Question: A couple of years ago, a very close “young” family friend had a stroke and become immobilized. The high cost of her care depleted her family’s assets. They are now forced to sell their home and are quickly headed for the poorhouse. We don’t want this to happen to our family. What can we do to protect ourselves?
— K & R, Illinois

Answer: Most of us think it won’t happen to us or our families. However, according to “Beyond 50: A Report to the Nation on Independent Living and Disability,” a 2003 publication from AARP, there’s a 68 percent probability that people age 65 and older will become disabled in at least two activities of daily living or be cognitively impaired. And long-term-care needs are not a concern solely of seniors, but of any of us.

Most people insure their homes and cars. However, few Americans (only 6 percent) purchase insurance to protect themselves from the high cost of potential long-term-care needs, according to the 2005 White House Conference on Aging.

THE BASICS

Long-term care ranges from getting help with housekeeping and meal preparation to part-time or full-time nursing care, at home or in an appropriate facility. Statistically, your chances of needing long-term care are relatively small, but they increase with age.

Women, because they live longer than men, have a greater chance of needing such care. But don’t forget that anyone at any age can become the victim of an accident, injury, serious illness or infirmity.

DEVASTATING COSTS

The Health Report to the American People, a regularly updated report from the Department of Health and Human Services, states:

“Almost half of people age 65 and older are already receiving care in a nursing home or are likely to do so at some point in the future. Each year, for every 100 seniors, there are more than 650 visits to doctors’ offices, roughly 40 visits to hospital outpatient departments and roughly 50 visits to emergency rooms. In addition to receiving health care at doctors’ offices and hospitals, one out of seven people age 65 and older and one out of two people age 85 and older need long-term care.”

Expenses for long-term care can range from $50 to more than $300 per day. Over the course of a year, the cost can easily add up to more than $50,000.

Do your plans for financial independence or retirement have room for such a large additional expense?

Genworth Financial’s annual Cost of Care Survey reports that nursing home costs for 2007 will average about $74,800 for a private room and $68,000 for a semi-private room. The survey also showed that costs in urban areas across the United States were 13 percent greater than in nonurban areas. Costs in New York City, for instance, are 55 percent greater than in most non-urban areas of the state.

While you may find a way to pay these costs, you might also discover that your well-planned financial savings are devastated. Couples, in particular, should think about what would happen to the other spouse if one of them had to enter a nursing home.

THREE OPTIONS

Basically, there are three ways of paying for long-term care.

Self-insure: Some people have sufficient income from all sources to pay their long-term-care needs without seriously depleting their assets. Other people build up a fund of liquid investments that can be drawn upon if expensive care is needed.

But what happens if you need care before you’ve accumulated a fund that is large enough, or if you run out of money?

Others believe that their families can take care of them. If your support system is strong, you may be able to stay at home. But before you assume too much, consider the following:

* How would you feel if you were dependent upon someone in your family?

* Is your spouse really going to be able to care for you?

* What if you and your spouse need some level of care? Will your children be available to provide for you?

* Is your dwelling really equipped for your home-care needs?

* Would you have to move to be closer to your family?

Public assistance: Contrary to what you might think, Medicare will not cover your long-term-care needs. Medicare doesn’t pay for home-care assistance, the most common type of care needed.

If you need to be in a skilled nursing facility, Medicare might pay for part of the first 100 days. After that you are on your own. Medicare will pay for medically necessary home health visits by a skilled nurse, but not full-time at-home nursing care.

If your income cannot cover long-term-care expenses, you might have to apply for public assistance. However, to be eligible, you must deplete your assets first by spending them down until you qualify.

The main public assistance program is Medicaid, which is funded by federal and state tax dollars. Medicaid pays for acute and long-term nursing home and community-based care for poor seniors.

Your state will determine if you qualify for Medicaid by looking at how much you and each member of your family have in monthly income, property and assets. Each state has its own rules, but generally if one spouse has to go to a nursing home, the other spouse can continue to live at home and keep only a limited amount of assets.

Long-term-care insurance: Purchasing insurance may be the best way to avoid having a health care catastrophe ruin your financial plans.

You don’t have to cover all your projected needs with insurance. You can establish a trade-off between how much you can afford to pay in premiums and the range of coverage you might need.

For instance, you might purchase insurance to cover you for your lifetime, or for just three or four years. You can purchase nursing facility coverage only, or a policy that includes home-based care.

Note that it is advantageous to buy long-term-care insurance when you are younger, because the older you are, the higher the premiums will be.

WHICH IS BEST FOR YOU?

If you don’t have unlimited financial resources, don’t want to be a burden on family and friends, or don’t want to jeopardize your financial plans, buying long-term-care insurance is the solution. This is true for most families. Don’t hesitate to seek professional advice in this complex and emotional area of your financial planning.

By VALENTINO SABUCO
UNIVERSAL PRESS SYNDICATE

December 22, 2007