Investing In Long Term Care, Part II
By Lisa Christiansen
The article I wrote concerning Long Term Care (LTC) generated enough response to have a follow-up. I realize I need to provide two more articles to address numerous questions, the first one going over some of the points I tried to make in the first article in more detail and the final one showing some of the features and options if one considers buying a LTC policy.
… The first thing I would say is that this information is from my friend who is retired from financial planning for 6 years, I feel he is still current enough to offer information that hopefully will benefit you and encourage some of you to consider whether this is something you need to learn more about.
The main point of the first article was to say that I know no one wants to buy something that is expensive when what they want is to enjoy their retirement and maybe spend that same money traveling, on their hobby, etc. I hoped to encourage those of you young enough and with the financial resources to think about purchasing at age 40 or so instead of waiting until you are at age 70 (at which time you may not qualify), even though you don’t think that you would need it until you were at least 70 years old. Two reasons for this are that many more people need the benefits and help at earlier ages (45 or 50) than you would imagine and that the premiums become so expensive if you wait to purchase at say age 65. I have been doing financial planning for about 5 years with the advice of my friend, I had limited knowledge of LTC, when my friend purchased his policy he was 56 years old. His initial thinking was because he was in excellent health he wouldn’t need this for many years, so he would gamble and save paying those premiums for 10 years or so. My mentor in LTC convinced me that it was smart too buy at the earliest age I could afford it because of the huge difference in premiums as we age, and what we thought health care costs would be 10 years in the future (we were both too low), the fact that he thought he would live to at least age 85 and that there was no guarantee for any of us that we wouldn’t need care at age 60 or so.
Let me throw some LTC statistics at you as follows: 1. If you live to age 65, the odds say you will live to age 84. 2. Over 65% of all Americans will need some kind of LTC in their lifetime 3. If a person lives to age 65, there is a 44% chance he/she will wind up in a Nursing Home. 4. For a couple both turning 65, there is a 75% chance that one of them will need LTC. 5. Fifty-nine percent (59%) of the adult population in the United States either is now or expects to become a family caregiver.
The two Common Myths I had to overcome when I was talking to someone about LTC were number one that “my family will take care of me”. The reality is children have other responsibilities; they have limited family resources as to time, finances, skill, and geographic constraints. “My spouse will take care of me”. He/she may think they can do this, but how many times have you seen a wife care for the husband for say 2-3 years and be in as bad a shape as the husband because of the burden placed on her. The second myth is that all else fails, the government will be there as a safety net. Let me assure you the government does not, nor can afford, to take care of our LTC needs. I attempted to point this myth out in my first article. The two options are Medicare and Medicaid. For Medicare to pay Nursing Home costs you must have been hospitalized for 3 days, be in a “Medicare Approved” facility that is “Skilled Care” not” Custodial Care.” Skilled Care accounts for less than 5% of all such facilities. If you meet these hurdles, Medicare will pay 100% for the first 20 days. Days 21 thru 100 they pay everything above your co-pay (I’m sorry I don’t have a current number, the last I have is $114 for 2005.) This says you pay I’m sure its now over $120 per day for 80 days. On day 101, you pay all costs, they pay ZERO. The other option, Medicaid is even worse. It’s done on a state-by-state basis. In Oklahoma, you are required to “spend down” your assets to $2000. There are restrictions going back 5 years as to gifting assets to get to the $2000.figure. There is often a waiting list to get into a facility and you have no control over what facility you are placed in. I know of one family where the Mother was placed over 300 miles from the home of the closest child.
In my opinion, your OPTIONS are as follows: 1. Do Nothing (hope the problem goes away) 2. Be Very Wealthy (self-insure) 3. Be Very Poor (spend down to the poverty level) 4. Purchase LTC Insurance or a Hybrid Plan (Transfer some or all the Risk)
The Pros and Cons of Long-Term Care.
CONS: 1. Too Expensive 2. Crimp my Budget 3. No Return of Premium 4. No long-Term Rate Guarantee
PROS: 1. Maintain Control and Independence 2. Financial Security, Don’t Outlive Your Assets 3. Avoid “Welfare” 4. Not a Burden to Your Spouse and/or Kids 5. Able to Qualify Now 6. Good Policy with an Excellent Company 7. It will Never be Less Expensive than it is Today
My Final article (Investing In Long Term Care, Part III) will hopefully correct anything I have misspoken about or missed covering will cover the different decisions that have to be made concerning the several options that most policies have. If there are questions, I would attempt to answer those after my next article in a week or so. Thanks it’s always good to refresh your memory about something you believe in.
