Understanding Long-Term Care

By Jane Young, CFP, EA

A major concern for many Americans near retirement age is how to best plan for long-term care expenses. Long-term care generally involves assistance with basic needs for those who are no longer able to perform daily tasks such as bathing, dressing, eating, transferring, and toileting due to an illness or disability. Most long- term care involves assistance with personal care needs not medical care.

It is everyone’s hope that long-term care will not be needed but according to the U.S. department of Health and Human Services (DHHS), approximately 70% of people who turned 65 in 2020 will require some degree of long-term care services in their lifetime. The DHHS reports that on average women will need some type of care for 3.7 years and men will need care for 2.2 years. This includes a combination of in-home care by family and paid caregivers, assisted living, and skilled nursing care. Most people are cared for at home by friends and family.

For those needing care outside the home, DHHS found the average stay in a nursing home was 485 days. According to DHHS, 48% of the population will not require nursing home care, 27% will need care for less than two years, 12% will require 2-5 years, and 14% will stay over five years. Nearly half of all nursing home residents have cognitive impairments.

Due to the high cost of long-term care, it is essential to devise a plan to cover the possibility of needing care. According to Genworth’s 2021 Cost of Care Analysis, the average annual cost of care in Colorado Springs is $69,212 for a home heath aid, $20,800 for adult day care, $55,950 for assisted living, $104,025 for full nursing care in a semi-private room, and $112,968 in a private room. According to the DHHS 2021 report, the average American adult turning 65 between 2020 and 2024 will incur $137,800 in long-term care expenses.

Many mistakenly believe that Medicare will cover long-term care expenses, but Medicare coverage is limited to short-term skilled nursing care in a Medicare-approved facility. After a qualifying hospital stay of at least three days, Medicare will cover 100% of covered care expenses for the first 20 days and up to $200 per day for day 21 through day 100. After 100 days you are responsible for the full cost of care. You will need a plan to cover long-term expenses after Medicare ends.

Additionally, Medicaid is not a reasonable option to cover care costs for middle- and upper-income individuals. Medicaid is a public assistance program available to cover long-term care expenses for individuals that meet strict limits on income and assets.

The chances that you will need care, the type of care needed, and how you will pay for the care depends on your unique situation. In part two of this article, long-term care insurance, self-insuring, and other options to cover long-term care expenses will be addressed.