A recent study by the Social Science Research Network found that Americans over 65 are filing for bankruptcy at a record clip.
From 1991 to 2016, bankruptcies increased by a whopping 204%. One factor that contributed to this unfortunate state of affairs was out-of-pocket healthcare costs, even taking Medicare into consideration.
The cost of long-term care can be a huge part of those costs. According to the Centers for Disease Control and Prevention, half of all US adults have one or more chronic health conditions, while a quarter have two or more. Among the leading causes of death, 70% are due to chronic diseases.
What might happen if such a chronic condition manifested at the beginning of one’s retirement years? The median annual costs for a variety of long-term health care options are as follows;
Nursing home (private room): $100,375
Assisted living facility: $48,000
Home health aide: $50,336
Clearly, it is gigantically expensive when a person loses the ability to carry out the functions of daily living independently. What are the options to pay for this type of care?
Medicare: This covers up to 20 days of skilled nursing care at 100% following a hospitalization of three days or more. From days 21-100, the daily out-of-pocket cost is $167.50. Coverage for skilled nursing care ceases after day 100.
Medicaid: Provided that income and assets are below a state-mandated level, Medicaid will cover all long-term care expenses. However, individuals are required to “spend down” most of their assets before this option is available.
Life insurance accelerated death benefit: some companies allow policyholders to cash out their policies to pay for terminal or chronic illnesses. On average, policyholders receive 25-95% of death benefits. There may be tax implications and, of course, the beneficiaries will see payouts reduced or eliminated.
Reverse mortgage: For those who wish to remain in their homes and receive care there, a reverse mortgage is an option. This is a loan against the home equity that the homeowner does not have to pay as long as they live in the home.
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Everything you need to know about Asset-Based Long Term Care products.
Long-term care insurance: these policies are designed to pay for care not covered under Medicare, Medicaid or other insurance. Premiums can be high and the payout is for care only. Therefore, if the policyholder never needs long-term care, the money paid in premiums is lost. Consequently, hybrid policies combining life and long-term care insurance are becoming more popular.
For more information, please read:
5 Ways to Pay for Long-Term Care Costs | Banyan Hill