As the mythical movie boxer, Rocky Balboa, reminded us, “Time takes everybody out, time’s undefeated.” With the average cost for a one-bedroom unit in an assisted living facility approaching $42,000 a year in the U.S., maybe Rocky should have mentioned long-term-care costs as another undefeated champion. As a large number of Americans reach retirement age, many wonder about how to plan for future financial needs. While much has been written about dollar figures and adequate savings (a series of recent Prudential Financial commercials does a great job of visualizing this), many fail to anticipate the significant cost of post-retirement medical care. Many Americans plan on Medicare to cover the costs of post-retirement health care needs. But unfortunately Medicare is very particular about what types of long-term care it pays for. Medicare only covers stays in skilled nursing facilities and hospice care under certain strict conditions.
For skilled nursing facility (SNF) coverage, a beneficiary must be admitted to a hospital for at least three days and then discharged with a condition that requires skilled nursing level care. Medicare covers the entire cost of a stay for the first 20 days and then charges a $161 co-pay every day up to 100 days. After 100 days, one is then required to cover the entire cost after the initially covered 100 days. However, if one is out of an SNF for more than 60 days, SNF coverage resets and one can be admitted for another 100 days following a three-day hospital admission.
Medicare will cover most types of hospice coverage once a beneficiary has received a terminal illness diagnosis and is projected to live no longer than six months. This covers medication, support services and other services like grief counseling. In addition to paying for usual coverage, Medicare will also pay for short-term hospital stays and inpatient care for caregiver respite.
In addition to this coverage by Medicare, the federal government also provides some coverage through the Department of Veterans Affairs (VA).
Unlike Medicare and the VA, Medicaid can help seniors who qualify with most types of long-term care. Because Medicaid is administered on a state level, benefits and eligibility will vary by state; however, most Medicaid programs are incentivizing alternative programs that enable seniors to stay at home or with a family member. If the beneficiary qualifies, family members who provide care can be certified as providers and reimbursed for their efforts by the Medicaid program.
With the limited number of government options, how can Americans best pay for the long-term care so many of us will need? For those of us who are proactive, purchasing long-term care insurance is a great way to cover the costs while planning for retirement. If that coverage is too expensive due to a late purchasing window or pre-existing health issues, seniors should look at other options like Medicaid. Some will hear commentary that advocates transferring assets and/or income to trusts and family members. Be careful as the consequences can be worse than any perceived benefit. Any transfers should be undertaken only with the advice of competent elder law counsel. Qualifying for Medicaid opens up multiple options unavailable through Medicare and the VA while providing the best level of coverage. Other less-desirable options can include reverse mortgages or having children pay out-of-pocket.
As we prepare for retirement, recognize that long-term medical care costs are likely to be an issue. No matter what stage we have reached, now is the time for most of us to begin planning for how we are going to address our own long-term care. Adequate planning and a little foresight can make a huge difference in whether we will be prepared.
