Anyone caring for an aging parent or considering long-term care insurance for themselves will want to first know what costs are covered. Learn which long-term care costs are covered by Medicare, what is usually covered by a typical long-term care policy, and what is generally not covered.
Long-term care costs have soared in recent years and are expected to rise even higher. The average annual cost of a private room nursing home stay is currently hovering around $105,645, and in 30 years that number is expected to reach $352,672.1
Medicare will only cover a fraction of such costs, and then only under certain conditions. Long-term care insurance will cover most, but not all expenses, depending on the amount and nature of the costs and terms of the policy. Keeping these numbers in mind, whether you are currently caring for an aging family member or are looking into a long-term care policy of your own you may want to consider including care-related expenses as a line item within your wealth plan sooner rather than later.
What Medicare Does and Does Not Cover
In general, Medicare does not pay for most long-term care services, although it does cover certain costs over limited periods if you meet certain conditions. Those conditions are that you have had a recent prior hospital stay of at least three days, that you are admitted to a Medicare-certified nursing facility within 30 days of your prior hospital stay, and that you need skilled care, such as nursing services or physical therapy. These are distinguished from custodial services, such as feeding, bathing or supervision, which Medicare will not pay for.
If you meet all these conditions, Medicare will pay some of your costs up to 100 days. Medicare will pay 100% of costs over the first 20 days, and will reimburse the difference over the daily limit of $157.50 (rate for 2015) from days 21 through 100. You would then be responsible for all costs after day 100.2
In addition to nursing facility services, Medicare will pay for some services on a limited basis if your doctor says they are medically necessary. These include skilled nursing care, physical therapy, medical supplies and certain social services. Medicare also covers hospice care, in your home, a nursing home, or in a hospice care facility, if you have a terminal illness and are not expected to live more than six months.
What a Typical Long-Term Care Policy Covers
Most long-term care policies today are comprehensive, meaning they cover home health care, adult day care, assisted living and nursing home care. Other services offered by some policies include hospice care, respite care, care after a hospital stay or caregiver training for family members.
However, not all long-term care insurance policies cover all services or even pay out the same rate for similar services. Some policies may exclude or limit coverage for preexisting conditions, mental health or nervous disorders or care by a family member. They may also exclude coverage for certain conditions resulting from alcoholism and drug addiction.
That’s why it pays to weigh out your options and make sure you fully understand what’s covered under a given long-term care policy, when benefits are paid, as well as period of coverage. Or, you might instead consider a hybrid life insurance policy that combines life and limited long-term care coverage, or a life insurance policy with accelerated death benefits, which allows you to take an advance on your death benefit under certain circumstances.
Regardless of how you plan to address long-term care costs, remember to work with a professional, who can make sure you ask the right questions before making any decision.
Anita Srivastava is a Financial Advisor with the Global Wealth Management Division of Morgan Stanley in Ridgewood, NJ. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives
1 John Hancock Insurance 2016 Cost of Care Calculator. Assumed rate of inflation is hypothetical, based on a 4.1% average annual increase in the Consumer Price Index for All-Urban Consumers (CPI-U) for the 50-year period ending 12/31/15. CPI-related data obtained from the Bureau of Labor Statistics of the U.S Department of Labor at www.bls.gov
2 U.S. Department of Health and Human Services, Find Your Path Forward.
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