In just ten years an estimated 24 million Americans will need long-term care services and supports according to a recent report from the American Action Forum. The report says that as Americans get older there will be an increased rate of chronic health issues. These forces will drive up these costs over the next few decades.
America is getting older. With Generation X (born between 1965 – 1979), Late-Boomers (born between 1956 and 1964), and the remaining baby boomers, 158 million Americans are getting older and facing a higher risk of needing long-term care services.
People require long-term care due to an illness, accident, or the impact of aging. With advances in medical science, we have seen greater longevity. However, this means more people will need help with what are known as “ADLs” – activities-of-daily living. Plus, as we reach certain age milestones, there is a higher risk of cognitive decline that requires supervisory care.
Can’t Depend on Health Insurance or Medicareto Pay for Extended Care Costs
Health insurance, including Medicareand supplements, will not pay for a majority of this type of care. We are already in crisis as not enough people have planned for the financial costs and burdens that come with getting older.
According to Health Affairs, 54% will not have sufficient funds to pay for this care. Most families are forced to use family caregivers. These unpaid caregivers provide almost 80% of long-term care services at home, according to the U.S. Department of Health and Human Services.
Those with Long-Term Care Insurance do have resources to pay for care. In 2019, according to the American Association for Long-Term Care Insurance, the major insurance companies spent $11 billion in benefits either for care at home or in adult daycare centers, assisted living facilities, memory care centers, and traditional nursing homes.
However, you must obtain Long-Term Care Insurance coverage before your health fails as, like with life insurance, you must have reasonably good health to meet the underwriting requirements.
Demand for Long-Term Care Services Increasing Dramatically
The report indicates that supply and demand for long-term care are “moving in opposite directions.” It says as the population ages, the need for services will increase. Many experts say that demand is more than just demographics.
A Research and Markets report said, “ The U.S. health care industry continues to evolve in response to ongoing cost containment imperatives, aging of the population and relatively low rates of wellness within large segments of the general public (obese persons, diabetics, persons with addictions, etc.). This is leading to increased utilization of all forms of long-term care.”
American Families Face Many Challenges Caring for Loved Ones
So as demand for long-term care services grow, the financial and emotional impact on American families will increase. The American Action Forum report says by 2050, the number of people aged 85 or older will triple, and the number of people using paid long-term care services in any setting will nearly double from 14 million in 2018 to 27 million.
Yet, despite these facts and common sense, many Americans ignore the problem of longevity. Even those people who have planned well for their future retirements tend to ignore long-term care risk. The recent downturn in the markets due to the virus crisis shows that even in a good economy other forces can be a strain on your savings and investments.
“When you see markets drop, as we have numerous times before, being dependent on your assets to pay for future long-term care is problematic. We see normal swings in the markets, but on occasion, an unanticipated event, like the COVID-19 crisis, can devastate assets, at least in the short-term. Just think of the millions of American families being forced to sell assets to pay for care today, at a loss. Often, your ‘loss’ may still be a taxable gain,” said Matt McCann, a nationally recognized Long-Term Care Insurance specialist.
LTC Insurance Offers Guaranteed Benefits and Access to Quality Care
McCann said the guaranteed tax-free benefits of a Long-Term Care Insurance policy would not only give you access to your choice of quality care in the setting you desire but, in addition to protecting savings, it will reduce the strain otherwise placed on family members. Those family members are often the first line of caregiving.
Those with Long-Term Care Insurance get access to quality care. They also tend to get the appropriate care sooner which provides them with a better quality life.
“My clients with LTC Insurance are more likely to get help earlier which often leads to a quality life for both the client and the family. The LTC insurance policy gives the client options when care is needed and can sustain care in the home for a much longer period of time,” said Jenny Novy, President of Amada Senior Care in suburban Chicago.
Amada Senior Care provides a variety of home care services nationwide. They also help their clients process Long-Term Care Insurance claims to make it easier on their client’s families.
LTC Insurance is Affordable Income and Asset Protection
McCann says that despite some talk to the contrary, Long-Term Care Insurance is very affordable. Premiums can vary dramatically between companies for the exact same coverage. Plus, too many insurance agents and financial advisors recommend products or design benefits that are not appropriate.
“Recently, I spoke to a couple in Texas in their 50s who were told Long-Term Care Insurance would run about $8000 a year. This premium quote was for a traditional partnership plan, not a hybrid asset-based policy with a death benefit. The actual cost was a fraction of that. To say the least, they were delighted.
The cost of care is expensive and is increasing year-by-year. Most of the cost is labor but the labor costs, based on supply and demand, will continue to grow in the decades ahead.
Cost of Extended Care is Expensive and Rising
According to the LTC NEWS cost of care calculator, skilled nursing home costs are the most expensive. While skilled nursing is the least used type of care service, the expected 2020 cost nationally is $106,488 a year. Assisted living facility cost is expected to average $50,924 in 2020 for base costs. Care in your home is also expensive, and the national average is expected to run $53,402 a year based on a 44-hour week of care.
In twenty years, the costs of long-term care services will be substantially higher. Failing to plan for this fact will be devastating to your lifestyle and legacy.
To cover these higher costs in the decades to come, you either need inflation benefits on a Long-Term Care policy or have set aside a substantial amount of your own money and hope it is enough.
There are federal tax incentives for some people and, in some states, state tax advantages available when you purchase a Long-Term Care Insurance policy. In 45 states, unique Partnership Long-Term Care Insurance policies are available that provide additional asset protection.
Many states also have rate stability rules in force, which make it difficult for future rate increases on these policies. Find your state by clicking here.
Expert Tips for LTC Planning
Experts suggest planning in advance for future long-term care costs. For many, this could be Long-Term Care Insurance. Use the following tips:
- Seek the help of a qualified Long-Term Care Insurance specialist. There are not many, but some do work virtually, which in the COVID-19 world makes research and shopping more relaxed and healthier. Be sure they represent many companies and understand policy design, underwriting, claims, and the partnership program.
- Be sure to have a policy with inflation benefits. Avoid any plan which only gives you an option to “buy” more insurance. You should also avoid a plan which increases benefits only by the Consumer Product Index (CPI). Some states require at least 3% compound inflation for partnership certification.
- Ideally, obtain a policy in your 40s or 50s when you still enjoy good health and could qualify for preferred health discounts.
- Be sure to ask if your state offers partnership policies. For most people, a partnership plan is the best option. However, a hybrid policy with a death benefit or a limited duration short-term policy may be appropriate.
- Be sure the agent asks you many questions about your health, family history, retirement plans, and finances. Without that information, they can’t provide you with accurate quotes and professional recommendations.
- Research both the current and future costs of long-term care services where you live. Use the LTC NEWS cost of care calculator by clicking here.
Planning for Long-Term Care is About Family
We often think about long-term care planning as asset protection. While that is true, the big benefit of having an advance plan in place is to ease the stress and burden on those you love.
It is your family that would otherwise be responsible for either providing your future care, managing paid caregivers, and selling off your assets, or both.
There are physical, emotional, and financial burdens that loved ones face when you, in the future, require long-term care.
It is easy to ignore something you may think will never happen to you. However, every research study shows as you get older you are more likely to need some type of long-term care service.
You will either pay for the care out of your income and savings, have your family become caregivers or both… unless you have an advance plan that includes an affordable Long-Term Care Insurance policy.
You will enjoy more than just asset protection and quality care when you need it. You, and your family, will enjoy peace-of-mind, control, and independence.
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