The Retirement Family's Wolf in Sheep's Clothing

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Published: Aug 3rd, 2015
The Retirement Family's Wolf in Sheep's Clothing
Article Updated:October 26th, 2019

BY: Lenny Sanicola in HuffPost

I recently celebrated my birthday, and while another birthday is always better than the alternative (if you get my meaning), as a benefits professional, I can't help but realize that as a continually aging baby boomer, my need for long-term care (LTC) services is becoming a more-real thing for me with every day that passes.

Most People Have Not Yet Planned for Long-Term Care

So it was surprising for me to find out that two out of three Americans aged 40 and older are not saving for long-term care, despite studies that show seven in ten of those 65 and older will need it, according to a poll by the Associated Press-NORC Center for Public Affairs Research. You read it right! Almost 70% of people turning 65 will need such care at some point in their lives!

There is a lot of talk about retirement readiness these days, and outliving one's savings. People need to factor in the potential need for long-term care. What financial resources are available to you? Do you have enough to pay for several years in a nursing home, an assisted living facility, or home health care?

The decision about how to pay for potential long-term care expenses is a serious concern for individuals and their families. Unfortunately, with the high cost of LTC, and the high cost of long-term-care insurance policies, there is no easy answer. For most U.S. citizens, the costs are increasingly beyond reach. The median cost of nursing home care is more than $90,000 per year, according to a report from the insurer Genworth Financial. One year of visits from home-health aides cost over $45,000 annually. It is estimated that only 5% to 7% of people 45 and older have coverage. Staggering statistics to say the least!

Medicareand Health Insurance Won't Pay for Most Long-Term Care

The Associated Press-NORC survey also found that about 25% of Americans mistakenly believe that Medicareor standard private insurance will cover their LTC needs. Remember, MedicareDOES NOT cover what is primarily under the umbrella of long-term care services, that being what is referred to as custodial care. If you're over 65, don't rely on Medicareor private health insurance. Medicaredoesn't pay for "custodial care," and private health insurance rarely pays any of the cost of long-term care. In the U.S. today, Medicaid -- the federal-state insurance program for low-income Americans -- pays for some of the long-term care. Some people also may be assuming, incorrectly, that they will qualify for government assistance to help them pay for nursing-home care. Rules are in place to disqualify many who won't meet the strict conditions required.

What Exactly is Long-Term Care?

So, what is long-term care? Generally speaking, long-term care refers to 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, sometimes called Activities of Daily Living (ADLs), which are basic actions that independently functioning individuals perform on a daily basis: bathing, dressing, using the toilet, transferring (to or from bed or chair), eating, and caring for incontinence.

Other common LTC services include assistance with everyday tasks, sometimes called Instrumental Activities of Daily Living (IADLs), which includes items like housework, managing one's finances, taking medications, shopping for groceries, caring for pets, and other similar activities.

Many public programs determine eligibility for services according to a person's need for help with these items, while many long-term care insurance policies use the inability to perform independently a certain number of ADLs as criteria for paying benefits.

Having had two parents (at separate times) reside in assisted-living homes, it became clear to me that unless you have so little money that you will qualify for Medicaid or so much money that you can pay the bills out of your own pocket, you should consider buying long-term care insurance. Neither one had such a policy; it was unfortunate to see so much of their lifetime savings be drained.

However, long-term-care insurance is expensive. In a recent Wall Street Journal article, "Why People Don't Buy Long-Term-Care Insurance," researchers suggested that a deeper problem may be that consumers are looking at long-term-care policies the wrong way. In addition, just as important, insurers may be missing opportunities to adjust their products in ways that might address and overcome some of the root causes of those misunderstandings.

For instance, one study found that many people regard long-term-care insurance as having no real value if ultimately the payouts aren't needed. That is, instead of looking at long-term care insurance primarily as financial protection, many people think of it as an investment (and a bad one at that). They don't think about the catastrophic losses a policy could help them avoid.

From a behavioral economics viewpoint, which I have discussed previously in several blogs, including a few entries on the impact of behavioral economics on total rewards programs, the research suggested that some consumers' rejection of long-term care insurance is based on what psychologists call "narrow framing," or people's tendency to exclude key factors when making decisions, particularly when involving complex decisions. In the study, narrow framers were only half as likely to buy such insurance, regardless of other demographics considered.

While the authors' findings suggest that there are consumer attitudes that need to be overcome, they also believe that insurers could better position their products in the marketplace by providing more and better education and information to consumers regarding the high probability and high costs of needing LTC. They especially see an opportunity for insurers to focus much of their efforts on educating adult children (the so-called "sandwich generation") who may have caregiving responsibilities and decision-making regarding their aging parents.

Some employers offer access to such coverage via voluntary benefits programs, but the number of employers is low, and even lower, is the percentage of participants. Employers are in a good position to offer such coverage, but doing so requires more players, more choices and certainly more education. Many insurance carriers have gotten out of the business and there need to be more plan design choices. Did you know that employees can use HSAs to set aside tax-deductible funds that can be used to pay for LTC premiums? Distributions from HSAs can cover qualified LTC premiums.

Retirement Will Be Impacted Without a Long-Term Care Plan

Long-term care expenditures are among the main reasons an individual's retirement plan might fail to meet his or her full retirement needs. New strategies need to be examined for improving long-term care security in retirement. One potential strategy is for more employers to offer this benefit. However, to do so there needs to be more players in the marketplace, which means better underwriting tools to learn to price the product appropriately, while offering more consumer options.

Offering more tax incentives and best practices that can be leveraged in order to increase employer-sponsored long-term care insurance participation? For those people with individual financial planners, are they advising you about the reality of the need and perhaps the importance of the benefit?

Retirement preparedness ... are we REALLY prepared?!?

Follow Lenny Sanicola on Twitter: www.twitter.com/WorldatWork_Len

Editor's Note

There is little question that failing to plan for the financial costs and burdens of aging will adversely  impact you, your family, your savings & income, and your lifestyle. Yet, there is an easy and affordable to safeguard savings and income and reduce the stress and burdens longevity places on your family.

Long-Term Care Insurance is Affordable

Too many people think Long-Term Care Insurance is expensive. The fact is for most people these policies are very affordable. However, you don't want to wait until you are in your 70s to purchase a policy. Premiums are more expensive at those ages but that isn't the only concern. The bigger concern is you must have fairly good health in order to get a policy.

The best time to purchase a Long-Term Care policy is in your 40s and 50s as part of your overall retirement plan. If you have good health and you are now in your 60s you can still find affordable coverage. Hybrid policies, asset-based life insurance or annuities with a rider for long-term care are also available. In addition, short-duration policies might be perfect for a person who is older or has some health issues.

Premiums Can Vary Over 100% So Get Professional Help

No matter which type of plan you purchase, Long-Term Care Insurance is easy, affordable and rate stable income and asset protection. These policies are custom designed. Be careful, however, since premiums can vary over 100% between companies for the exact same coverage. This is why you should seek the help of a qualified Long-Term Care Insurance specialist. Find a specialist by clicking here.

Items to Discuss with a Long-Term Care Specialist:

  • Partnership – Most states offer special policies that provide dollar-for-dollar asset protection. The Long-Term Care Insurance Partnership Program might be one of the best-kept secrets in retirement planning. Make sure the specialist explains this program and how it might help you.
  • Tax incentives – There are federal tax incentives available for some people. If you own your own business be sure to ask.
  • Health Savings Accounts – If you have an HSA you can use the pre-tax money in your account to pay for the premium.
  • Asset-Based or Hybrid policies – These are life insurance or annuities with a rider for long-term care. Careful, only a handful are actually a long-term care benefit. However, one of these policies can provide you with the flexibility of both a long-term care benefit or a death benefit. They are expensive but can be paid with a single premium.
  • Health and Family History - Make sure the specialist asks you detailed questions about your health, family history, and retirement plans. Underwritingcriteria varies with each insurance company. If they are not asking you detailed questions then find another specialist.

Cost of Long-Term Care Services Increasing - Use Tools to Decide Amount of Coverage You Need

Take a moment and find the current and future costs of long-term care in the area you live in. This will help you decide the amount of coverage is appropriate for you in your situation. For example, if you have a defined pension when you retire the amount of benefits you would need for long-term care would be less than an individual who will fund their future retirement with earnings off investments. In that case, protecting the principal is essential since that will produce your future income.

Find your state and use the LTC NEWS cost of care calculator by clicking here.

It is always best to start planning before you retire. Once you have your plan in place you will enjoy peace-of-mind and your family will thank you decades from now.

LTC News Contributor James Kelly
James Kelly

Contributor Since
January 1st, 1970

LTC News author focusing on long-term care and aging.

About the Author

LTC News author focusing on long-term care and aging.

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