Nearly 70% of people turning 65 will require long-term care at some point, according to a report by the Urban Institute and the Department of Health and Human Services.
For many families, figuring out how to finance this care is a significant concern.
Stacey Hachenberg, 58, and her partner, Sharon Fleming, 53, have been caring for their parents for several years.
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Hachenberg’s father passed away in April after spending two years in an assisted living facility, with the costs covered by his savings, pension, and veterans benefits.
“It took about a year to actually get those benefits,” Hachenberg said, noting the assistance they received from the facility in navigating the Veterans Affairs application process.
Without her father’s small savings, they would have been in trouble, she added.
Understanding available benefits and potential qualifications is crucial for long-term care planning, according to financial advisors.
Long-term care insurance can be beneficial as it transfers some risk, Cheng explains.
This insurance typically covers care for chronic illnesses, dementia, severe cognitive decline, or when assistance is needed for at least two of the six “activities of daily living.”
Fleming’s mother, Toni Arfa, has Alzheimer’s disease and resides in an assisted living facility costing about $8,000 monthly.
Since Arfa is ineligible for veterans benefits and never purchased long-term care insurance, her savings are currently covering the costs.
Fleming estimates that these funds will last for another two years, after which she and her brother will have to help or find a different facility.
Most Americans pay for long-term care by depleting their savings and other assets, with Medicaid available only for those with limited assets and income.
Long-term care policy premiums are significant, likened to “a car payment, without the car,” says Fleming. Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, notes that many companies initially mispriced these insurance policies, leading to less generous coverage and higher rates now.
Insurers are particularly wary of “tail risk,” the cost of prolonged care needs, making premiums expensive for consumers as well.
For example, premiums for a healthy 55-year-old woman can range from $1,500 to $7,000 annually, averaging about $3,700 per year for a benefit growing at 3% annually, totaling around $400,000 by age 85. Premiums are generally lower for men due to shorter life expectancies and less frequent benefit use.
Costs rise with age, making it harder to qualify for coverage. A 60-year-old woman would pay about $4,400 annually for similar benefits.
Hachenberg and Fleming are considering long-term care coverage for themselves to avoid burdening their children. Fleming’s daughter, Alexa, a financial advisor, is assisting them in reviewing their options.
Alexa emphasizes the importance of choosing a comfortable and supportive facility for a positive end-of-life experience.
Cheng advises looking for policies that cover at-home care and offer “inflation protection,” meaning the daily benefit increases with the cost of living.
Only an estimated 3% to 4% of Americans have long-term care insurance, with many companies ceasing to sell standalone policies due to increased risk and rising premium prices.
Hybrid policies, such as life insurance or annuities with long-term care benefits, are alternatives. Additionally, boosting savings in tax-advantaged health savings accounts or high-yield savings accounts can help cover care costs.
Cheng concludes, “Don’t feel like traditional long-term care policies are your only option. It’s important to take a measured, tailored approach to whatever you do.”
