The myths of Long term care
While I was on vacation recently, I received 2 panicky phone calls from clients that had to make arrangements for loved ones because of their inability to take care of themselves. In both cases, the parent fell down, injured themselves, and were required to be in the hospital for a few days. As a matter of fact, one of my client’s dad fell down again after only being home from the hospital for a few hours, requiring him to go back because of a possible head injury. Fortunately, I had done some previous planning with both on long-term care. Ironically, the kids were very surprised to learn that Medicare wasn’t going to help pay for any of this, which I suspect many people think would have been the case! I thought I would spend a few minutes discussing long term care planning in more detail:
1.) What is meant by long term care? The industry definition is the loss of one’s ability to perform the Activities of Daily Living (ADL), such as bathing, using the bathroom, eating, getting dressed, walking, doing household chores, etc. A long care situation is usually associated with the loss of 2 Activities of Daily Living. It involves intimate aspects of being able to take care of themselves, the capacity for self care.
2). It probably won’t happen to my parents– Unfortunately, statistics tell a much different story. I recently saw a Fidelity Investments study from 2012, that estimates a retiring couple should have some $ 240,000+ dollars earmarked for medical expenses, with the number rising substantially if a serious long term care event happens. According to the Family Caregiver Alliance, they expect the number of people needing long term to double to over 13 million as our population continues to get older. Medical science is also doing a very good job keeping people alive longer, with the population segment turning 100 years of age growing extremely fast. According to an AARP study, people 65 years and older have a 68% chance of being cognitively impaired or will require some type of long term care assistance.
3.) Medicare will pay for it- what Medicare covers and pays for is so misunderstood, and was never designed to be a long term care solution. It was conceived as a health insurance plan for Americans age 65 and older who had paid taxes for Medicare over 10 years. It has a lot of pieces, which is why I sometimes think it takes a PhD to understand the program. However, it consists of Part “A” & Part “B”. Part “A”, which has been referred to as hospital care, does have some potential skilled nursing facility/home health care benefits. Medicare pays a limited number of days for “skilled” nursing home care up to 100 days provided it is nursing care on an inpatient basis, such as intravenous drugs. However, it doesn’t pay for care that doesn’t require medical knowledge, such as helping people with the daily activities of living! Furthermore, once you have exhausted your 100 days of “skilled” nursing home care, you have used up your Medicare benefits for that period.
4.) We will pay for it on our own or just take care of them- The average costs for private long term care in Maricopa County is over $ 75,000 per year, with home health care costing as much as $ 40,000+. Additionally, over 78% of the people needing long term care assistance depend solely on their family as their sole source of help. NHPF estimates that families spent a staggering $ 200 billion+ dollars on long term care services, with the average family assisting over 20 hours per week helping someone that needed long term care assistance. The economic value of this care has been valued at over $ 450 billion dollars, with this problem & costs increasing steadily each year! It’s alarming, consider the last census for example, over 50% of people have no plan to help pay for long term care. Will your family have enough time or money to help your loved ones?
5.) The SOLUTION….You need a plan!!!!! People need to be considering all their options when planning for future medical expenses associated with long term care.
A.) Consult a long term care professional about purchasing long term care insurance. You may want to include a daily benefit amount, like a $200 per day, and provides an inflation rider to increase as long term care costs rise, maybe a 3% increase rider. Also, include a long enough benefit period as it is estimated that long term care situations last an average of 2 to 3 years, even out to 5 years+. The policies can run around $ 3000 to $ 4000 for a 55 year old couple, but the younger and healthier you are, the less costly the policy and the easier it is to get it. In some cases, these premiums can be tax deductible so consult your tax professional.
B.) If you have a cash value life insurance plan, consider transferring in to a new plan that included a chronic illness/living benefits rider. This will allow you to use a substantial portion of the death benefit while you are alive to help pay for the monthly costs of long term care.
C.) Consider annuities that provide some look care benefits, or will help to offset the costs.
D.) You may want to meet with an estate planning attorney about different planning strategies to help with a long term care plan.
E.) You may want to start an additional savings plan that is specifically targeted to help pay for long term care/medical expenses, or work with an advisor to restructure your current income plan. Also, dormant assets like unused IRA’s, C.D.’s, possible equity in your home, could be used to help address these needs. However, you need to plan, and with Government resources stretched so thin already, having control over your destiny would seem to make the most sense.
F.) There are so many product options that provide significant dollars for long term care from annuities, asset-based programs and straight long term care policies. Also, you may further benefit from some tax deductions of the premiums depending on your current tax situation.
Given the many new products and planning strategies, familiarizing your long term care options could be time well spent. Medicare isn’t the planning solution and why comprehensive planning should consider all the issues. Having been in this business for 35 years, I can share many stories of the disruptive consequences caused by long term care!!
Pat Moran has over 35 years of financial services experience and is a managing partner at Healthier Money. He is independent and specializes in financial education, reducing risks and tax favored strategies. He can be reached at (602) 571-1035 or www. Healthiermoney.com