Choosing a long-term care solution

Once you've determined how long-term care (LTC) expenses may impact your financial goals, the next step is to understand what options you have to manage these expenses. There are three main ways to address LTC expenses:

• Accept the risk by planning to self-pay for any LTC costs (self-insuring)
• Transfer the risk by purchasing an insurance policy 
• Share the risk by combining self-insuring with an insurance policy

Which LTC solution could make sense for you?

Start by looking into whether you can afford the premiums – today and in the future – of insurance. Typical LTC insurance premiums can be $3,000 or more per year  depending on the type of policy, level of benefits, age, and gender. If you can't afford any insurance, you will need to be prepared to self-insure potential LTC costs.

If insurance is an option, here are some factors to help you decide between self-funding and insurance:

LTC spousal/partner planning

You'll want to consider whether to insure one partner or both and how much coverage for each. It may be helpful to have your financial advisor run multiple scenarios with different coverage options to understand which options make the most financial sense.

Pros and cons of accepting the risk

There are some nice benefits but also some substantial risks if you choose (or need) to accept the risk of covering LTC expenses yourself. You’ll be able to decide when and how to start receiving care, and you won't have to worry about meeting the qualifications necessary for an insurance policy to pay benefits.

But you'll also bear the entire cost yourself. If you have significant care needs but don't have enough income or savings to cover the costs, this can impact the quality of care you receive as well as have negative financial implications for you and your family. 

To help you understand the impacts, work with your financial advisor to run scenarios to see how a LTC event would affect your retirement and legacy, if that's important to you.

Pros and cons of transferring the risk 

Transferring the risk to an insurance company can mitigate some of the planning uncertainty. When considering an insurance policy, be sure that you understand the criteria for the policy to pay benefits, including what counts as chronic illness.

Additionally, keep in mind that most policies have a waiting period (known as the elimination period) before benefits begin. You'll want to make sure you have enough savings to cover your expenses during this period (typically 90 days).

Types of insurance to consider

When considering insurance, there are three primary types:

Pros and cons of sharing the risk

Another option is to share the risk. For example, you could plan to self-insure the expected costs of one year’s worth of LTC expenses and buy insurance for additional expenses. Many diagnoses have a more gradual impact over time, and self-insuring home health care costs may be manageable. Purchasing insurance could then help supplement for diagnoses that require care that lasts longer than you want to cover yourself.  

Another consideration: Health Savings Accounts

Did you know that qualified LTC expenses and insurance premiums (up to certain limits) can be paid for tax free from your Health Savings Account (HSA)? If you have a large HSA balance, you may consider using HSAs for LTC expenses and premiums since HSAs have less favorable estate tax treatment.  

Government benefits for LTC costs

It's important to note that you may be eligible for some government benefits which may provide some supplemental coverage for long-term care expenses. Primarily, those include: 

• Medicare – Covers skilled nursing care for a limited time after a qualifying inpatient hospital stay (must be admitted at least three days, which doesn't count the day of discharge). Because Medicare coverage is extremely limited, we don’t recommend solely relying on it for covering LTC costs.
• Veteran's Affair Benefits – Provides benefits to previously active members of the U.S. military.  Benefits from the VA are provided on a priority basis depending on how the diagnosis is connected to service and certain income levels.
• Federal Long-Term Care Insurance Program – Provides benefits to federal employees and certain relatives. The benefits are similar to what can be found in other individual LTC insurance policies.
• Medicaid – A government program intended to help lower-income individuals and families. Eligibility for Medicaid typically restricts income and assets.  The choices you have in terms of the location and what type of care are generally limited.  

Next steps

Overall, understanding the impact a potential LTC event could have on you, your family and financial goals is an essential part of retirement planning. Identifying the potential risk, educating yourself on the solutions, and working with your financial advisor can give you the confidence to implement a plan that meets your needs.