Financial Insight: Protecting Against the Rising Costs of Care

The cost to care for our elders is rising at an alarming rate, especially here in the Northeast.{{more}} We can refer to it as the elephant in the room. Most people know they need to do something but they don’t know what to do or where to begin. Maybe your neighbor did one thing, and your brother-in-law did something completely different. What should you do?

Well, let’s start with the facts. According to a 2012 survey conducted by the MetLife Mature Market Institute, the cost of nursing home care in Connecticut averages $370 a day, with high end facilities costing as much as $470 a day, or more than $14,000 per month. The same survey found the average monthly cost for a Connecticut Assisted Living Facility to be $4,935.So who pays? In most cases, you do. Medicare very rarely covers nursing home and assisted living situations. If a patient is receiving “skilled services” in a nursing facility after a qualifying 3-day hospital stay, Medicare will help pay for up to 100 days of care.

So, what will happen? Individuals (and their families) who require long term care must look to other sources of payment, e.g., their own resources, long term care insurance, or Medicaid. Medicaid is the joint state/federal program that pays for, among other things, convalescent care for eligible individuals. (Medicaid review conducted by Barnum in house lawyer) In Connecticut, in order to qualify, the total assets in a patient’s name cannot exceed $1,600. If the individual has a spouse at home, he or she may keep half the couple’s assets, up to $115,920. Some assets are exempt, such as the house, as long as the community spouse is living in it, life insurance with cash value under $1,500, an irrevocable funeral contract, and a car. Note that qualified plans and IRAs are not exempt in CT, though they are in some states. The average stay in a nursing home is about 32 months. $14,000 a month x 32 months is $448,000. Think about the financial impact of just an average stay and the adverse effects it could have on your retirement nest egg.

Okay, now that everybody is depressed, let’s talk about what can be done. For people who have the chance to plan ahead, one solution may be long term care insurance, which can have several variations. A state approved “Partnership Policy” allows a Medicaid applicant to exclude assets from Medicaid’s spend down requirements equal to the amount that the policy has paid out for their care.

If you have a partnership policy approved in Connecticut that has a total lifetime benefit of $262,800 ($150 per day x 4.8 years).

Then the policy would pay the facility up to the policy’s daily/weekly/monthly benefit amount until the total lifetime benefit is depleted. Then you would be responsible to pay for your care until your assets are depleted down to $262,800, at which time, you would be eligible for Medicaid.

Another alternative to consider is a Hybrid policy that functions as both life insurance and long-term care insurance, so that if owner never needs long-term care, his or her heirs receive a valuable death benefit.

Also, some annuities come with a long-term care component that increases the amount of income if the annuitant needs long term care.

Obviously there are many options out there. The hardest part is usually getting started. The first thing you need to do is begin the process by sitting with your financial advisor and estate planning attorney to come up with the plan that will be best for you and for your family.

This article was prepared by Patrick Shanley and is not intended as legal, tax, accounting or financial advice. Patrick Shanley is a Financial Services Representative with MetLife, Inc. The opinions provided above are not necessarily those of MetLife, Inc. The opinions provided are for general information purposes only.