Will You Be Prepared to Cover the Costs of Long-Term Care?

Medicare often falls short when it comes to covering certain expenses. Here are some ways to plan ahead.

Will You Be Prepared to Cover the Costs of Long-Term Care? image

CONSIDER THESE FACTS: People turning 65 today have almost a 70% chance of needing some type of long-term care.1 And Medicare generally doesn’t cover the cost of that care.

Under the Chronic Care Act, approved by Congress in 2018, Medicare Advantage plans, purchased at extra cost, may now pay for certain home-care services. But Medicare itself offers very limited coverage for nursing home and home health services, and that coverage is subject to strict rules.

So what are your options as you begin to think ahead to how you’ll pay for the care you or your family might need? “Hoping that you’ll stay healthy isn’t enough,” says Joe Tantillo, director, Retirement and Personal Wealth Solutions at Bank of America. He recommends putting together a plan for covering future medical costs using a combination of the suggestions below. 

The image on the left is of an elderly woman outside holding several potted plants. To the right, there is a box with text. The hed reads- Preparing for a (bold) Long Life. A clock icon is beneath the hed. The dek below the icon reads- How Will You Manage Your Health-Care Costs As You Age

The image on the left is of an elderly woman outside holding several potted plants. To the right, there is a box with text. The hed reads- Preparing for a (bold) Long Life. A clock icon is beneath the hed. The dek below the icon reads- How Will You Manage Your Health-Care Costs As You Age 

The image on the left is of an elderly man with his male grandchild. They are fishing on a boat. To the right, there is a box with text. The hed reads- (bold) Preparing for a Long Life. The text reads- (bold) First the good news- people are living longer. In fact, the number of people in (bold) their nineties has (bold) almost tripled since 1980. Source- U.S. Census Bureau, 2011.

The image on the left is of an elderly man with his male grandchild. They are fishing on a boat. To the right, there is a box with text. The hed reads- (bold) Preparing for a Long Life. The text reads- (bold) First the good news- people are living longer. In fact, the number of people in (bold) their nineties has (bold) almost tripled since 1980. Source- U.S. Census Bureau, 2011. 

The image on the left is of an elderly couple, a woman and a man, who are walking outside near a number of trees. To the right, there is a box with text. The hed reads- (bold) Preparing for a Long Life. The dek reads- More people are enjoying old age, (bold) but 70 percentage of those 65 or older will eventually need some form of (bold) long-term care. Source- U.S. Department of Health and Human Services, How Much Care Will You Need October 2017.

The image on the left is of an elderly couple, a woman and a man, who are walking outside near a number of trees. To the right, there is a box with text. The hed reads- (bold) Preparing for a Long Life. The dek reads- More people are enjoying old age, (bold) but 70 percentage of those 65 or older will eventually need some form of (bold) long-term care. Source- U.S. Department of Health and Human Services, How Much Care Will You Need October 2017. 

The image on the left is of a plate with pills and a glass on top of the plate. To the right, there is a box with text. The hed reads- (bold) Preparing for a Long Life. The text reads- Medicare covers only an average of 67 percentage of health-care costs in retirement-and does not cover most long-term in-home professional care or nursing home costs. Source- Medicare Payment Advisory Commission. A Data Book- Health Care Spending and the Medicare Program. Page 42. June 2019.

The image on the left is of a plate with pills and a glass on top of the plate. To the right, there is a box with text. The hed reads- (bold) Preparing for a Long Life. The text reads- Medicare covers only an average of 67 percentage of health-care costs in retirement-and does not cover most long-term in-home professional care or nursing home costs. Source- Medicare Payment Advisory Commission. A Data Book- Health Care Spending and the Medicare Program. Page 42. June 2019. 

The image on the left is of an elderly couple sitting on a bench in a park. To the right, there is a box with text. The hed reads- (bold) Preparing for a Long Life. The text reads- Overall, the (bold) average 65-year-old couple will need about (bold) 285,000 dollars to cover out-of-pocket (bold) health-care costs in retirement. Source- Fidelity Investments. How To Plan For Rising Health Care Costs. April 2019.

The image on the left is of an elderly couple sitting on a bench in a park. To the right, there is a box with text. The hed reads- (bold) Preparing for a Long Life. The text reads- Overall, the (bold) average 65-year-old couple will need about (bold) 285,000 dollars to cover out-of-pocket (bold) health-care costs in retirement. Source- Fidelity Investments. How To Plan For Rising Health Care Costs. April 2019. 

Save and invest for the care you’ll need 

Creating a portfolio of conservative, liquid assets for the specific purpose of funding long-term-care needs is one choice to consider. Those assets could be placed in a revocable trust designated for your future care, says Tantillo. Or they could be invested in a health savings account (HSA). But relying on self-funding as the exclusive means of covering long-term-care costs has its risks. “Your expenses may exceed the amount you’ve set aside and then deplete the assets you’ve designated for other goals or for heirs,” he says. “Then, again, if you set aside enough funds for a worst-case medical or disability scenario, you may be tying up assets that could otherwise be invested and growing.” Tantillo suggests bolstering that safety net with some sort of insurance.

"If you set aside enough funds for a worst-case medical or disability scenario, you may be tying up assets that could otherwise be invested and growing."
— Joe Tantillo,
Director, Retirement and Personal Wealth Solutions, Bank of America

Transfer some of the risk to an insurer

“You’ve got several approaches to consider here,” he says. Traditional long-term-care insurance policies provide the most robust benefits, but insurers have had poor experience with these products, which has resulted in significant premium increases, even on existing policies. Those premiums can, however, be paid for with money drawn from a health savings account, which you can fund with pre-tax dollars, notes Tantillo.

But what if you purchase a long-term-care policy and end up not needing care? In that case, you’d forfeit the money you paid out in premiums. For that reason, you might consider hybrid life insurance with a long-term-care benefits rider. If you use only a portion or none of the long-term-care benefits, your heirs will receive an income-tax-free death benefit from the balance of the policy. Or you might explore permanent life insurance with a long-term-care or chronic-illness benefits rider. This option could be a good fit if your primary goal is to provide a death benefit for your heirs, but you also want the option of tapping into the policy’s death benefit early in the event that you need it to supplement your health-care costs.

“Your financial advisor can help you decide how to put together a long-term-care funding strategy that’s right for you—one that’s based on your age, your family’s medical history and the resources you have available to you,” says Tantillo. “Whatever option you choose, you’ll feel better that you’ve done something to prepare.”

A private wealth advisor can help you get started.

Find an advisor

1 U.S. Department of Health and Human Services, 2017. How Much Care Will You Need?

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