How do we pay for long-term health care?

I checked out the possibility of a long-term care insurance policy when I
turned 53. I had read so much about it and I was encouraging my students to check
out whether insurance worked for them. I decided I should do so myself. When I received a solicitation from one of the long-term companies, I asked them for a quote.
Long-term care begins when a person can¹t take care of themselves. We all go through periods when we need help taking care of ourselves, but most of these are short-term situations such as a flu, a broken bone, a temporary illness. Long-term care illnesses by definition, last a long time. They are chronic illnesses or disabilities that are expected to last more than three months. The Congressional Budget office defines long term care as “the medical, social, personal care, and supportive services needed by people who
have lost some capacity for self-care because of a chronic illness or condition.”
Long-term care can occur in a nursing facility, an assisted living, or in the home. Who receives long-term care? Researchers estimate that about 2% of those under 65 use long-term care (3.3 million people). About 17 percent, or about 5.6 million people, over the age of 65 use long-term care. About two-thirds of long-term health care is for older disabled persons and 1/3 for younger disabled persons.
Who pays for long-term care? It’s a mixed bag. Usually it¹s the person in need through their personal savings and the government health care program for the poor, Medicaid. Together these two sources cover most of the cost of long-term care services. About $43 billion from each source. Medicaid, however, only covers you when your poor, when you¹ve used up all your assets and income to pay for medical care and there¹s not enough left for anything else. Medicare will not cover your long-term care expenses. Read my lips: Medicare will not cover your long-term care expenses. Medicare covers acute care like hospitalizations and doctor¹s visits and some pharmaceutical drugs. Medicare covers your therapy after a hospitalization, even if that therapy occurs in
a long-term care facility like a nursing home. If you learn anything from this piece, learn this: Medicare will NOT cover your long-term care expenses.
Confusing? It sure is. Here¹s how it often works. Your Aunt Abby, who lives alone, has a severe stroke and can¹t look after herself anymore. For a while she may be able to get long-term care services in her community by paying for home care. But, eventually she needs a nursing home with a cost of $60,000+ per year. She can¹t afford that. She lives on a small pension and Social Security. Most of her wealth is in her home. So she sells her house for, say $240,000, and she can pay for the nursing home for four years. After the four years she still needs care and the nursing home social worker gets her on Medicaid because Aunt Abby can¹t pay her nursing home bill. (And neither can her family pay out $60,000 per year.) From then on, Medicaid pays the bill. But Medicaid doesn¹t pay the nursing facilities very much for the care so they really don¹t want Aunt Abby when she¹s on Medicaid. Most would continue to care for her, but some will reduce
the level of her care. She may have to move from a private room to a semi-private room. Some may not accept her back if she is hospitalized.
So, unless you expect to use Medicaid, the government program for the poor, you need to figure out how you will cover your long-term care expenses. First option is to save enough, on top of your retirement, to handle long-term care expenses. Second option is the growing choice of long-term care insurance policies. The policies are improving. It¹s hard to craft a policy that will hold up over the course of 30-plus years in terms of benefits and appropriate cost. And each person¹s circumstances are different. People with large supportive families may not need a formal long-term care insurance policy. But a single woman, given a long life expectancy, who does not anticipate having children
and who has no extended family, should consider some kind of insurance arrangement for formal long-term care.
The time to plan for these expenditures is now not later.
I never bought the long-term care policy, for a variety of reasons related to cost and risk. But each decision is individual. Check out your own need and how much a policy would cost.
Website Resources:
The Center for Medicare and Medicaid Services (CMS) has an excellent site on
long-term care. See
The US Department of Health and Human Services also has an informative site:
Another excellent source of information is the old standby, AARP:
The Kaiser Foundation has helpful information in an issue brief at:

Medicare: ­ the health care expenses safety net ­slowly unraveling.

Medicare is the most important way we cover the medical care needs of older people and people with severe disabilities.
Who does Medicare cover? People age 65 or older, people under age 65 with certain disabilities, and people of all ages with permanent kidney failure.
The basic parts of Medicare are: Part A is medical insurance, also called Hospital Insurance, or in-patient hospital care and some types of rehabilitation care.
Part B covers most doctors¹ services and outpatient care and some therapy and home care services and equipment.
The newest part, Part D, covers some prescription drug costs. A monthly premium is charged for Part B and Part D.
(Are you wondering what happened to Part C? It is the “Medicare Advantage” program and sets up optional managed care plans for people on Medicare.)
We pay for Medicare Part A through payroll taxes, similar to how we pay for Social Security. People pay into Medicare out of their payroll throughout their lives and current workers pay for current Medicare recipients. We pay for Part B out of regular taxes and the monthly premiums that each recipient pays.
Medicare is the second largest domestic program of the Federal Government (after Social Security). Medicare spends an average of almost $8000 per person per year on its 41 million beneficiaries, although 26% of all Medicare¹s funds are spent for the last year of life.
And there¹s not enough money. The deficit for 2005 is about $350 billion. That deficit is paid out of the trust fund Medicare has accumulated, but the trust fund reserves are estimated to run out in 20190. The deteriorating economy will only make this worse. So Medicare, like Social Security, needs some attention.
Watson Wyatt Worldwide, the premier financial management consulting firm states: “Retirees will have to assume greater responsibility in planning and paying for their medical costs in retirement, including saving more, delaying retirement or both.”
Out-of-pocket expenditures for persons on Medicare averaged $2223 per year. In the future, we can expect this proportion $8000/$2000 (4/1) to shift more towards the individual. As more costs are shifted to the individual during working years, Medicare will follow and a great share of the expenditures will be the responsibility of the individual. Furthermore, with annual growth in health care expenditures at 6-10% per year, we can expect substantially increased costs for health care as retirement approaches.
It remains to be seen how the Obama Stimulus Package and the President’s proposed budget will affect older persons. The plan to accumulate a reserve to address health care relies on Medicare savings to do so. Certainly, there are efficiencies that can be implemented to generate savings, but other actions such as reductions in reimbursement rates for physicians and other health care providers may result in a limitation on access to care by Medicare beneficiaries.
The basic message remains — there will be increased personal responsibility for health care costs. It’s down to you.