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Who Pays for Long-Term Care?

Several studies indicate that the chances of requiring long-term care (LTC) services in one form or another are significant enough to include in your financial planning the same way as you would plan for your retirement. Ironically, the need for advanced healthcare is likely to increase—not decrease—the need for LTC services as our population ages.

More and more people are living long enough to experience the inevitable infirmities of mind and body. This is especially noticeable among women because their average life expectancy is a bit longer than that of men.

The risk of needing long-term care is vastly greater than other risks we ordinarily cover with insurance, such as medical, automobile, and fire insurance. Society has been reluctant to acknowledge this possibility as we save and plan for retirement.

Many folks mistakenly think that long-term care costs of the aged are covered by Medicare. In fact, there are generally only three ways to pay for LTC:

Out of pocket by the individual
Medicaid
Long-term care insurance

Medicaid services are state-administered, and recipients have strict income and asset limitations. Medicaid is welfare—only the poor qualify. Medicare, by contrast, is not narrowly restricted. It is health insurance available to most citizens aged sixty-five and above, regardless of income. But Medicare provides extremely limited LTC services, and in no event for more than a short time.

Several years of care—whether in a residential setting or at home with aides—are likely to cost at least $100,000 (in today's dollars), and probably far more.

Because of the widespread but mistaken belief that Medicare or Medicaid is readily available to render assistance, you might find it worthwhile to examine the LTC shortcomings of both these government programs in more detail. (Keep in mind that your state probably operates its Medicaid program under a unique name—it is called "Medi-Cal" in California, for example.)

The future of Medicaid cannot be forecast precisely, but no one predicts that benefit qualification will become easier in the years ahead. It is also reasonable to be concerned that quality standards and regulatory enforcement might suffer under budgetary constraints. The point for planning purposes is simply that the future is a big question mark.

Despite all the potential problems and uncertainty, there are those with the financial ability to consider alternatives who instead purposely arrange their affairs to qualify for Medicaid; it becomes their primary strategy for dealing with LTC if the need arises. Strictly as a matter of personal financial planning, this approach seems more unsound than it has ever been.

Traditional medical and hospitalization insurance also fails to provide LTC coverage regardless of the quality of the policies. The same is true of Medicare supplement ("Medigap") policies. Only LTC insurance covers LTC.

Few would argue that several years of care—whether in a residential setting or at home with aides—are likely to cost at least $100,000 (in today's dollars), and probably far more.

Adjusting the current estimate for increases over the years until care is required results in a big number, even with moderate inflation. The wealthy are able to finance this LTC out of pocket, if they care to do so.

For most of us, however, paying for necessary care is likely to be a problem, unless we have planned for it. Therefore, addressing this possible need—through LTC insurance or otherwise—is simply a part of good, overall financial planning.

For those with time to plan for LTC expenses, it seems unwise to assume that Medicaid alone is a good "Plan A." There are better planning options, and LTC insurance is among them. But it is not for everyone, and even for those who should buy it, choosing the right policy involves a bit of effort.