Medical expenses in retirement continue to be an enormous concern for Americans, particularly those who are approaching retirement age. Without the right insurance, even a short hospital stay can be prohibitively expensive. Long term care, such as physical therapy or other prolonged medical treatments, can be even more worrisome.
There seems to be a lot of confusion around long-term care (LTC), with some myths becoming so prevalent that that they cause some people to make poor choices when it comes to LTC. What are these myths, and how can they cause more harm than good?
Here’s a list of a few myths about long-term care that I’d like to bust for you today:
Myth #1: I Probably Won’t Need Long-Term Care When I Retire
Here’s one of the biggest misconceptions people can have about LTC, and it can cause a lot of trouble. This myth encourages people to avoid planning for LTC because they think it won’t apply to them, and they couldn’t be more wrong.
Long term care statistics from longtermcare.gov show that “Someone turning age 65 today has almost a 70% chance of needing some type of long-term care services and supports in their remaining years.”
While your specific risk may vary from this average due to your medical history, DNA, lifestyle, and a million other factors, that’s still a pretty significant likelihood that you’ll need some kind of LTC after you reach full retirement age. The longer you live past 65, the higher your risk goes, too.
Myth #2: Paying for Long Term Care is Impossible Unless You’re Rich
This myth has some basis in fact. In recent decades, the cost of medical care has soared. According to LTC Insurance giant Genworth, the average cost of long term care in America for 2015 was approximately $80,300 per year for a semi-private room in a nursing home. That’s $220 per day.
While that is quite expensive, that doesn’t mean that paying for long term care is impossible.
For example, you might not need full nursing home care, and instead only need assisted living or adult day care, both of which are far less costly. Or, you might use an alternative method of paying for long term care besides using out-of-pocket money, such as using LTC insurance.
Setting up an LTC insurance policy, whether it’s traditional LTC insurance, a life/LTC insurance hybrid, or an annuity with an LTC insurance rider can help bring down the cost of long term care to levels that are more affordable.
Myth #3: Medicare/Medicaid Will Cover My LTC Costs for Me
In many cases, people who need to use some type of long term care will try to rely on programs such as Medicare or Medicaid to cover their costs. For many people who simply don’t have the means to pay for LTC on their own, this can be an invaluable benefit. However, this doesn’t always work.
The issue here is that there are massive restrictions on who can use Medicare/Medicaid to cover medical costs and when.
For example, Medicare will only cover the first 100 days of medical expenses in a given “benefits period,” and there’s still a copay you have to cover for the care you get. Medicaid, on the other hand, may not be accessible to you at all if you make too much money or have too many assets.
In essence, Medicaid is designed to help those that have no more assets or income left to use to pay for LTC, which means that you may be left with very little to cover your day-to-day expenses once you’re finished with your care.
Myth #4: If I Have the Money, I Should Just Pay Out of Pocket
If you have the kind of large and liquid asset portfolio that can take paying tens of thousands of dollars a year into long term care without spending it down, why wouldn’t you want to just pay out of pocket for such care?
Well, as I mentioned in a previous post, self-insuring LTC by paying out-of-pocket can be a bad idea. If you do have that kind of money, it may make more sense to acquire long term care insurance to help protect your assets.
Why? Because, by setting this money aside and letting it grow in a hybrid life/LTC insurance policy, it’s possible to let that money grow tax-free in the policy to cover LTC costs if needed, or to provide a death benefit to heirs if it isn’t needed.
These are just a few of the long term care myths I’ve encountered while working with clients. Hopefully, knowing these myths will help you make more informed decisions about how to handle long term care. As with any major financial decision, I’d recommend speaking with a financial advisor before acquiring any given LTC insurance policy.