Making a plan to pay for long-term care: Insurance and other alternatives – CNBC

Nearly three-quarters, or 70 percent, of people who reach age 65 will need long-term care during their lifetime, the study found. report A survey by the Urban Institute and the Department of Health and Human Services. How to pay for that care is a concern for many families.

Stacey Hachenberg, 58, and her partner, Sharon Fleming, 53, have been caring for their parents for several years. Hachenberg’s father died in April after two years in a nursing home. While she coordinated his care, expenses were covered using his savings, pension and veterans’ benefits.

“Even though the facility helped me process my VA application, it took about a year for me to actually receive my benefits,” Hachenberg said.

“Without my father’s little bit of savings, we would have been in trouble,” she said.

Understanding what benefits you’re eligible for and who you qualify for is a crucial part of planning for long-term care, financial advisers say. Thinking about where you want long-term care, who will be your caregiver, and how you’ll pay for it should all be part of the planning process, said Marguerita Chen, a certified financial planner and founder and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.

“Long-term care insurance can help because it shifts some of the risk,” said Chen, a member of the CNBC Council of Financial Advisors.

Long-term care insurance typically pays for care if you have a chronic illness, dementia, severe cognitive impairment, or are unable to perform at least two of the six “activities of daily living” without assistance: bathing, dealing with incontinence, dressing, eating, getting in and out of the toilet, and getting in and out of bed or a chair.

Fleming said her mother, Toni Alpha, has Alzheimer’s disease and is currently in a nursing home that costs about $8,000 a month. “She doesn’t need skilled nursing care, she just needs to be safe,” Fleming said.

Because Alpha doesn’t qualify for VA benefits and has never had long-term care insurance, she’s covering the costs with her own savings, Fleming said, and she figures her mother can pay for care for another two years before she runs out of money.

“Then unless me and my brother help, she’ll have to go to another facility,” she said.

Experts say most Americans will have to dip into their savings and other assets to pay for long-term care, and while Medicaid will cover the cost, it only covers those with few assets and limited incomes.

Fleming and Hachenberg are now considering purchasing long-term care insurance for themselves. They don’t want to burden their adult children, but they say paying high premiums would be a struggle. “It’s like having a car payment and not having a car,” Fleming says.

The problem is that many companies mispriced these policies years ago and lost money, said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center who works on long-term care issues with the Urban Institute’s Retirement Policy Program. As a result, long-term care coverage is now less generous and more expensive than it once was.

Insurers are “very scared of the tail risk — people who need very long-term care,” Gleckman said. “That’s really expensive for the insurers.”

It also comes at a cost to consumers.

Premiums for a healthy 55-year-old woman can range from $1,500 to $7,000 per year, depending on the benefits. American Association of Long-Term Care InsuranceIf she is healthy at that age, the cost would average about $3,700 a year, and benefits would increase 3% each year, meaning she would have a benefit of about $400,000 at age 85.

Men generally have lower premiums because they live shorter lives and are less likely to take advantage of insurance benefits. Premiums for both men and women increase and become harder to qualify for as they get older.

By comparison, a 60-year-old woman would pay $4,400 a year in premiums for benefits that increase at 3 percent per year, and would have a benefit of about $345,500 at age 85, according to AALTCI figures.

“We both really know that long-term care insurance is a very smart investment right now, not just for us, but for our children,” Hachenberg said.

Fleming’s daughter, Alexa, is a financial adviser and is helping them evaluate their options.

“It’s important that people feel happy, safe, accepted and supported in the facility they’re in,” Alexa Fleming says. “And if we don’t have the resources to do that, we can’t have a great end of life experience.”

Chen says there are two important things to consider when buying long-term care insurance.

1. Does this insurance cover home care?
2. Is there an “inflation policy”? That is, if the cost of living rises, will my daily benefit increase?

“We want to make sure we don’t skimp on home care or inflation, even if it means our benefits are reduced to cover the costs of care,” Chen said.

Only an estimated 3% to 4% of Americans have long-term care insurance, according to LIMRA, a life insurance industry research group. Many insurers have stopped selling standalone long-term care policies because of the increased risks, and many consumers have seen premiums for older policies soar after adjusting for inflation.

“It’s a classic market failure,” Gleckman said. “People don’t want to buy it, and insurance companies don’t want to sell it.”

Hybrid insurance, such as life insurance and annuities with long-term care benefits, are an alternative to traditional stand-alone long-term care insurance.

You can also build up savings in a tax-advantaged health savings account or high-yield savings account to pay medical expenses as needed.

“If traditional long-term care insurance is something you’re uncomfortable with, [are] “That’s the only option,” Chen said. “Whatever you do, it’s really important that you take a measured and customized approach.”

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