The discussion of Long-Term care should begin by saying it is not about medicine but rather it is about life. People are living longer today. Unfortunately, as we age, we will face more challenges in our daily living.
You can expect to need care if you are unable to function or live without assistance from others. The need is generally defined as an individual who is unable to perform two of six basic activities of daily living – eating, bathing, dressing, transferring to or from a bed or chair, toileting and continence – or suffers severe cognitive impairment that requires substantial supervision.
Statistics tells us there is about a 70% chance someone turning 65 today will need some type of Long-Term care services. Fortunately, one-third of today’s 65 year olds may never need care support. Unfortunately, 20% will need care for more than 5 years. The duration and level of care will vary from person to person and change over time.
The information shown above is according to the U.S Department of Health and Human Services.
Where will care come from?
More people will get care in their home as medical care improves and new techniques allow them to stay there even when they have some physical or mental limitations. In many cases, the care will come from unpaid family caregivers but it will also come from paid nurses, health aides or therapists who come to the home.
Others may get services at an adult day community facility that can address the individual needs of functionally or cognitively impaired adults. Other forms of care are provided at Assisted Living or Residential Care facilities. A range of services including housing, meals, personal care and health care are provided at these facilities.
Finally, others will require skilled care in a Long-Term Care Facility or Nursing Home. A nursing home will be the most expensive and intensive form of care.
What does care cost?
According to a 2016 Cost of Care Survey conducted by CareScout for Genworth, which has about 33% market share of Long-Term care policies, the annual cost for care in Massachusetts varies significantly depending on the level and source of care.
How to Pay for Care
In simple terms, the level of your assets will dictate if you can self-insure this risk.
People with little income or savings will qualify for Medicaid which will pay this cost. Medicaid, which is different from Medicare, is a federal-state government program designed to cover the health care costs of the indigent and is the single largest payer of nursing-home care.
For people who don’t qualify for Medicaid whose assets are less than $5M, a combination of a few choices can be used to pay for care. They can use their savings but it could possibly leave nothing for the next generation. They could become impoverished as defined by Medicaid and use this program to pay. But this means transferring most of your assets out of your name, likely to other family members. In addition, they can buy Long-Term care insurance.
Long-Term Care Insurance
Since the 1970s, the insurance industry has offered this solution to cover some of the costs for care. Premiums usually vary based on a handful of factors. This includes the age of a person when they apply, the elimination period (typically 90 days) before benefits begin, how long benefits will be paid, and whether benefits have some inflation protection. Discounts are also available for preferred health and couples. Additionally, some tax benefits are available.
Over the past decade, three unwelcome trends have surfaced in the Long-Term care insurance marketplace. Premiums have gotten more expensive, benefits have shrunk and cost of living adjustments have declined.
As a result, people have bought fewer policies. According to the American Association for Long- Term Care, 750,000 traditional Long-Term care policies were purchased in 2000. That dropped to 105,000 in 2015. Over the last decade, an industry of about 100 carriers is now down to less than 10. Some of the big-name carriers – Allianz, Guardian, MetLife, Prudential and Unum – have exited all or most of the LTC business. Please know they will still honor the policies of people that bought them in the past.
What went wrong? For the most part, the insurance industry mis-priced Long-Term care policies because of some erroneous assumptions. As was stated at the beginning of this discussion, people are living longer. This means they will collect benefits for a longer period of time. Carriers also typically assume some people will let their policies lapse as they have with life insurance. This has not happened with Long-Term care policies. People are holding onto them because of the many uncertainties with medical care. Lastly, the industry expected the premiums they collected to pay future benefits would earn a higher interest rate. This also has not happen.
The insurers that remain in the market are combating the concerns about traditional Long-Term care insurance by turning to a new product offering. A Hybrid Policy now offers both Long-Term care and life insurance. You are basically buying a diminished or lower death benefit in exchange for the ability to get some money back should you need it for Long-Term care.
What choice is right for you? Your advisor at Lexington Wealth can help you think through the options for your specific circumstances. Please give us a call to discuss.