As financial advisors, our clients come to us for help with a number of sensitive topics, but few provoke as much discomfort as the question: “Do I need long-term care insurance?” Since we specialize in working with physicians, many of our clients help their patients manage illnesses and diminishing capabilities as they age. Yet, when it comes to our own vulnerability, we tend to have a built-in defense mechanism that says “this probably won’t happen to me” and we don’t want to pay hefty insurance premiums for something we may never use.
In this article, we address the long-term care insurance issue. However, right out of the starting gate we need to reframe the question. Instead of diving into “do you need long-term care insurance,” we ask, “what is your long-term care plan?” Since we cannot know with certainty whether we will need long-term care, everyone needs a long-term care “contingency” plan; whether or not insurance is part of that plan depends on your individual circumstances. And, if your parents are alive and still live independently, you may want to take care of mother and/or father at some point. Setting aside funds if they do not have sufficient financial resources of their own could be another consideration.
Long-Term Care Plans are Highly Individualized
We can’t stress it enough – your plan for addressing your long-term care needs should be highly individualized for your situation. It goes beyond saying “this isn’t one-size-fits-all”; it’s more like “one-size-fits-one.” While it is impossible to predict with any certainty whether you will require long-term care, a good place to start is to look at your family history. How long did your parents and grandparents live? Did they have chronic illnesses? As doctors, you may have more insight into how their lifestyle choices may have had an impact on their health and how that relates to you and your family.
Long-term Care Insurance – A Different Animal
As you may know, long-term care insurance covers necessary health care services if and when you are not capable of caring for yourself for an extended period of time (see below for specific criteria), This care can be provided in your home, an assisted living situation, or a skilled nursing facility. Before we delve more deeply into long-term care insurance as an option, it is useful to understand why this type of insurance is much more expensive than life insurance. When life insurance companies created the long-term care insurance marketplace, they used their familiar model of people dropping their life insurance after paying the premiums for several years, leaving that pool of money to fund those who filed claims and their profit margin. However, few people in the long-term care market dropped their coverage and more than 50% used their policy.
In the early days of long-term care insurance, as large numbers of policyholders started making claims, insurance companies had to increase policy premiums substantially, or they would out of the business entirely. Today we see a larger variety of policy types, including hybrid life-long term care ones. Some policies allow you to use the premiums paid for long-term care coverage if needed, and to leave some money for your heirs if you don’t, but premiums can still increase substantially over time.
Can I Self-insure?
The long-term care plan that is right for you is largely a function of your overall financial situation. For example, if you have been able to save what you need for your retirement and education goals and have no outstanding debt besides your mortgage, then you could save toward your long-term care plan without incurring the costs of premiums while keeping your money invested. In other words, instead of buying long-term care insurance, your plan would be to pay for long-term care should you need it. This is appealing, if you can afford it, because you avoid paying for insurance that you may never need, while the money you would otherwise have paid out in premiums stays invested with your overall portfolio.
What would self-insuring cost? We can make a reasonable estimate by looking at the average monthly cost of an assisted living community in your community or where you think you might want to live, which varies widely by state (as of 2019, costs ranged from a low of $2,900 per month to a high of $6,700). Your Gold Medal Waters advisor will use an inflation-adjusted forecast of future costs to set your long-term care goals, including the fact that women tend to need care for longer. Then ask yourself whether you could cover that cost and continue to meet the ongoing living expenses of the “healthy” spouse, for an extended period. Although the average stay in a long-term care facility is about 1.5 years for men, and 2.5 years for women, 14% of adults end up needing 5+ years of care. If your financial situation would allow you to pay for that care, even if your spouse continued to live at home, it probably makes sense for you to self-insure. If it turns out that you don’t need long-term care, what you would have paid in premiums is preserved for your retirement or your heirs.
What About Family?
Creating the long-term care plan that is best for you involves frank conversations with your family about how much they are willing and able to assist if you need help. Do they live nearby, and would they be inclined to help manage your care so that you can “age in place”? Would you want that for them? Might their location and/or obligations (children, careers, etc.) prevent them from being there regularly. Even if they are willing, life can throw a wrench in your plans. One couple we know was expecting that their daughter would be available to oversee their long term care needs, but then their daughter was diagnosed with cancer. While she is now in remission, they no longer count on her being able to help in their old age.
If You're Not Ready to Self-insure, How to Approach Long-term Care Insurance
If you are not ready to self-insure, you may decide that long-term care insurance is the best choice for you. You and your Financial Planner will need to calculate how much coverage to buy and when to buy it. You don’t want to buy a policy when you are too young, and you don’t want to wait until you are too old. Mid-to-late 50’s is usually the sweet-spot.
As you move into your 60’s, you have a much higher probability of developing a disqualifying medical condition. In addition to conditions such as cancer (even low-grade prostate cancer will disqualify men) you can be disqualified for memory and mobility issues. If you are thinking of buying long-term care insurance and you have any concerns about your memory, be aware that memory issues will be recorded in your medical record and may impact your eligibility. Your full medical record will be examined to determine if you're a good fit for a policy. This is the reality of the way long-term care insurance works.
Long-term care insurance can be very helpful when one spouse needs assisted living but the other spouse (often younger) wants to stay in the home. In this situation, expenses increase considerably compared to an arrangement where both spouses move into a retirement community with an extended care facility (discussed below). Even if the premiums for a policy that would fully cover the cost of assisted living in your location are too high for your budget, you could partially insure, to soften the financial impact if you or your spouse need long-term care at some point.
Will You Be Able to Use Your Long-Term Care Insurance?
One reason many people are on the fence about long-term care insurance is that you have to meet certain conditions to be able to use it. To make a claim, you must be unable to perform two of the following six Activities of Daily Living (known as ADLs):
Bathing – getting into/out of a tub or shower, and washing your body and hair;
Dressing – putting on/taking off your own clothes
Transferring – getting into/out of a bed, chair or wheelchair
Toileting – getting to, on and off the toilet and taking care of personal hygiene
Continence – having control of bowel/bladder functions, or being able to take care of your own personal hygiene if you are incontinent
Eating – feeding yourself using utensils, or via a feeding tube or IV
A medical specialist, not you, will make this determination.
What About Government-funded Assistance?
Many people do not realize that Medicare does not cover long-term care at all – it only provides a maximum 90 days of care in a nursing home. Medicaid covers long-term care, but you only qualify for Medicaid if your financial resources are quite limited. If you want to pursue that option, know that giving the bulk of your assets to your children (or others) to qualify for Medicaid must be done well in advance, preferably with the help of eldercare, as Medicaid uses a 5-year look-back period to determine your financial need.
For those whose primary source of retirement income is Social Security, Medicaid may be the right solution. However, the goal of financial planning is to avoid being in that position. This may be useful information for you if your parents, or maybe some of your patients, are in that situation. Another possibility for people who have limited income, but who own their own home, is a reverse mortgage. While reverse mortgages have been abused, they are more regulated now. Be sure to speak with your financial advisor about the pros and cons of this approach.
Aging in Place
What about “aging in place?” It’s a shopworn phrase that speaks to what many people want. Many long-term care policies include provisions for in-home care, if you qualify based on the ADL criteria, so you many want to consider a policy with this option. Or, you may be comfortable self-insuring if you plan to stay in your home and use in-home healthcare, as it is less expensive than assisted living and skilled nursing care communities. Before you decide that staying in your home would be right for you, take an honest assessment of the house. Is there a place for a bedroom on the first floor (no stairs to climb), and a bathroom with a shower that could be outfitted with a grab bar, a handheld showerhead, and perhaps a shower stool? Are the doorways in the home wide enough to accommodate a wheelchair? Could you create a separate bedroom/bathroom/ kitchenette for a live-in caregiver? If so, that could be an excellent solution for you.
Continuing Care Retirement Communities
An alternative to aging in place, with or without long-term care insurance, you might consider moving into a Continuing Care Retirement Community (CCRC). They offer various levels of housing and care to meet people’s needs at different stages. A CCRC typically offers independent living, assisted living, and skilled nursing care all in one place. Buying into a CCRC can cost from the low-to mid-six figures, and monthly fees can range from $2,000 to over $4,000 per person.
If you want to protect yourself from future financial stress related to the costs of assisted-living or nursing care, a “life-care” (Type A) contract covers whatever care you might need at the CCRC. This requires the largest entry fee but covers all care levels for a monthly fee and guarantees care for life, even if your finances become inadequate to cover the full costs of future services and care. This can be a good choice, especially for couples who might have different needs at different times. If you are looking at a senior community, make sure you understand how the money you pay upfront to buy in is used if you need a higher level of care but your spouse doesn’t. Many do not have Alzheimers/ dementia care – these are separate communities entirely, or a separate unit, with additional costs.
Keep in mind that if both you and your spouse choose to move into a retirement community that offers assisted living accommodations, the money you would have been using to meet expenses at home, before moving to the CCRC would simply be shifted to paying for the cost of care in the retirement community.
Your Circumstances, Your Plan
We hope this post shows that your long-term care plan should reflect your financial situation, the age difference between you and your spouse, your extended family and your lifestyle preferences. If long-term care insurance is the right option for you, your financial advisor can refer you to an insurance specialist to discuss the specifics; some providers have stopped offering these policies and there are choices in coverage (including inflation adjustments and other options) to consider. Armed with this information, you and your financial advisor can determine which overall plan is best to cover your long-term care needs. Please feel free to reach out to Gold Medal Waters with any questions.