Long Term Services and Supports
Long Term Services and Supports (LTSS) are services which a person would need to perform activities of daily living (ADL) such as bathing, dressing, grooming, or eating. Retirees, specifically, will need LTSS due to age, physical, cognitive, developmental, or chronic health conditions that limit their ability to care for themselves. LTSS can be provided institutionally in nursing homes or through home and community-based services (HCBS).
Statistically, You Will Need LTSS
Reaching 65 and being able to retire financially are great accomplishments. If you have saved enough to finally take a step back from your career and focus on yourself then you deserve it. However, reaching 65 also has its drawbacks. Aging takes its toll on the body and unfortunately ailments are discovered even though you may be in great health.
It is estimated that 70% of all people 65 years or older will require severe help or LTSS with activities of daily living such as dressing or bathing. And again, this help will either be in a nursing home or within the home or community. If you believe you will not need LTSS, then would you invest your retirement savings in something that has a 70% of becoming worthless? Would Warren Buffet make that bet?
Additionally, of the 70% who need LTSS, nearly 50% of them will receive paid services. The 50% who do not receive paid services will rely on family and friends for unpaid help with their daily activities. While it is great someone may have family to take care of their daily needs, such care can become burdensome, especially for those with progressive ailments.
Length of Long Term Care
On average, women who receive LTSS need it for about 44 months, while men require 26 months. Of all people requiring LTSS, about 20% will need it for more than 5 years.
Costs of LTSS
In 2021, LTSS cost Americans as a whole $467 Billion. This includes all forms of LTSS and whether self-pay or through government benefits.
In New Jersey, one on one home care typically ranges from $18 to $24 per hour, and most caregivers require a 4 hour minimum. For 24 hour live in care the cost can range up to $350 per day, nearly $100,000 per year. For nursing home care the estimated average monthly cost is about $13,000.
So for example, let’s assume someone needs help for 12 months in their home, which is below the average need of 44 months and 26 months for male and females, respectively. They hire an aide at $21 per hour for 4 hours each day. This is equal to $84 per day or $30,660 for the length of care. For nursing home level of care, that same 12 month duration would cost $156,000.
For most retirees living on a fixed income, these added expenses are not included in their budgets. Even for people not on a fixed income, these costs can significantly eat into discretionary spending or even create a financial hardship. It is unlikely most people can afford to pay for LTSS out of their own pockets, even with modest savings and retirement accounts. And unfortunately, most retirees have too much money to qualify for government programs.
How to Pay for LTSS
LTSS can either be paid out of pocket, through VA benefits, by long term care insurance, or by governments benefits such as Medicaid. An important note is that Medicare will only pay for a short term stays in a facility for specific reasons. For LTSS, Medicare is not an option. We’ll discuss both long term care insurance and Medicaid.
Long Term Care Insurance for LTSS
If you were insightful enough to purchase long term care insurance (LTCI) when you were younger, then you are in the minority, but you had great intentions. The idea of long term care insurance, pay premiums throughout your lifetime and have your home based or nursing care paid by your policy, seems great, the reality is long term care insurance isn’t as good as it was cracked up to be when you signed up.
First, premiums for LTCI are often expensive and become more expensive as you get older, and if you don’t use the LTCI, then you paid into a program you never got to use.
Second, if your policy does not have an inflation protection clause, meaning the benefit payments increase with inflation, then the payments you receive may not be enough to cover care when you need it.
Third, it is possible your claims will be denied for certain conditions such as dementia, or you will be forced to self-pay for a period before your benefits contribute to your care.
Lastly, the insurance company may no longer be in business by the time you need your benefits.
So it is true long term care insurance may be a good investment, but it is not guarantee you will be able to use when you need it.
Medicaid for Long Term Services and Supports
For people over 65 years old, Medicaid is an option to pay for LTSS. Medicaid is a federal program administered by individual states. Medicaid provides health coverage to older adults who have little to no income or resources. It covers health services, hospital stays, doctor visits, and long-term care services. In addition, Medicaid includes coverage for long-term care in nursing homes and home and community-based services.
Eligibility for Medicaid for those over 65 typically depends on income and asset limits set by each state. In New Jersey the income cap for an individual is $2,829 per month and an asset limit of $2,000. New York’s Limits are $1,677 per month in income and $30,182 in assets. The limits in place are quite low since the program is for low-income individuals.
As you can see, obtaining Medicaid as a retiree may be difficult since Social Security alone may disqualify you. And in most cases, if an individual is receiving LTSS, they will have to expend all of their assets before Medicaid contributes to their care. But there are methods that can be used to qualify someone while preserving at least some of their assets. Also, there are exceptions to what is counted as an asset when applying for Medicaid. Medicaid is particularly important for those who require services not covered by Medicare, such as long-term care and LTSS.
So yes, there is the potential for severe financial ruin if someone would require significant and lengthy Long Term Services and Supports. There are different ways to pay for LTSS, and we believe Medicaid is one of the most viable options. It is not for everyone, but a talk with a professional familiar with Medicaid Planning can help you decide and help preserve some of your financial legacy.
If you are interested in learning more about Medicaid Planning, or Estate Planning in general, please fill out our contact form below and we will be more than happy to help you.