Q:Having lived and worked in NJ for over 30 years, my husband and I have built a healthy retirement nest egg. Our concern is that one or both of us will eventually need long-term care that will wipe out our savings. What are the issues related to long-term care in New Jersey?
The Problem – Cost of long-term care.Approximately half of the population who will reach the age of 65 are expected to enter a nursing home at least once in their lifetime. A 55-year-old New Jersey resident is expected to pay more than $300,000 for a year of nursing home care when she is likely to need it at age 80. Based on the average nursing home stay, total costs are expected to reach $1.3 million per person – easily wiping out a lifetime of savings for many families. New Jersey’s long-term care costs are among the highest in the country.
The Solution – Long Term Care Insurance.Just a quick primer on long-term care (LTC) and long-term care insurance. Let’s start with what conditions would fall into the CTL category: a long-term physical illness, disability, or cognitive decline (such as Alzheimer’s disease). The need for LTC is generally due to the inability to perform one or more of the six activities of daily living (ADLs):
- bathroom
- continence
- Dressing room
- eating
- cleanliness
- transfer (get out of bed)
LTC insurance is designed to cover long-term care expenses. Before we delve into LTC insurance policies, let’s dispel two common myths about publicly provided LTC.
Myth 1: Medicare covers these costs.Unfortunately, Medicare covers very limited circumstances at Medicare choice locations for only 100 days and may require the patient to pay a significant amount of coinsurance.
Myth 2: Medicaid covers these costs.Unfortunately, Medicaid covers long-term care in Medicaid-elected settings for those who meet Medicaid’s strict financial requirements.
Eligibility for Medicaid in New Jersey requires proof that the patient receives a very modest income and has negligible assets beyond a limited amount of equity in their home. To prevent abuse, Medicaid eligibility includes a detailed review of a couple’s combined assets and a five-year “lookback period” to reduce assets. Medicaid is designed to cover people who are impoverished.
LTC insurance provides financial protection against the exorbitant cost of long-term care. Most policies cover the cost of care in a nursing home, adult day care center, assisted living facility, or your own home. Most policies will cover the cost of care from a licensed agency, an independent licensed professional, or an unlicensed caregiver.
While many people would choose to receive care at home, they cringe at the thought of having a son, daughter, or even a spouse assist with bathing or toileting. During this challenging period in someone’s life, LTC insurance puts the patient in control of where they will receive care and by whom.
Long-term care insurance policies should be examined based on four key criteria:
1. Elimination Period.This defines how long you will pay for your own care before the policy begins to pay. The longer the elimination period, the lower the cost of the policy. A 90-day elimination period, which is common, could reduce the price of the policy by 20%.
2. Daily Benefits.This defines how big a benefit will be paid. For example, a $300 daily benefits policy will pay approximately $110,000 per year.
3. Protection against inflation. This is a critical part of any policy. To keep up with the rising costs of LTC, most policies provide for a 5% capitalization of benefits. Without this compounding, your $300 daily benefit would not provide a large amount of coverage when you need it.
4. Coverage Duration. The duration of coverage varies from one year to a lifetime. Four-year coverage, which is common, could reduce the price of the policy by 40% compared to the cost of lifetime coverage.
There are benefits provided to couples who purchase LTC insurance from the same company. Many insurers offer shared care policies, which provide a shared set of benefits. Instead of having two policies that cover a five-year period, you end up with ten years of coverage that can use one or both. Lastly, many adult children have purchased LTC insurance for their parents and loved ones once they realize all the benefits it offers.
Action Step: Establish long-term care insurance.Establishing LTC insurance immediately reduces the financial and psychological burdens that will ultimately affect most families when the need for long-term care arrives. Like most insurance, the earlier your policy starts, the lower the cost of the policy.