I’ve wanted to write this post for a long time, however, I just haven’t gotten around to it. Over the years, clients and others I’ve talked to have been reluctant in initial conversations about long-term care planning to consider the purchase of long-term care insurance (LTCI) because they thought that Medicare will take care of them.
Let’s put it this way, if you’re part of this school of thought, you experience a long-term care event, and you don’t have LTCI, you’re in for a big surprise. A large part of the problem is that most people don’t know what constitutes a “long-term care event,” let alone how this compares to what Medicare will cover.
Long-Term Care Event
In order to qualify for benefits under a tax qualified LTCI policy, which represents 95% of policies sold today, you’re required to be certified by a qualified health professional as having a chronic illness that will last for at least 90 days whereby the illness must result in you:
- Being unable to perform at least two out of six activities of daily living (“ADL’s”), or
- Having a severe cognitive impairment that requires substantial supervision
The six ADL’s include bathing, dressing, eating, continence, toileting, and transferring.
Will Medicare provide benefits for either of these two situations? It’s not likely, and, if there’s coverage, it will be limited as far as number of days, dollar amount, and type of coverage.
The majority of long-term care expenses are for custodial, or personal, care, none of which is covered by Medicare. Custodial care is designed to assist a person who has limited ability to perform daily activities due to deficiencies in physical and/or cognitive functions. It’s provided to help someone with his or her ADL’s or instrumental activities of daily living (“IADL’s”). IADL’s are the cognitive functions pertaining to comprehension, judgment, memory, and reasoning. Activities include shopping for personal items, managing money, using the telephone, preparing meals, managing medication, and doing housework.
Medicare wasn’t designed to handle significant long-term care expenses. Medicare only covers medically necessary care with the focus on medical acute care, such as doctor visits, drugs, and hospital stays. There are three qualifications that you must meet in order to receive Medicare benefits:
- Have had a recent prior hospital stay of at least three days
- Admitted to a Medicare-certified nursing facility within 30 days of your prior hospital stay
- Need skilled care, such as skilled nursing services, physical therapy, or other types of therapy
Medicare Benefit Period and Benefit Amount
If you meet these strict requirements, none of which are necessary to qualify for LTCI benefits, Medicare will pay for some of your costs for up to 100 days. Medicare will pay for 100% of your costs for the first 20 days, with the cost being shared for the next 80 days. In 2013, you’re required to pay the first $140 per day and Medicare pays any balance for days 21 – 100.
Home and Other Care Services
In addition to skilled nursing facility services, Medicare will pay for various services when your doctor says they are medically necessary to treat an illness or injury. If you’re unable to perform ADL’s and/or IADL’s that’s unrelated to the treatment of an illness or injury, Medicare won’t provide any coverage for home and other care services.
The home and other care services that Medicare covers, some of which are for a limited number of days, include part-time or intermittent skilled nursing care, physical and occupational therapy, speech-language pathology, medical social services, and medical supplies and durable medical equipment. Once again, custodial services aren’t covered.
Are you depending on Medicare to be your long-term care plan? If so, you may want to revisit your plan.
Robert Klein, CPA, PFS, CFP®, RICP®, CLTC® is the founder and president of Retirement Income Center in Newport Beach, California. Bob is also the sole proprietor of Robert Klein, CPA. Bob applies his unique background, experience, expertise, and specialization in tax-sensitive retirement income planning strategies to optimize the longevity of his clients’ after-tax retirement income and assets. He does this as an independent financial advisor using customized holistic planning solutions based on each client’s needs and personality.