When asked the simple question, “What do you think pays for the cost of long-term care?” many consumers, if they answer at all, are likely to focus on programs such as Medicare, Medicaid, the Veterans Administration and private funding. That could turn out to be an expensive misconception.
Long-term care is often thought of as care required because of medical issues. As such, it would seem to make sense that health care programs such as Medicare, the VA or Medicaid, which cover medical care, would pay for the cost. That is not the case.
Although long-term care is precipitated by medical issues such as dementia, stroke, diabetes, Parkinson´s disease or multiple sclerosis, to name but a few, it is the effect these debilitating, chronic illnesses take on a person’s daily life that defines long-term care. If you are not able to get through your physical daily routine or remain orientated as to time and place it results in a need, not for medical care but rather custodial care.
When it comes to paying for custodial care your options suddenly become very limited.
Medicare
Medicare is referred to as an entitlement program because you have paid into it during your working years. It covers just about all medical expenses, less deductibles and co-insurance that can be covered by private policies referred to as Medicare supplements. Medicare will not pay for custodial care other than in short-term settings where medical or rehabilitative services are being provided.
The Veterans Administration
The VA is primarily a medical program for veterans and retired military personnel. The payment of custodial care is restricted to nursing home care if the individual has a 70% or greater services-connected disability or has limited monthly income (usually under $1,000) and very few assets. The VA has made this very clear on their web site:
“Most health insurance programs, including the Federal Employee Health Benefit (FEHB) program, provide little or no coverage for long-term care. This is why the U.S. Office of Personnel Management sponsors a long-term care insurance program for members of the federal family.
Medicaid
Medicaid is a health insurance program available to those with very limited income and assets. With one exception Medicaid and Medicare cover the same health issues. Unlike Medicare however, Medicaid will pay for custodial care but almost exclusively in a nursing home, the one facility most people don’t want to go to and may never need.
You may have seen advertisements from attorneys offering Medicaid eligibility. If you look closely, no mention is made of the program paying for home care, adult day care or assisted living. As well, Medicaid, an ostensibly free program, is not free to those with assets and income.
To qualify, assets have to be given away or placed in trust. That creates serious tax issues if you have qualified or low cost-based assets. In addition, once in the program the spouse may lose some– if not all– of her spouse’s monthly income.
Self-funding
Any survey ever conducted has concluded that the majority of care in a long-term setting is shouldered by the family itself. That typically means reallocating income from social security, pensions and your income portfolio. At a minimum it can have a devastating impact on lifestyle and if the illness continues it could undermine the financial viability of a surviving spouse and children who may depend on an inheritance.
Lest you think that if you need care you will be able to pay for it because you won’t have the expenses associated with your current lifestyle, consider this: it stopped being your lifestyle the day you got married and had children. If you want to maintain your commitments and preserve financial viability, paying out of pocket becomes a limited option.
Long-term care insurance
Simply put, long-term care insurance provides income. Here is the essence of what providing income does to protect your family:
Income can be used to pay for your care wherever you want it in the community. By paying for care, it allows your spouse to maintain his or her relationship with you as your spouse supervising care, not a spouse who is forced to provide that care.
By providing income it protects primary income sources that have been allocated to support your lifestyle and keep your financial commitments. By protecting income it preserves your investment portfolio, thereby securing the financial viability of a surviving spouse or children who may depend on an inheritance.