Science and medicine have demonstrably changed how long we live and quality of our lives over time. In the 1910s, the average life expectancy for Americans was 50.1 years. Today, the average life expectancy is 77.9 years, an increase of over 50%. With the longer life expectancies and growing populations, new problems have also arisen.
Among those living past 65, 70% of them will need some form of long-term care. Long-term care is a broad class of services, which include nursing homes, assisted living facilities, home health care, adult day services and other services provided to older adults. Most of these services are not completely covered by traditional health insurance or even Medicare. Therefore, it is important to have other means to pay for these services planned for before the need arises.
The most basic method of payment is self-payment. Unfortunately, the cost of paying for long-term care services out of pocket is prohibitive to all but the wealthiest individuals. In some instances, an individual can create a long-term care savings account or trust and contribute to it throughout their lifetime to ensure that their long-term care is paid for.
A preferred method of payment is the use of a long-term care insurance plan. These policies cover the long-term care expenses that health insurance, Medicare and Medicaid do not cover. There are many types of long-term care insurance policies with varying premiums, benefits and periods of time that a policy holder must wait before the benefits will be paid. Additionally, some life insurance policies are structured to allow the owner to accelerate the death benefit to be used to pay long-term care expenses.
In order to take advantage of either the self-pay or long-term care insurance options, it is essential to plan early on in life. For some, their health and/or age make these options unavailable or cost prohibitive. In other situations, a sudden change to a person’s health can trigger an unexpected long-term care need. In these situations, an individual can pay for their expenses by qualifying for Medicaid.
Medicaid is only available in limited circumstances and it requires careful planning to ensure that individual qualifies. There are strict limitations on the assets, which a person on Medicaid can own and how much income they may receive. In New York, a Medicaid applicant may only own $13,800 in non-exempt assets and may only receive $767 in income per month. The asset limits do not include a person’s home, which is considered an exempt asset.
An individual may transfer their assets out of their name to qualify for Medicaid. When the transfer is made and how much is transferred will affect when the individual will qualify for benefits. In New Yorks, transfers made within sixty months of a Medicaid application will be considered an available resource and will delay the individual’s qualification for Medicaid. The length of this “penalty period” will be determined based on the value of the assets transferred divided by the average cost of private care in the applicant’s community. During the penalty period, the applicant must self-pay for their care.
As with estate planning, long-term care planning requires dealing with a difficult topic that many would rather avoid. Avoiding the issue does not solve the problem and as our life expectancies continue to increase, even more people will have a need for long-term care. Planning early in life can ensure that your care will be paid for and that your other assets will be preserved.
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