This week I want to address the issue of long term care, specifically how to pay for such care. A great deal of attention is given by the media to the financial plight of the Medicare program, with its 50 million current beneficiaries and the Baby Boom generation about to add 80 million more over the next 16 years or so. However, little attention is paid to what is happening to the Medicaid program and how it may affect many older adults for decades to come.
First, let’s understand the difference between Medicare and Medicaid. While both were enacted at the same time, 1966, they cover different populations. Medicare, which is funded and administered by the Federal government, provides medical care to those 65 and older regardless of financial status. Medicaid, funded jointly by the Federal and state governments and administered by the states, provides medical care for those who are indigent, i.e. poor, regardless of age. Those who are both 65 or older and indigent can be covered by both programs – they are known as “dual eligible” people.
Medicare’s only coverage of long term care services is for 20 days of post-acute care services while recuperating from a hospital stay; otherwise there is essentially no coverage. On the other hand, Medicaid covers skilled nursing care for millions of people who meet both medical and financial criteria. In addition, Medicaid pays for some home care services in a number of states. However, Medicaid’s future is questionable given the financial challenges facing both the Federal and most state governments. Paul Ryan, House Budget Committee Chairman, has proposed that the Federal government provide block grants to the states for Medicaid; while this sounds good at first, I believe it is a first step to distancing the Federal government from the Medicaid liabilities the states are bearing. As evidence of this, many states, including Pennsylvania, are limiting growth in the skilled nursing licensed bed complement – in fact, in many states the number of licensed beds is actually shrinking as a result of Medicaid cuts (see linked article below). It is hard to reconcile reducing the bed complement in nursing homes at the same time as 80 million more people enter their senior years and longevity continues to increase.
Where does that leave us if we cannot count on government to pay for our care in our older years? It leaves us with that responsibility. At today’s prices, care is not inexpensive and it is rising in cost at about 5% per year. Genworth Life recently published their LTC cost summary for 2011; it is posted on their website (click of the Key Findings tab at http://www.genworth.com/content/products/long_term_care/long_term_care/cost_of_care.html) . If you fast forward twenty years and consider what three years of skilled care might cost, it could be in the $600,000 – $750,000 range. Very few people have the savings to afford that kind of hit. Alternatives to draining all your resources include buying traditional long term care insurance, life insurance policies with LTC riders and annuities with LTC features. The time to consider these options starts when you turn 50 or so because the premiums are much lower then and your health, in all probability, is not an issues. The longer you wait to act, the more expensive these options are and the higher the probability that your health becomes an issue.
Finally, many people suggest that they will rely on their spouse or children to provide their care. That is not as easy as it sounds. First, you may need care well beyond what they can provide. Second, relying on a family member changes that person’s life forever (see second article below). I’ve seen too many instances where people are literally killing themselves taking care of a sick spouse or parent – is that the future you want for your family? So, if you are over 50, stop procrastinating and start exploring options. Living longer is a wonderful thing PROVIDED you are prepared for the challenges that come with age. I help many people examine these issues and would be pleased to help you.