Preparing for Extended Care

Preparing for Extended Care

February 20, 2020
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Health insurance and healthcare spending is a popular topic of conversation among Americans. Most households are eager to maintain the quality of coverage they enjoy, well into their retirement years. But preparing for extended care requires consideration and thoughtful planning. Let’s explore some of the ways you can prepare. 

What is Extended Care?

Extended care is the need for specialized care outside the parameters covered by ordinary health insurance. While sometimes it just means a longer hospital stay, extended care actually covers a wide array of scenarios that may arise. For example, residency at an extended care facility (ECF), which is a health care establishment with more specialized focus, can be necessary for patients who are rehabilitating from a severe injury, fighting a chronic illness, or otherwise in need of care that an ordinary hospital may not provide. 

Extended Care, Extended Coverage

In addition to ECF care, the scope of extended care can include home care and other special services such as visits with healthcare professionals, emergency alert devices, transportation, housekeeping, meals, and more.

It’s important to determine whether the insurance you receive through your employer (or the insurance you’ve purchased) is designed to cover extended care. In most cases, Medicare does not, as it falls outside their definition of “medical care.”1

The good news is that there are ways to prepare for the event that you or your loved ones require extended care. These include purchasing a specific insurance policy, and establishing a Health Savings Account (HSA). 

A Policy for Every Person

Whether you are just beginning your retirement strategy or are nearing retirement, it’s vital to incorporate healthcare into the equation. If your Medicare and/or health insurance does not cover extended care expenses, you may want to consider obtaining a special insurance policy that specifically covers you in that situation. Pre-existing conditions may disqualify you from obtaining such a policy, so it’s wise to obtain one before you actually think you’ll need it.2  And the advantages are clear: an extended-care policy may help protect your nest egg while also giving you more choices about where and how you receive the care you need.  

HSA: A Special Way to Pay

HSAs have emerged as another solution to extended-care needs. An HSA isn’t insurance, but it does provide a tax-advantaged savings account to which you and potentially your employer can make contributions over time. You can use these funds to pay for most medical expenses, including prescription drugs, dental care, and vision care. This is a great option that you can look into right away, to take advantage of savings over time. 

Once you reach age 65, you’ll be required to stop making contributions to an HSA. Remember, if you withdraw money from your HSA for a non-medical reason, that money becomes taxable income and you face an additional 20% penalty. After age 65, you can take money out without the 20% penalty, but it still becomes taxable income.3 

An HSA works a bit like your workplace retirement account. Not only can your employer make contributions alongside you, but the money that you contribute comes from your pre-tax income and is invested for you over time, so it has the possibility to grow as your contributions accumulate.3 

HSA Limits to Consider

There are some HSA rules and limitations to take into consideration. You’re limited to a $3,500 contribution for 2019 if you are single, $7,000 if you have a spouse or family. Those limits jump by a $1,000 catch-up limit for each person in the household over age 55. Your employer can contribute, but the limit is cumulative between your contributions and theirs. So, if you’re lucky enough to have your employer put $1,000 into your account in 2019, you may only contribute as much as the rest of your limit, minus that $1,000. If you contribute more than that, you’ll incur a 6% tax penalty, so it’s smart to keep an eye on how much you’re putting in.3 

While extended care can be expensive, the sooner you begin to prepare, the better off you’ll be. If you have questions about your particular situation, reach out and let’s talk. Together, we can put together a strategy that can help you face the future with confidence.

1 https://www.medicare.gov/coverage/long-term-care

2 https://www.nerdwallet.com/blog/insurance/long-term-care-insurance/

3 https://www.investopedia.com/terms/h/hsa.asp

4 https://www.optumbank.com/all-products/hsa/investment-services.html

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Photo by Dominik Lange on Unsplash