Start Planning Now for Long-Term Care
By Kathleen Meehan
We all have things that we avoid in life. For me, it’s cleaning out closets. Sometimes the sight of those overstuffed racks and shelves is overwhelming, so I am grateful for closet doors! Many people feel overwhelmed when thinking about their future financial security. They can’t formulate a plan to save for their retirement, let alone think about the possibility of needing (and paying for) long-term care (LTC). A recent study by MetLife found that almost two-thirds of respondents in a study of 1,500 people between ages 40 and 70 have less than a basic understanding of LTC issues. For example, more than 40 percent believe they are entitled to basic LTC coverage from the government – which is not the case – and 63 percent cannot estimate how much LTC insurance will cost if they buy it at an advanced age. This lack of knowledge can be perilous to your financial health, considering that the cost of nursing-home care currently averages more than $70,000 per year and home care can cost $18 per hour.
Ignorance Is Not Bliss
Surprisingly few people plan for LTC given the high probability that we or our aging loved ones will eventually need it. Statistics show that two in 10 people over age 50 will require LTC; this figure increases to four in 10 people over 65, and seven in 10 over the age of 75. Because so few people have the LTC insurance to pay these expenses, about a third of these LTC costs are paid directly out of pocket by families from their personal savings and the sale of assets. Contrary to popular belief, Medicare and Medicare supplements do not pay for LTC. In fact, they pay only a small amount of short-term nursing-home care, not the years of care required in many situations.
LTC is also a workplace issue. Many employers are recognizing the reality that aging baby boomers (like Chris Pinkham – see the President’s Corner) and others in the “Sandwich Generation” face:
• Nearly 75 percent of people age 50 to 54 have at least one child and one living parent;
• One-fifth of middle-aged households include at least one elderly parent who needs help with activities of daily living;
• In 29 percent of these households, adult children provide care, money for care and/or living space for disabled, elderly parents.
Because most of these caregivers work outside the home, the implications for businesses are huge. Providing care is time-consuming and employees can find themselves having to choose between family and work. In fact, two-thirds of employed caregivers today report conflicts between work and care-giving. It is estimated that businesses lose as much as $29 billion annually because of employee care-giving.
What’s a Person to Do?
There are four basic options for individuals planning for future LTC needs. The first is to hope that the federal government will revamp Medicare and Medicaid to provide an LTC program. Another alternative is to accumulate savings to pay for care. A third is to try to manage your estate in such a way as to creatively shift assets to qualify for Medicaid (which generally requires that an individual be indigent before covering LTC expenses). The fourth option is to purchase LTC insurance through an employer or an individual policy.
Even though I sell LTC insurance, I will be the first to admit that it is not for everyone. Some people don’t need it, some people don’t have enough assets to protect that it makes sense to purchase it, and some people just don’t have the discretionary income to afford it. Make no mistake; buying LTC insurance is a long-term financial commitment. In those cases where it does make sense, LTC insurance can help protect your family from the catastrophic expenses associated with LTC and keep you in control of your finances by providing a way to get care without spending all of your assets.
The LTC Insurance Market
There has been some consolidation of insurers in the LTC market, as well as rate increases by some companies. Many people who buy LTC policies won’t use them for 20 to 30 years, so buying from a financially strong insurance company is of paramount importance. Look for a policy that offers inflation protection and covers not only nursing homes but assisted living facilities and home care as well. Also look for a “Tax Qualified” plan which allows you to receive tax-free benefits and may be at least partially tax deductible if your premium plus other qualified medical expenses exceed 7.5 percent of your adjusted gross income. (LTC premiums are deductible for Maine state tax purposes.)
Most group LTC insurers have introduced flexible options that make these policies compare favorably to individual policies, often at a substantial savings from what is available in the individual market. Many employers also contribute to voluntary LTC benefits, particularly for executives or other select groups. Others make small contributions for basic policies and allow their employees to buy up to richer benefit packages.
Don’t let your plans for a secure financial future be derailed by the cost of LTC. Consider the possibility of needing long-term care in your planning and address it in a way that is appropriate for you. As for me, I think I’ll go tackle that closet.
Kathleen Meehan is senior vice president, administration and insurance programs, for the Maine Association of Community Banks and The Trust.