The decision of whether or not to purchase insurance for future healthcare expenses is an important one. Our team of CERTIFIED FINANCIAL PLANNER™ professionals have helped many of our client families navigate this question. We weigh the impact that Long-Term Care Insurance (LTCI), self-funding or other alternatives may have on the overall financial plan. Increasing premiums and extensive health screenings have put LTCI out of reach for some. Day-to-day income needs mean self-funding isn’t an option for others. Another, and relatively new, opportunity is Short-Term Recovery Care (STRC).
Why do I need to think about this?
If you’re 65 or over, you have a 70% chance of needing some type of care services before the end of your life.[1] While costs vary from county to county and state to state, the average cost of assisted living in Oregon is about $4,500/month, with home health care around $5,000/month and nursing home care – of which 50% of us will need someday – between $9,200 – $10,000/month.[2] It goes without saying that these expenses can add up quickly.
What role does Short-Term Recovery Care play?
Short-Term Recovery Care acknowledges that the need for care isn’t always long-term. In fact, roughly 50% of long-term care insurance claims last one year or less.³ With a STRC policy, you can choose a daily benefit amount for up to one year of coverage. The typical recommendation is to cover the average cost of home health care, which, using the number above, is about $167/day in Oregon. That said, in addition to home health care, most STRC benefits also cover assisted living and nursing home care. Premiums are unisex, running around $1,260/year at age 65 and $1,692/year at age 70.[3]
In most cases, you are entitled to benefits the day you become eligible. There is no elimination period. Eligibility for STRC is the same as it is for most long-term care policies: either you’ve lost the ability to perform 2 of the 6 activities of daily living (ADL’s) or cognitive impairment (dementia, Alzheimer’s) has become a factor. Another perk: these policies can pay in addition to Medicare, which is not typical of most LTCI policies.
Rather than an exhaustive medical evaluation, there are typically 7-12 health questions and a 2-year lookback associated with qualifying for STRC. This may mean that individuals who were ineligible for long-term care coverage due to a long-ago condition may qualify for STRC. If you need to utilize your STRC benefits, but fully recover within 6 months, your benefits fully restore. (This restoration perk is a one-time benefit.) Typically, this type of insurance is not available to individuals over age 85, but carriers vary in the demographics they serve.
How does this work with my Medicare coverage?
What Medicare may or may not cover depends on the level of care you need.
- If you require post-acute care (care that follows a surgery or procedure), Medicare covers those expenses.
- If you require custodial care, that is not covered by Medicare.
- If you require home health care, Medicare may cover 3 weeks.[4] It’s important to note that this does not include 24-hour care, meal delivery, homemaker services and all the other items you would likely need if you were housebound.
- If you require skilled nursing care, Medicare requires you must be under the care of a physician and making ‘functional improvement’[5] and you typically must have spent 3 or more days in the hospital leading up to skilled nursing care in order for them to pay. If you meet those parameters, Medicare will cover 100% of the first 20 days. Your out-of-pocket costs will start with a daily copay of about $170 for days 21 – 100. After day 100, Medicaid coverage will end.(In every case, your supplemental policy would dictate how much you may incur in out-of-pocket expenses.)
As you can tell, it’s difficult to understand what exactly Medicare will and won’t cover, and – like with all risks you insure for – impossible to predict what type of coverage you will or won’t need. In several of the examples above where Medicare does not cover care, Short Term Recovery Care will.
What about Long-Term Care Insurance?
Earlier, we mentioned that roughly 50% of long-term care insurance claims last one year or less. The average of the other 50% is about 2 years.[6] Using the numbers listed at the beginning of this article, it’s easy to see where you could spend a quarter of a million dollars over those two years without some insurance coverage. There’s also no guarantee your case won’t be over the average of 2 years.
Long-Term Care Insurance still provides the maximum level of insurable protection available against unanticipated long-term care expenses. The clients we serve who carry a long-term care insurance policy tell us that it allows them to more confidently spend their nest egg on the fun things in life and sleep better at night.
If you already own a LTCI policy, consider this: STRC can serve as a supplement to your policy. Since it does not have an elimination period, it has the potential to provide support during the 60-120 day elimination period that typically accompanies long-term policies.
I’m planning to self-fund any healthcare expenses I may incur. Do I still need to think about this?
If you were planning to self-fund before you heard that Short-Term Recovery Care existed, we encourage you to give it some consideration. STRC could be viewed as a supplement to those considering self-funding, as it covers the first year of expenses. You might also consider it a ‘middle of the road’ approach between self-funding and long-term care insurance and may find it offers you some of the peace of mind that others who are insured enjoy.
Which is right for me?
Like with every insurable risk, you won’t know what’s exactly right for you until it’s in hindsight. Performing thorough research and an analysis of your unique situation is the only way to fully understand your choices and feel comfortable with your decision. If you want guidance through that process, we’re here to help. After analyzing your overall picture, we can provide you with a list of questions and thoughts to discuss with an independent insurance agent who can further explain your options.
[1] LongTermCare.gov, “How Much Care Will You Need?” https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
[2] Genworth “Cost of Care Survey, 2018,” https://www.genworth.com/aging-and-you/finances/cost-of-care.html
[3] American Association for Long-Term Care Insurance, “Short Term Care Information,” http://www.aaltci.org/short-term-care-insurance/
[4] Medicare.gov, “Home Health Services,” https://www.medicare.gov/coverage/home-health-services
[5] Medicare.gov, “Skilled Nursing Facility (SNF) Care,” https://www.medicare.gov/coverage/skilled-nursing-facility-snf-care
[6] Morning Star, “75 Must-Know Statistics About Long-Term Care,” https://www.morningstar.com/articles/823957/75-mustknow-statistics-about-longterm-care.html
