Cantissimo Senior Living Blog

Planning for long-term care expenses seems to involve a lot of wishful thinking for many. As noted in another Cantissimo Senior Living blog post, a survey found that about half of respondents said they had done little or no planning for these needs.

One example of wishful thinking is that government programs like Medicare or Medicaid will pay long-term care expenses.

Among the many ways of paying for long-term care, life insurance and annuities have been growing in popularity.

Life Insurance

In its original form, life insurance was intended only to pay beneficiaries upon the death of the insured. Since its inception, however, life insurance has evolved to include many additional options. Some of these options can help pay for long-term care.

When it comes to preparing for retirement, most consumers have only a vague idea about planning for potential long-term care expenses. Yet, well over half of Americans 65 or older will eventually require some form of long-term care.

There are multiple ways to pay for long-term care. However, the potentially enormous costs could quickly exhaust one's assets. An attractive alternative for managing this considerable risk could be long-term care insurance (LTCI).

When Medicare was introduced in 1965, prescription drugs were not covered. However, in December 2003, Medicare Part D was signed into law to cover the cost of medications. Unlike Medicare Part A and Part B, however, Part D is optional.

What Part D Covers

Medicare Part D is offered via plans marketed by private companies. Each plan publishes its own list of covered drugs called a formulary. Formularies contain both brand-name and generic drugs. A formulary typically will have two or more drugs in the most popular categories to allow for more choices.

Formularies are not static. Medicare rules allow a plan to make changes to its formulary and drug fees during the year because:

The majority (76%) of those over 50 say they would prefer to continue living in their own home as long as they can. However, this is not always possible, and other senior living options like assisted living may need to be considered. Yet, such long-term care options can be costly. For instance, one year of assisted living can cost over $50,000. If memory care or skilled nursing is required, the annual cost can be twice as much.

Unless one has long-term care insurance or can qualify for Medicaid, most people will need to tap all their assets, to pay for long-term care. This may include the equity in one's home.

There are four ways to leverage home equity to finance long term care:

Most of us have heard of a Health Savings Account (HSA), but many don't understand the important details about these accounts.

HSAs were intended to provide a way for Americans to save money for out-of-pocket healthcare expenses before meeting the deductible of a high deductible health plan (HDHP). In fact, an individual or family must have an HDHP to open an HSA.

HSAs were primarily intended to soften the financial burden of healthcare expenses for HDHP account holders of all age groups. However, an HSA can be particularly advantageous in paying for long-term care expenses at age 65 or over.

Some Medicare beneficiaries want more healthcare benefits than Original Medicare can offer, even with Medigap supplemental policies. Medicare Advantage Plans (sometimes known as Medicare Part C) fill this need by providing more benefits for beneficiaries who agree to extra costs and less flexibility.

The Medicare Advantage Alternative

Offered by private insurance companies, Medicare Advantage Plans provide Part A and Part B coverage as an alternative to Original Medicare. Medicare pays a fixed amount to these insurers for each beneficiary enrolled in their plans but requires these companies to follow specific rules. These rules allow the companies flexibility to offer more services. However, to do this, they may handle out-of-pocket costs differently and impose certain restrictions on enrollees.

The U.S. Department of Health and Human Services estimated in 2020 that 50-70% of those now turning 65 will eventually need some level of long-term care.

Yet, few people include a long-term care component in their retirement planning. It seems like more people plan for their children's college education than for the very costly and highly probable reality of long-term care. Assumptions that typically drive this lack of planning are:

Original Medicare (Part A and Part B) offers many benefits, but it has some "gaps." The most prominent gap is there is no limit on out-of-pocket expenses, which encompass deductibles, copayments, and coinsurance.

Medigap to the Rescue

One way to fill many of these gaps is through a Medicare Supplement Insurance policy (also known as Medigap) sold by private insurers. Medigap policies come in several different versions but must adhere to strict government standards. These standards allow easier comparisons between policies and protect consumers from unscrupulous insurers.

Along with Medicare Part A, Part B is the other part of Original Medicare. A recent blog post described Medicare Part A coverage for inpatient care (hospital and skilled nursing), hospice care, and home healthcare.

Medicare Part B covers medically necessary costs for:

• Doctors
• Outpatient care
• Home health services
• Durable medical equipment