The Long-Term Care Dilemma
When I first entered the insurance and financial planning industry over 20 years ago planning was centered around “dying too soon” which is what made life insurance so important. Now, with advances in medicine people are living much longer and the focus has shifted to “living too long” and preventing running out of money which is the biggest fear of mature Americans today. Women are living about five more years than men and are more likely to need care and live alone at home when they are older.
I referred back to an article I had written in 2003 when 50% of people turning age 65 could expect to use some form of long-term care during their lives and the average cost of a nursing home in America was about $45,000 per year. Those numbers are now 70% and $85,000 respectively with over $100,000 in NY. It doesn’t take a mathematician to figure out that many folks would run out of assets in just a few years.
Who needs long-term care? Not everybody is a fit for long-term care insurance. In general, those with estate values, excluding the home of under $200,000 and over $2,000,000 are not prime LTC candidates. In the first example they might not be able to afford the cost, especially if they are 70 or older. This group is more likely to qualify for Medicaid assistance after “spending down” their assets although freedom of choice is lost as the government decides the appropriate care and facility. The latter group obviously can “self-insure” although it often makes sense to “shift or leverage” some of the risk to an insurance company .
What exactly is long-term care? Long-term care is a range of services and supports you may need to meet your personal care needs. Most long-term care is not medical care, but rather assistance with the basic personal tasks of everyday life called “ADL’s” or activities of daily living. I use an acronym called ‘BEDTTC” which I invented to be able to teach a course on this to other brokers in the mid-late 1990’s. The 6 ADL’s are; Bathing, Eating, Dressing, Toileting, Transferring (from bed to couch etc) and Continence. If you need assistance with 2 of the 6 ADL’s then you will “trigger a claim”. Cognitive impairments like dementia and alzheimers are also covered. Keep in mind the average alzheimers patient lives over 14 years.
A good “total care” policy will cover the four “quadrants of care” which are home care, community care (includes adult day care), assisted living and nursing home care. These policies should also cover what are called “IADL’s” instrumental activities of daily living. These include housework, managing money, taking medications, cooking and pet care to name a few.
Long-term care insurance coverage, whether provided under a stand-alone policy or a rider to a life insurance policy, can protect the assets you have spent a lifetime building. It can also prevent you from becoming a burden on your kids, keep you in control of decision making and offer “piece of mind”.
The two biggest mistakes I see are thinking that Medicare, Medicaid or health insurance are going to cover long-term care and waiting too long to address and/or buy the insurance.
Medicare only pays for long-term care if you require skilled services or rehabilitative care if in a nursing home for a maximum of 100 days. The average covered nursing home stay is about 3 weeks. Medicare doesn’t pay for non-skilled assistance with ADL’s which make up the majority of long-term care expenses. Most health insurance plans cover the same type of limited short-term services as Medicare. Medicaid does pay for the largest share of long-term care services however your income must be below a certain level and you must meet minimum state eligibility requirements.
Our government wants you to buy long-term care policies so they don’t have to fund it themselves. They have made it easier to obtain to obtain tax deductions. On the state level, New York State raised their “tax credit” from 10% to 20% a few years back which helps to defray net costs.
I’m seeing and recommend people address this in their 50’s when folks are younger and in better health. For many people, switching from disability insurance to long-term care insurance during the pre-retirement stage is a painless transition. Keep in mind that most disability policies (which protect against loss of income due to disability) start to reduce their benefits from age 55-60 so you are paying the same premiums for decreasing benefits. An 80 year old can pay as much as four times more that a 55-60 year old. My family learned this the hard way when we tried to get a policy for my 80 year old grandmother who needed kidney dialysis. She couldn’t qualify for a policy. Doctor’s gave her one year and she lived over five years getting dialysis three days/week. Our family went through all of her assets and some of ours paying over $40,000/year for 8 hours of home care per day.
The bottom line is that you don’t have to break the bank to buy a long-term care policy as long as it’s addressed early enough when you are in better health and of sound mind. You will be glad you did!
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Robert C. Intelisano CSA,CLU,LUTCF earned his CSA (certified senior advisor) designation in 2003.