Long-term care, what a depressing topic for old people and who cares, that’s what Medicare is for, right? Well, not so fast. While I’m sure most of us with 25 or more years until retirement aren’t spending a lot of time thinking about health care issues like long-term care, it’s actually a pretty important part of your financial plan, and a very costly possibility.
Before highlighting the recent study and getting to the poll, I wanted to briefly touch on what long-term care is, how much it costs, and how likely it is you’ll experience it in your lifetime. The first myth has to do with Medicare. Medicare does not cover long-term care. I’ll save the Medicare details for an upcoming post, but generally speaking, Medicare has only very limited coverage and will not pay for extended custodial care, which is what long-term care really is.
So if Medicare doesn’t pay for LTC, who does? Well, that’s the bad news. You do. You can either pay for it out of pocket, through LTC insurance, or once your assets are depleted, you can go on Medicaid. So, just how much does long-term care cost? The average one-year stay at a LTC facility is around $75,000. Yes, that isn’t a typo. It will usually cost you anywhere from $50,000 to $100,000 per year to receive long-term care. And when you consider most long-term care stays are around two years, that’s a lot of money. You can probably see how fast just a few years of care could wipe out a large portion of, or your entire retirement nest egg.
Understand Your Coverage
According to the recent study by America’s Health Insurance Plans (AHIP):
Nearly 60 percent [of Generation X respondents] mistakenly believe their current policies provide coverage or they do not know if they are already covered. Long-term care insurance provides coverage for long-term care, and it also preserves the independence so highly valued by Generation-X, as it allows the beneficiary to choose the setting in which care is received.
In terms of paying for it:
In order to finance their long-term care, 36 percent say they would rely on government assistance, such as Medicaid, to provide for long-term care. While Medicaid often provides coverage for long-term care services to qualifying low-income Americans, many people have to spend down their savings to the point of poverty in order to quality for this assistance. Others say they would use their retirement savings (26 percent), sell their assets (24 percent), rely on other insurance products (22 percent), or rely on family and friends (13 percent).
This is a big problem. Most people are aware of the government assistance programs, but don’t realize that in order to qualify, your quality of life would have to be reduced to the point of poverty. Only 22% said they would rely on insurance, and another 13% would rely on friends and family. I don’t know about you, but the last thing I want to burden my friends and family with later in life is to cover my health care.
What About You?
So, where do you stand in terms of thinking about long-term care? This generation obviously isn’t in a position to go out and start buying LTC policies yet, but it also shouldn’t be ignored until it’s too late. While we’re busy saving for retirement and projecting how much money we’ll need in our golden years, some thought should be put into the possibility of needing long-term health care. Whether that means allocating money to go towards an insurance premium or making sure your nest egg is big enough to withstand a stint in a long-term care facility, it should at least be part of your overall financial plan.
Now it’s your turn. Have you thought about LTC at all? Did you know how expensive it was or that government assistance was so poor?
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
This is a great post. Nicely written and spot on. This only shows that whatever you do, long-term care insurance should always and always should be in your financial planning. Whatever your financial situation may be, your age, your gender or your medical history, an insurance for long-term care anyway is a part of retirement. However, if it feels too much of a gamble you should look for alternatives without sacrificing it. For example, you could allot a certain portion of your savings for retirement needs.
You're right, it's not a pleasant subject but one we have to think about. I didn't know medicare didn't cover LTC costs. That fact alone means this should be a much greater concern to everyone. The other side of the story, one I am more familiar with, is the prevalence of ill-treatment of some seniors in all kinds of LTC facilities. There's too much ageism in our society and not enough respect for elders.
Good start for the conversation about LTCi. I hope in future posts we can go beyond simply being focused on nursing home and touch on LTC covering hospice, adult day care, long term home health care, respite care... after all nursing home isn't the only reason for LTC coverage.
Hopefully we'll hear about the partnership program rolling out to different states as well as the lack of income protection with those. However, I think the partnership program is definitely good for the middle class where an unlimited plan is too cost prohibitive, but people want to keep the assets they've worked hard to accumulate. Especially IN and NY's total asset disregard, but I would understand if only dollar for dollar was covered.
Great start Jeremy and I look forward to future posts about LTCi... now if I could just get you to post on another large problem with the working class as I commented a couple weeks ago. Disability and going into how group policies are a good start, but not all that's really needed. A discussion on the need, what the market looks like today (the lack of people covered), what the current DI payouts consist of (only 10% are from injury/poisoning (according to John Hewitt & Assoc's 2002 U.S. Group Disability Rate Study & Risk Management Survey) and the gap that exists in group plans would be a good start much like this article is a good start to LTCi.
A couple disturbing facts that highlight this need include the following:
Disability is the cause of nearly half of all home foreclosures. (Source: Compton Insurance Marketing, 2002)
72% of the private sector workforce has no long-term disability insurance. (Source: Social Security Basic Facts, July 2004)
There's much more, but my post is getting too long.
Thank you Jeremy for your constant work on informing people and I look forward to your future posts.
LTC insurance is a good idea in theory, but I have found that in practice it isn't easy to get. I'll stop short of calling it a scam. If you are over a certain age (depends on the insurer) you aren't eligible for coverage. Suffice it to say I did not find an insurer that would cover someone over 70. I haven't done the math, but it seems like you might be better saving the $400/mo at age 30 and paying for your LTC yourself rather than banking on an insurer to first, cover you and second, be in business for you to collect.
Another issue that I argued with the insurers was that if you are taking any Alzheimers preventative medication you are automatically turned down, regardless of family history. There is a disconnect between physicians and the LTC industry. The insurers believe you wouldn't be taking medication unless there was a need, while doctors are prescribing these drugs like vitamin supplements. The doctors take the stance that the drugs have some benefit and since we don't know what causes Alzheimers disease we can't target who is likely to get it, so everyone who asks for a prescription will get one. There's no solid proof that vitamin supplements make you healthier, but people take them just the same.
Another area to be concerned about is that these are insurance companies. People seldom read their policies and I heard of one insurance company on a financial radio show that changed their retirement variable annuities to where you have to be 112 years old to collect on them. I haven't seen a LTC policy that crazy, but you can bet that as more people start to cash in, and the policies become less profitable to the insurers they will engage in all kinds of contract trickery to get out of paying. Buyer beware.
I think this is a great thing to think about, but it's just too theoretical/hypothetical to put into practice. First of all, it's investing in a situation twenty five years in our future (and that's a low figure hopefully). A lot can change in that time. First, the baby boomers will have to hit the LTC system (and damage it to its core just as they did with education, the job market of the 70s, the investing market and deregulation of the 90s, and eventually social security). In other words, you're betting that the world will look the same after that generation hits, and in historical precedent, that's just not what happens.
Second, you're banking on the medical community's failures when they've given us nothing but successes. I have no idea what I will look like at 70, but if Viagra is any indication, I can sort of count on medicine doing everything possible to keep me "young" for longer.
Lastly, right now, I am unwilling to invest in banks. Banks! Investment in LTC for a situation that's three decades in my future is just a little too prophetic for my taste. A lot can happen in that time.
From what I see in the comment, the real issue is a desire that our parents had LTC right now, but our purchasing LTC won't fix that. The damage will have to just be done, and then we'll soldier on, pick up the pieces, fix the system, and move on--but I just don't see how, right now, one can invest in that future system as I don't think it yet exists.
I hadn't though of LTC before this year- but lesson learned..I have to find an employer that will elect for me to get LTC with no qualifying medical exams, as I have a chronic illness (MS). Noone ever bothered to tell me that being chronically ill was so expensive!
Glad I came across this post. The only reason I've even begun to think about LTCI is because my parents, who are in their mid-60s, are unfortunately dealing two elderly mothers who, at the age of 88 and 93, are in need of growing amounts of care every day...literally. This has led me to do my own research, and I have to respond to Jason's comment about no one wanting to spend their last days in a long term care facility. Well, LTC insurance would in fact allow you to stay at home and receive the necessary care if the need arises.
I used to think medicare or medicaid would be available if necessary. Little did I know how little coverage these actually provide (or will they even be available when I hit retirement in another 30 years!) You either have to be dirt poor (medicaid) or only need very temporary non-custodial care (medicare). If I can, I would like to share a guide I came across that discusses LTC insurance quite well, in plain english. Check it out here - http://www.ltcconnects.com/resources/?page=consumer. It's the one titled "Dignity for Life". It's worth a quick browse if anything.
i have always tried to do everything right financially and i have all the bases covered except LTC? Why? Because, through no fault of my own, i came down with MS at the age of 28. It's mostly benign, and i've always worked f/t but no insurance company would issue me a policy, or if they did, it would be exorbitantly high. This is one of many things wrong with the insurance industry. Those with pre-existing medical conditions (and who doesn't have one, these days?) are left out in the cold. I am aiming for my $1.2 million by the time i retire in at 60 in 10.5 years and that when i go, i go quickly, with no lingering illness.
Thanks so much for starting this conversation. The range of people with aging parents is pretty startling. I was just talking with a friend in her late thirties whose parents are in their 70s. Her mother was recently diagnosed with a serious illness and now requires care with costs that far exceeds anyone's expectations. The family is all pitching in but it's a struggle. The long term care conversations and all conversations with aging parents should begin NOW -- before serious issues or crises show up. Many of us are hesitant to bring up sensitive issues. But facing these fears is better than facing a crisis and be unprepared. For some ideas on how to start go to http://www.talk-early-talk-often.com/talk-to-elderly.html
Good points, everyone. One thing I didn't mention, but has been brought up in the comments is regarding this kind of care for our aging parents. While we might not have to worry about LTC for ourselves right now, many of us are or will be facing these decisions with our own parents.
I know I've seen it first hand with some baby boomers who have had their lives turned upside down because of their aging and ailing parents. Their parents didn't have the resources to provide this care and in some cases, have to put their own lives on hold or sacrifice their savings to provide the care themselves. This type of thing is only going to become more prevalent as the boomer generation continues to age.
And Dana, that's an interesting thought about innovation in this field. It's pretty cut and dry right now. I wonder if there is room for something like college prepaid tuition plans but for elder care? Or possibly some sort of tax-advantaged account to help pay these expenses, etc. Maybe there are already things like this in the works or available, I'm not sure. I don't spend too much time in this area currently.
Most of us are probably ill-prepared when it comes to our parents, never mind ourselves. But it is something that every family should sit down and discuss, and to prepare for both emotionally and financially. Good reminder there.
On an off note, I'm looking forward to more creativity in the field of LTC. As more and more baby boomers age and require care in some form or another, perhaps there's room for innovation in this field.
I read something on the idea of alternative payment systems, and this part is interesting:
"In Japan, people trade “elder-care units,” which are measured in time spent caring for elders in the community, and they've become quite valuable as the population in that country ages."
I volunteered at an Adult Day Care Center many years ago and I am somewhat familiar with this subject. Very few people want to spend their last days in a long term care facility, and thus the topic is usually avoided. Most people want to pass away in their sleep. In many parts of the world, it is normal for children to care for their parents and LTC is unheard of.
I've thought about long-term care for my parents, but before this post I hadn't thought about it for myself.
Another thing to keep me awake at night ;P
This is an important subject. I imagine that the people who read this blog are much more informed about this and other topics. The vast majority don't even think about this.
What everyone should also consider is the cost of LTC for aging parents. Even if you don't think you need to look at this.....make sure your folks do.
Thanks for a very important topic.