Long-Term Care and Your Options

by | Nov 3, 2023 | Long-Term Care, Retirement Planning

Couple holding hands in green meadow

Long-term care includes a whole host of services that you may require to meet various personal needs. And eventually, around 60% of us will need assistance with things many take for granted, according to the Administration for Community Living, a division of the U.S. Dept. of Health and Human Services.

Whether it is because you have been visited by an unfortunate event or due to health conditions that come about through aging, things like getting dressed, taking a bath, running errands, or making meals may require assistance.

Planning is the key, but many people are not sure what is covered by insurance, and others are often misinformed about Medicare coverage.

Get Informed!

There are many common misconceptions about what Medicare covers and doesn’t cover:

Medicare only pays for long-term care if you require skilled services or rehabilitative care. But there are limits.

  • Medicare will cover a nursing home for a maximum of 100 days. The average Medicare-covered stay is much shorter – 22 days
  • It will also pay if you are at home and are receiving skilled home health or other skilled in-home services. Generally, long-term care services are provided only for a short period of time.

Medicare does not pay for non-skilled assistance with what is called Activities of Daily Living, which make up most of long-term care services. These would include bathing, eating, getting dressed, getting in and out of bed, walking, and assistance using the bathroom.

You will have to pay for long-term care services that are not covered by a public or private insurance program.

However, Medicaid does pay for the largest share of long-term care services. To qualify, your income must be below a certain level, and you must meet minimum state eligibility requirements.

To be eligible for Medicaid, you must have limited income and assets.

The income limit for Medicaid varies by state.

Medicaid will count things such as Social Security and disability benefits, pensions, salaries, wages, and interest and dividends. It will not include food stamps, housing assistance from the federal government, and home energy assistance.

Medicaid will also review your assets, including assets that are counted for eligibility. These include checking and savings accounts, stocks and bonds, CDs, and property outside your primary residence.

However, equity in your home may affect whether Medicaid will pay for long-term care services, including nursing home care and home and community-based waiver services.

Are you considering gifting assets to qualify under Medicaid’s stricter limits? Or would you like to create an irrevocable trust to put your assets in? According to the American Council on Aging, the date of one’s Medicaid application is the date from which one’s look-back period begins.  The look-back period is 60 months in D.C. and all states but California, where it is a more lenient 30 months.

That said, if there is just one takeaway, please realize that Medicare coverage for long-term care is limited, and there are hurdles that may prevent you from obtaining Medicaid.Laws vary depending on the state. If you have additional questions, we’d be happy to assist you.


Paying for Long-Term Care

If you don’t have long-term care insurance or are unable to obtain it, here are some options you may consider outside of Medicaid.

Have you considered a reverse mortgage on your home?

There are no income or medical requirements to get a reverse mortgage, and you must be 62 or older. The loan amount is tax-free and can be used for any expense, including long-term care.

However, if you have an existing mortgage or other debt against your home, you must use the funds to pay off those debts first.

You may live outside the home, including a nursing home, for up to 12 months before the loan comes due. The reverse mortgage could affect Medicaid eligibility but does not affect Medicare or Social Security benefits.

How about a home equity loan? There isn’t a requirement to live in the home, and there is plenty of flexibility in paying the loan back. But beware that the inability to make payments could force foreclosure. And, in today’s rising rate environment, your payment could rise.

Life insurance that includes a long-term care benefit could provide needed cash, while policies with an “accelerated death benefit” provide tax-free cash advances while you are still alive.

The advance is subtracted from the amount your beneficiaries will receive when you pass away.

Are you familiar with a Life Settlement? A life settlement is the sale of a current life insurance policy to a third party. It’s usually available for those 70 and older.

Although the proceeds are taxable, you could raise cash by selling your policy. The proceeds may be used as you wish, including long-term care.

You may also tap existing assets. Health Savings Accounts can be used to pay qualified medical expenses without incurring a tax liability. Depending on your age, you may take tax-free withdrawals to pay long-term care premiums.

If you have a Roth IRA, you could pay long-term care costs or premiums without paying taxes.

You may invest in a Long-Term Care Annuity. You will pay a lump sum of money and receive a set amount of income, paid regularly, for the rest of your life. Long-term care annuities offer special provisions to help pay for long-term care expenses.

The need to access or finance long-term care is an unpleasant prospect most of us would rather not think about. But avoidance is not a strategy.

Be proactive. Be aware of your options. Plan early. As always, we are happy to answer any of your questions or get you pointed in the right direction.

Storm clouds in September give way to a sunnier October

For reasons that are not fully understood, September has historically been the worst month for stocks, according to the average S&P 500 return for each month (St. Louis Federal Reserve dating back to 1970).

During September, the Dow shed 8.8% and the S&P 500 Index gave up nearly 10% (MarketWatch). Historically, stocks turnaround in October, and the remainder of the year is favorable for investors. So far, markets have not deviated from the pattern.

Table 1: Key Index Returns

Dow Jones Industrial Average14.0-9.9
NASDAQ Composite3.9-29.8
S&P 500 Index8.0-18.8
Russell 2000 Index10.9-17.8
MSCI World ex-USA*5.4-24.1
MSCI Emerging Markets*-3.2-31.2
Bloomberg US Agg TR Value Unhedged USD-1.3-15.7

Source: Wall Street Journal, MSCI.com, Yahoo Finance, Bloomberg

MTD returns: September 30, 2022—October 31, 2022

YTD returns: December 31, 2021— October 31, 2022

*In US dollars

What led to the rebound in October, a rebound that fueled the best monthly rise in the Dow since 1976, according to Barron’s?

Bear market rallies are not uncommon. Following the steep decline in September, it’s not unusual for overly negative sentiment and oversold conditions to lead to a bounce, as we saw in June and into August.

The mirror image would be a pullback in a bull market, when excessive speculation and bullish sentiment can lead to a short-term downdraft.

But October’s strong rally was not simply technical in nature. As we saw when second quarter earnings were reported, profits for most S&P 500 firms are coming in ahead of low expectations, according to Refinitiv.

In other words, we didn’t see the earnings apocalypse that some had feared. But there were some high-profile exceptions.

The uncertain global economy and the strong dollar (overseas sales must be translated back into a stronger dollar, which reduces earnings) made a mess of several tech bellwethers.

Reports from Amazon (AMZN), Microsoft (MSFT), Alphabet (Google, GOOG), and Meta Platforms (Facebook, META), are a ‘boots on the ground’ review of what’s happening in some sectors of the global economy. Profit misses and/or a disappointing outlook hit shares hard.

Finally, a Wall Street Journal story late last month all but guaranteed a jumbo-sized rate hike during November, but there was also talk that some Fed officials are growing increasingly leery over the current steep path of rate increases.

They don’t expect near-term rate cuts. Instead, some Fed officials may argue that the Fed should slow the pace and possibly stop hiking rates early next year, as they assess the impact of recent policy actions.

I trust you’ve found this review to be educational and insightful. If you have any questions or would like to discuss any matters, please feel free to give me or any of my team members a call.

As always, thank you for the trust, confidence, and the opportunity to serve as your financial advisor.