another program supported by OAA funding (NFCSP). Help for unpaid caretakers of seniors is available through the NFSCP. Respite care provides carers with a break from their duties by taking up some of the caregiving chores for a short period of time.

Negotiation

A 2020 article in U.S. News states that Medicare and Medicaid reimbursement rates are the primary factor in how nursing facilities determine their charges. That leaves little room for bargaining down the price.

But it doesn’t hurt to try, right? In some cases, a hospital may be ready to settle for less than its published cost for private patients, provided that it is more than double what it receives through Medicaid.

But things change when talking about assisted living communities. Most of them refuse Medicare patients and have to deal with intense rivalry. Because of these considerations, they are more open to bargaining. If there is no waiting list at the facility you are considering, or if there are multiple empty rooms, you may be able to negotiate a lower monthly payment.

The market for home health care services is also quite cutthroat. By letting the agencies know you are comparing prices, you may be able to get a better deal on home health care.

Relocation

The price of assisted living varies greatly from one state to the next. An individual’s monthly cost for a nursing home private room is more than six times as much in Alaska as it is in Oklahoma, as reported by Genworth. Relocating to a less expensive place may be an option if you need long-term care but cannot obtain it via traditional means.

There are good and bad sides to moving. Having family nearby makes it easy for them to check in on you, so relocating to a new place where the cost of care is less may be a good idea. If all your loved ones are located where you currently reside, relocating away will need either infrequent visits from you or costly transportation to bring you home. It’s possible that the extra money they’ll spend on transportation to see you will cancel out any savings on medical expenses.

Changing physicians is something else you’ll have to do when you relocate. That’s a major issue if your present doctor has been treating you for a long time and is familiar with your history and current condition. Make sure you have a reputable doctor lined up in your new area and that you can easily transfer your medical data to them before making a big move.

Lowering the cost of long-term care insurance

Even if you don’t now require assistance, taking steps to reduce the expense of long-term care can help you save money in the future. The lower your care costs are predicted to be, the less you will need to spend on long-term care insurance. You may save money on premiums by reducing the total amount of benefits you receive each year.

The cost of long-term care insurance can be reduced in other ways as well. Smart decisions regarding when, where, and how you shop can also help you save money.

  1. Purchase at the Appropriate Time

A policy’s premium for long-term care protection is calculated according to the policyholder’s age when the coverage is initially procured. This is due to the fact that healthy people often receive lower premiums from their insurance companies. There is a correlation between age and health, so if you buy LTC insurance when you’re younger, you should expect to spend less. The AALTCI reports that a healthy pair purchasing a combined LTC policy at age 60 should expect to pay around 26% more than a similar couple purchasing coverage at age 55.

Once you purchase insurance, you will always receive the first discount. Your premiums will not increase as you age, even if your health declines. In general, premium increases are moderate so long as you remain with the same insurer.

For this reason, your annual premium for LTC insurance will go up if you put off getting it. However, the earlier you purchase, the longer your premium payments will be extended. The key is to buy at the right moment to receive a good rate without overpaying for coverage that will expire before you need it.

Experts say that for the vast majority of people, the best time to get coverage is in their 50s. Both premiums and the likelihood of being rejected coverage increase dramatically beyond age 60. You may save money on insurance coverage just when you’re going to need it the most if you get it when you’re 55 years old.

  1. Costs should be compared.

The cost of long-term care insurance ranges greatly from insurer to insurer. In 2020, the AALTCI estimates that a man aged 55 would spend between $1,876 and $3,081 for an LTC policy that provides basically the same coverage. This means that in order to choose the most affordable policy, you will need to look into the rates of many carriers.

Hiring an insurance expert is one option. A financial planner or the AALTCI can help you locate a suitable one. The AALTCI and Policygenius both provide price comparison tools that may be used to obtain estimates from numerous providers.

Having a frame of reference to work from before you begin collecting quotations is also helpful. The cost of long-term care insurance can vary widely depending on a person’s age, health, and geographical location, but online calculators from companies like Genworth and Mutual of Omaha can give you a rough estimate. Use this as a standard by which to evaluate the quotations you receive.

  1. Examine the Feedback

There are other costs than the premium to think about while shopping for LTC insurance. You should also check if the firm has a good track record of paying claims and maintaining affordable rates.

You may learn this by reading the evaluations that customers of various businesses have left on the Consumer Affairs website. The evaluations on this site range from those of insurance firms to those of insurance brokers that can assist you in your search. Compare the ratings on this site with the insurance quotes you receive to find the best combination of cost and quality.

  1. Shop with Your Employer

Long-term care is typically not covered by group health insurance policies. However, some businesses provide their employees with long-term care insurance plans of their own. In 2018, according to Data from Policygenius, almost one third of companies provided this benefit to their employees. While some employers fully or partially subsidize this expense, others simply provide it as an optional perk for their staff.

According to financial advisor John Power, who was interviewed by Policygenius, the greatest rates are often found in employer-sponsored LTC policies. Group rates negotiated by businesses are typically more affordable than individual policies.

Finally, purchasing long-term care insurance via your company can often help you be approved more quickly. The American Association for Retired Persons (AARP) reports that some group health insurance policies at work do not need underwriting, so you can get covered even if you have pre-existing medical conditions. Maintaining payment on your long-term care premiums will typically allow you to preserve your coverage even if you quit your current employer.

If you don’t have access to long-term care insurance via your own workplace, consider whether a relative’s company provides it. It is not uncommon for companies to offer this perk to their workers, and in certain cases, the family members of workers can even join the group policy.

  1. Select a Joint Policy

In many cases, couples can save money on healthcare expenses by purchasing joint coverage. For the most part, the maximum benefit on a combined insurance is the same for both policyholders. If the insurance covers up to three years and one policyholder needs treatment for one year, the other policyholder still has two years of coverage.

According to the AALTCI, a married couple can save between 15 and 40 percent on their annual insurance premiums by purchasing a combined coverage. Some insurers provide them to unmarried persons living together or to adults who are linked to each other, but not married.

  1. Reduce Your Daily Benefit

In general, the more long-term care insurance you have, the higher your premiums will be, so it makes financial sense to limit your coverage to only what you really need. If you reduce your coverage by half, for example by reducing your maximum daily benefit from $200 to $100, you will also see a reduction in your premium of 50%.

Careful planning is required to ensure that your benefits are sufficient to cover your long-term care expenses without going overboard. The trick is to calculate how much protection you will actually need and buy only that amount. To see what the going rate for care per day is in your region, use the Genworth Cost of Care calculator. If you’re considering a move, it might also be helpful for gauging how your current location stacks up financially against alternatives.

You should factor in inflation while determining the appropriate level of insurance coverage. 20 years from now, a one-bedroom assisted care facility suite that currently costs $140 per day may possibly cost $250 or more. Selecting a long-term care insurance plan that includes inflation protection can help you avoid financial hardship by automatically increasing your benefits each year by a predetermined amount. According to Policygenius, the average is around 3% – 5% annually.

While inflation protection is a worthwhile investment, it does come at a higher cost. Your premium will go up by a larger amount if the yearly inflation adjustment is substantial. According to Forbes, if you choose for a lesser inflation provision (say, 3% instead of 5%), you might save 40% or more on your rates.

  1. Coverage Years Should Be Limited

In addition to the daily benefit, the duration of your policy’s protection might be capped. The American Association for Long-Term Care Insurance estimates that consumers can save between 16 and 39 percent by opting for a shorter-term (3 or 5 year) coverage rather than a more expensive lifetime benefit.

Knowing how long you will require long-term care is the key challenge here as well. HHS reports that women spend an average of 3.7 years compared to men’s 2.2 years in long-term care. But individual risk is determined by things like genetics and family history. A longer duration of care may be required if you have an elevated risk of a condition that causes physical or cognitive impairment, such as Alzheimer’s.

More than seventy percent of LTC insurance purchasers, according to the AALTCI, choose for policies with benefit durations of five years or fewer. Policy terms of three or five years in duration are the most often selected.

Only around one-fifth of consumers choose insurance that provides coverage for the rest of their lives. Because of the low demand, financial adviser Larry Ginsburg told Policygenius that most insurance companies no longer provide long-term care policies with lifetime payouts.

  1. Select a Greater Elimination Period

By selecting an insurance with a deductible, waiting period, or elimination period, you can reduce your annual premium by 20% or more, according to the AALTCI. Before your insurance begins to pay for your long-term care, you will have to pay this amount out of cash.

Your premium will be less expensive if you select a longer waiting time for your coverage. The typical cancellation time for a policy offered today is between 90 and 100 days.

An excellent way to save expenses is to lengthen the waiting period, but only if you can comfortably do so. Evaluate your financial resources, such as your retirement savings, an annuity, or the help of family members, to determine how much you will need to pay for out-of-pocket medical expenses.

Your premium for long-term care insurance will be reduced in proportion to the amount of risk you are willing to assume for yourself. According to the AALTCI, the risk is more manageable for fairly short-term care (defined as care lasting a few months or less) since it is less intense and hence less expensive than longer-term care.

  1. Use an HSA

Health savings accounts can be used to make the cost of long-term care insurance more manageable (HSA). These accounts are tax-free in three different ways. You may put money into them before taxes, the interest and growth are tax-free, and withdrawals aren’t taxed if you use the money to pay for eligible medical expenditures like LTC insurance premiums. Your potential savings ranges from 10% to 37%, depending on your tax bracket.

There are a few caveats to this otherwise excellent offer, though. To begin, you’ll need to have a high-deductible health insurance plan in order to create an HSA. There is also an age-related cap on the amount you may take tax-free from an HSA to pay for premiums. In 2020, the IRS said that this threshold varied from $430 for those under the age of 40 to $5,430 for those over the age of 70. You are eligible to open a Lively HSA if you satisfy these conditions.

  1. Combining Long-Term Care and Life Insurance

Long-term care insurance is sometimes available as an add-on to a standard life insurance policy. The most effective strategy for this is a mixed strategy. Long-term care riders are commonly added to whole-life or universal-life policies. If you require long-term care, you can take money out of the insurance each year to pay for it. In the event of your passing, your heirs will get the remaining balance.

If you don’t end up requiring long-term care, your loved ones might still profit from a hybrid coverage. The negative is that the cost of these insurance is two to three times that of a regular LTC policy, as reported by AARP. Buying two different policies for the same level of protection (life insurance and long-term care insurance) is typically less expensive.

If you have life insurance, you can use it in different ways to pay for nursing home care. Certain insurance, for instance, pays out the death benefit early (ADB). Under some conditions, such as a terminal or life-threatening disease, an ADB will allow you to get a tax-free advance on your life insurance claim while you are still alive. The purchase of an ADB-embedded life insurance policy often does not need the same health examinations as the purchase of an LTC policy.

The negative is that their long-term care benefits tend to be smaller than average. HHS reports that the monthly payout for long-term care is usually capped at roughly 2% of the policy’s face value for nursing home care and 50% of that for home health care by ADBs that provide such coverage.

For instance, in many jurisdictions, the $4,000 monthly maximum you might receive from a $200,000 insurance for nursing home care would not come close to covering the actual cost. Inflation protection is also frequently absent from ADB riders attached to life insurance contracts.

If you have life insurance and need help paying for long-term care, you can cash out your policy and put the money toward your care. According to HHS, a “life settlement” is a possibility only for those who are at least 70 years old (males) or 74 years old (females). There would be no cash left for your heirs once taxes were deducted from the sale profits.

Bottom Line

The most crucial factor in reducing the expense of long-term care is preparation. One common misconception is that people who have recently reached 50 don’t need to worry about long-term care for many more years. Nevertheless, the penalty of delaying this choice might be high.

First of all, if you’re in your fifties and have been putting off purchasing long-term care insurance, you’ll save a significant amount of money by not waiting any longer. Also, it’s possible that your health will worsen during that period, rendering you uninsurable. The time to buy long-term care insurance is now if you want to utilize it to cover potential long-term care expenses in the future.

To begin searching for a policy, though, you must first determine how much protection you will require. That’s why it’s smart to anticipate potential demands for long-term care. You should discuss your options with your loved ones, including the financial assistance they can provide, the government programs they offer, and the possibility of moving to a new area with lower healthcare costs.

Planning beforehand may keep your mind at ease and save you money. Investing the time and energy into long-term care planning now can ensure that you are not caught off guard by unexpectedly large bills down the road. You will also be ready to deal with the extremely remote possibility that you could have an accident or sickness in the near future that will require long-term care.

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