Planning today for tomorrow Featured

12:39pm EDT September 21, 2006
Due to medical advances, space-age medicine and a better quality of life, Americans are living longer than ever. However, the longer one lives, the greater the likelihood of a catastrophic illness or accident requiring some type of long-term care, whether in an assisted-living facility, at home, in a nursing home or through a hospice.

We also tend to think of long-term care as a problem facing only older Americans. Yet in 2003, 37 percent of those receiving such care were under the age of 65.

“Two major concerns govern the lives of families with a severely ill or injured person,” says Sherry Maynard, a financial consultant in J.J.B. Hilliard, W.L. Lyons Inc.’s Columbus branch office. “It exacts an emotional toll on the family, and an extended need exacts a financial toll.”

No financial plan is complete without addressing the likelihood of needing long-term care. Smart Business talked with Brown about the cost of long-term care and how best to plan for it.

What are the chances a person will need long-term care?
A sudden illness or injury can happen to any person at any age. The odds of needing care for longer periods of time, however, increase with age.

Statistics show that more than half the U.S. population will require long-term care at some point in their lives. For couples, there is a 75 percent likelihood that one partner will need long-term care.

Who pays for long-term care?
Many seniors falsely assume that the federal government’s Medicare entitlement will cover their long-term care costs. That is not so. Medicare covers a maximum of 100 days in a nursing home, but only if the stay follows a hospital confinement of at least three days. Furthermore, only 20 days are paid at 100 percent.

Medicaid will cover nursing home costs only after the patient has ‘spent down’ most of his or her own assets and has limited income.

Can’t my family take care of me?
Children often do care for aging parents. But the workload generated by a person with a chronic illness such as Alzheimer’s Disease or a permanent injury such as quadriplegia is so demanding that it can cause substantial physical and emotional hardships on your family. And families don’t stay put the way they used to. In today’s mobile society, family members are often separated by long distances. If your children live out of state, it is impossible for them to offer you hands-on care.

What will it cost?
Seventy-one percent of long-term-care users receive care at home, according to recent statistics. The average hourly wage for home health aides was $19 in 2005.

In 2005, the average private room in a skilled nursing facility cost $203 per day; the average semiprivate room cost $176. It is safe to assume that the cost of long-term care will continue to increase, perhaps at a rate greater than inflation.

The cost of long-term care insurance is substantially reduced when purchased while you are young and healthy. Delaying purchase could increase the long-term care insurance premiums or cause you to be uninsurable.

Should I buy long-term care insurance, or should I self insure?
It depends on your net worth.

If you have substantial assets, consider self-insuring. Just be sure that you understand the potential cost of extended care. If long-term care costs continue to rise as they have in the past, one year in a nursing home may cost as much as $200,000 by year 2025. Depending on your current age, you may need to set aside as much as $1 million to pay for four years of care.

Are long-term care premiums tax deductible?
Individual taxpayers who itemize their tax deductions may treat premiums for tax-qualified long-term care insurance as a medical expense on their federal tax return. The annual deduction amount is capped, based on age. Some states also offer deductions or tax credits.

Self-employed individuals may be able to deduct long-term care insurance premiums as a business expense. They may be able to do so in the same way that they deduct health insurance premiums. This may be true for both the individual and his/her spouse. Age-based limits apply.

What If I never need long-term care benefits?
Most of our clients are concerned about paying premiums for long-term care insurance. They worry that they will never recover what they’ve paid into the policy.

Actually, that may be an ideal outcome: peace of mind and a long, healthy life.

SHERRY MAYNARD is a financial consultant, Chartered Financial Analyst and Chartered Wealth Advisor with J.J.B. Hilliard, W.L. Lyons Inc. in its Columbus branch office. Reach her at (614) 210-6284 or smaynard@hilliard.com.