If you do an internet search, you will see many news stories about long-term health care, aging, caregiving, and the related consequences aging has on American families and finances.
President Joe Biden has proposed to spend $400 billion over the next eight years to improve access to in-home and community-based care for those on Medicaid. The reactions have been mixed. Plus, the proposal does nothing for middle and upper-middle-class families who face tremendous financial pressure because of long-term care, not to mention the burdens placed on family members who are thrust into the role of being a caregiver for Mom or Dad.
Can't Avoid the Aging Process
Aging does happen, and so far, we can't avoid the aging process. After age 40, if not before, you start seeing changes to your health and body. After age 60, you begin noticing memory lapses and even more significant cognitive decline.
Yet, many Americans would instead rather think of their death than they would like to think about long-term care. Surveys of Long-Term Care Insurance specialists have consistently indicated that consumer denial is one of the biggest reasons people fail to plan. This denial is strong despite common sense and facts that suggest otherwise.
Kaiser Health News recently published facts that are hard to ignore. People aged 65 and older represent a large and growing population segment. This demographic group is growing faster than other groups.
About Half of Us Will Need Long-Term Health Care
Government estimates say about half of us will need long-term health care during our lifetime. The cost of long-term care services and supports are very expensive and will continue to rise in the decades ahead. The LTC NEWS Cost of Care Calculator shows you both the current and future cost of care where you live. Even for those families with substantial means, the costs can drain assets, change lifestyles and legacy.
Imagine balancing a six-figure bill in the decades ahead. Spending for paid long-term care services and supports already runs about $409 billion a year today. This number will increase dramatically as Generation X and the Late-Boomers join the remaining Boomers in needing extended care.
50 Million Unpaid, Untrained, and Unprepared Caregivers
Many families find themselves becoming unpaid caregivers for their parents. They certainly are unprepared and untrained for the job that is demanding mentally and physically. Experts suggest that 1 in 6 Americans provide billions of dollars’ worth of unpaid care to a relative or friend age 50 or older in their home.
A federal report says there are 65,000 paid and regulated service providers. These providers cared for 8 million Americans in 2016. Do not forget the number of unpaid family members providing care to loved ones. The AARP says that represents 50 million people who must juggle their jobs and families with their role of being a caregiver.
Think about these numbers when you think that you somehow will avoid needing long-term health care:
- 12,200 home health care agencies
- 286,300 adults enrolled in 4,600 adult day care centers
- 811,500 residents living in 28,900 assisted living and other residential care communities
- 15,600 nursing homes with 1.35 million residents
These numbers represent paid services. Now think about all the people being cared for by those 50 million unpaid family caregivers.
Longevity Needs Planning
Medical science advances have brought us greater longevity. This longevity does not mean we avoid chronic health problems, dementia, and frailty due to aging. People need long-term health care for many reasons, including as a result of an illness, accident, or the consequences of aging.
Medicaid pays for most long-term care services. However, you must have little or no assets to qualify for those benefits. If you have savings, you are exposed to these tremendous costs. Do not think about giving away assets so you can be eligible for Medicaid. The Deficit Reduction Act of 2005 (DRA) has closed the many loopholes and has established five-year lookback period to prevent this from happening.
Partnership LTC Insurance
However, the DRA did expand the Long-Term Care Insurance Partnership Program. Currently, 45 states participate in this program which offers you dollar-for-dollar asset protection if you own a qualified Partnership Long-Term Care Insurance policy.
Unfortunately, the partnership program seems to be one of the biggest secrets in retirement planning. Most financial advisors and general insurance agents know little or nothing about the program. Many of these professionals either ignore long-term care planning or recommend expensive hybrid policies which combine life insurance and long-term care. While these products are very valuable for those with significant assets, they are inappropriate for the middle class and many upper-middle families due to the costs and the lack of additional asset protection.
The top Long-Term Care Insurance companies paid over $11.6 Billion in benefits in 2020, helping many families keep their loved ones at home and giving their loved ones time to be family.
The Problem with LTC Insurance
The knock on Long-Term Care Insurance has primarily been cost and premium increases. Today's LTC Insurance is affordable and rate stable, but older legacy policies were priced way too low to start with decades ago. Once you add the extremely low-interest-rate environment, those products required increases. Those plans are paying billions in benefits and still have tremendous value, but today's policies are designed differently.
Most states have rate stability rules in place, and all plans are priced based on the low-interest-rate environment that is the most significant pressure point of premiums.
There are several federal tax incentives available with Long-Term Care Insurance. Some states have tax incentives as well. Plus, those who have Health Savings Accounts (HSAs) can use the pre-tax money in the account to reimburse themselves the cost of the premium.
Proceeds from Long-Term Care Insurance come to you tax-free.
The thing to remember is your risk of needing care is a considerable risk. The cost of care increases and you usually design a policy with inflation benefits, so your benefits are increasing every year as well.
Questions to Ask Yourself
The questions you should ask yourself before you retire are as follows:
- Can I depend on my children to provide care or manage paid care? Your kids will have careers and family responsibilities to attend to. Juggling caregiving with everything else seems problematic at best.
- Do I have enough money to self-fund future long-term health care? Most people underestimate the costs of long-term care services. Looking at the LTC NEWS Cost of Care Calculator, you will see the significant increases in the costs in the next twenty years. Which accounts would your children drain first to pay for your care? Will the markets be at a high or a low when you need care? Would your family make the same decisions as you would? Finally, why would you want to pay hundreds of thousands of dollars when you can pay a fraction of that by transferring the risk to an insurance company?
- Do I have a family history? Family history does have some impact on your risk of needing long-term care in the future. Some things run in families, like Alzheimer's, for example. However, a lack of family history does NOT mean you have no risk. Too many factors are involved.
- Do I currently have good health to consider a policy? Long-Term Care Insurance is medically underwritten, so you must have reasonably good health. The rules differ with every company, so seek help from an experienced Long-Term Care Insurance specialist to navigate your age and health and match you with the best options. Experts suggest purchasing a plan in your 40s or 50s if possible.
- Am I realistic about my aging and changing health? None of this matters if you think it will never happen to you. This is called denial.
Long-Term Care is a Cash Flow and Family Issue
Planning for the future costs and related burdens of aging is both a cash flow problem and a family problem. You do not need a plan that pays for every potential penny of cost as you will have income coming in from social security, a pension, or your savings. However, a specialist will design a plan, so you don't over-insure and spend more money than you need.
A majority of policyholders and their families are very happy at the time of claim. Most Long-Term Care Insurance claims go through very easily. The guaranteed tax-free benefits help you stay in control and avoid dependency.
Have a discussion about long-term care planning with an open mind. Think about the consequences your family will have to deal with when you have declining health and other age-related problems. Placing the burden on those you love when there are affordable ways to address the problem seems like something most of us would not want to do.
All this talk about long-term care is real. You can address it now. Give your family the time to be family.
There are many Long-Term Care Insurance options with several types of policies that are available. Premiums vary over 100% between insurance companies. The underwriting requirements also vary between insurance companies.
You need a specialist to help you find the most affordable way to plan for the costs and burdens of aging. Seek a specialist who works with the top companies and has significant experience in policy design, underwriting, and claims. Generally, you want a person who has at least 500 clients with LTC Insurance in place. Most financial planners and general insurance agents lack this experience and knowledge.
Start planning before you retire, ideally in your 40s or 50s.
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