Government Funding Cutbacks
Some Helpful Hints For Financial Planners Concerning Long Term Care
I realize LTC is not a topic you relish discussing. Hopefully your clients won’t need such care, and if they do perhaps they can pay for it out of cash flow (at possibly $100,000 a year). However, if the topic comes up, here are some ideas and strategies that might help.
Let’s say you have a client whose loved one suddenly needs LTC. This relative or loved one does not have much money and they wonder what, if anything you can do to help. Knowing that Medicaid requires spending down to impoverishment and cashing in life insurance, you might suggest they move some money into an irrevocable burial trust so that nobody needs to pay this bill for them. They can even set these trusts up and fund them for children, and if done correctly, is not a divestment. It will not disqualify them for Medicaid and they get to leave funds for family. I can help you with this.
If they have significant funds, but worry they won’t last, there is an immediate annuity that takes (poor) health into account. Someone needing LTC will probably not have the same life expectancy as a healthy person of the same age. By underwriting that poor health, a far better payout can sometimes be produced, allowing them to pay the bills for life and still leave funds for family.
If your client inquires about LTC insurance for themselves, and it’s not your main area of expertise, consider working with someone who does nothing but this. There still are some lifetime benefit policies available, with 5% compound inflation. There are even options with a single premium available. Prices vary drastically from one company to another and knowing which ones like which ages and don’t mind which health concerns can make a huge price difference. If someone is declined, it does not mean they can’t get coverage. Perhaps they did not apply with the most appropriate company for their age and health – there are still quite a number of insurers out there. Knowing which ones accept which health concerns lets you help most any client.
There is even a partial return of premium, single funded, so that if your client never needs care, a good part of that single premium is refunded at death. The best news is that numerous options exist. No matter the situation, there may be something that can be done to help. It’s never too late to inquire.
Keep up by reading this blog or go to www.TheLongTermCareGuy.com for more info.
Medicaid Enrollments Surge
With the Affordable Care Act now signing up health insurance customers online (in theory), statistics are emerging. For every one person getting healthcare from an insurance company, four more people are enrolling in Medicaid.
The government has only so much money to go around. With 10,000 Americans a day turning 65 and signing up for Medicare, and a majority of them unprepared to pay for their own Long Term Care, a large percentage of them will be hoping for Medicaid when they need care LTC later.
If you are healthy at 50-60 years old, it is easy to do what Congress does and kick the can down the road. The problem is that the older you are and the less healthy you are when care is needed, your options are extremely limited. Many will have to pay for care out of pocket, impoverishing themselves and their families before hoping Medicaid will be able to help with their LTC. In many places Medicaid LTC means nursing home only, with no option for care at home or in an assisted living facility.
Not only are Americans getting older, but the LTC insurance companies are getting more wary of us. Qualifying for coverage is getting more difficult, benefit periods offered are getting shorter, women pay 50% more than men with many insurers, etc. With interest rates so low, and LTC insurance benefits contractually set to increase at 5% compound every year we have the coverage (to keep up with rising LTC costs) several insurers have left the market.
If you have assets you would like to leave for family, or income you would like to leave for a spouse, and you do not have millions you can afford to spend for something that you could insure against, it would be prudent to investigate LTC insurance while it may still be available to you. The good news is that you do not need as much of it as you might think. Once you realize that a portion of the cost of LTC can come from available income, then only the remainder may need to come from insurance.
Lifetime benefits are no longer available. Policies that are paid up in just 10 years, or at age 65 (like I own) are a thing of the past. Life insurance policies that will pay part of the death payment in advance for LTC are available but generally do not contain the 5% compound inflation clause that traditional LTC insurance offers.
My benefit with 5% compound inflation means that what I will receive from my policy will be twice today’s benefit in 15 years, and four times today’s benefit in 30 years. If you are 55 years old today, a nursing home that costs $8500 a month now will be $34,000 a month at age 85. Even this does not take into account what happens in every industry when it is difficult to get enough workers to apply for the open positions – wages rise.
If you want to stop kicking the can down the road and investigate a solution that works, visit www.TheLongTermCareGuy.com and learn what can be done. To calculate future costs visit http://www.RetirementChoices.net/rraabeLTC1.html You can move all the numbers around to see how much you would need to set aside today, to pay for future LTC costs out of pocket without insurance. The cost of self-insuring is huge!
I (Think That I) Can’t Get LTC Insurance – What Can I Do?
There are many people who are under the assumption that they cannot get LTC insurance. Some because of medical concerns, and others because they applied once and were turned down. Just like in high school, just because one gal declined to dance with you, it does not mean the next one won’t!
I have been asked to speak at both of the national LTC insurance conventions next year, on the topic of what to do in this situation. First of all, perhaps the company you tried with may not have been the one who will accept the health concern you have. Each company has their own separate criteria, and are often different from their competition. You will get the most appropriate coverage by dealing with someone who represents many companies.
There are several companies I use that will accept someone previously declined for LTC insurance coverage. Some of these are called “short term recovery care” policies. They function just like traditional LTC insurance but because their benefits will last for only 360 days, just short of a year, they cannot be called LTC insurance. This short benefit period also allows them to take a chance on health conditions that other LTC insurance companies will not accept. Having 360 days of coverage is far better than having nothing.
Next is a product that combines an annuity (fixed interest, similar to a CD) with a LTC benefit. Your money earns a competitive interest rate, and when LTC is needed it returns your money from the account over 24 months. Once your account is zero, the company continues to provide the same monthly benefit from their pocket for 36 more months. If your plan is to pay out of pocket if care is needed, then this strategy lets two years of your money last for five years. If you never need LTC, the money is yours to withdraw with remainder going to your named beneficiary at death.
My next strategy is for people who are already receiving LTC services, either at home or in a facility. It is a life income annuity that will make monthly payments guaranteed to last for life, from a single sum deposited. By taking your (poor) health into account, and thus your shorter than average life expectancy, a person who already needs care can get a quite large monthly payment for life from a relatively small deposit. The worse your health, the better the deal.
Lastly, if nothing else works and you must spend down to Medicaid impoverishment, at least protect your burial funds. Medicaid requires one to spend down to $2000 of assets. At death, family is often left to pay for final burial expenses. however, in Wisconsin, you can set aside up to $15,000 into a properly set up irrevocable trust (which I can do for you). This money cannot be withdrawn for any reason until death, but then is immediately available to pay for final expenses. This relieves your family of this bill and gives them complete control of where and how much to spend. What is not used is refunded to your estate.
As you can see, there are many ways to address the problem of paying for LTC, even if you did not purchase insurance in advance. Learn more at www.TheLongTermCareGuy.com
Meetings in Washington DC With Congressmen
This has been a busy week, traveling to Washington DC to meet with congressmen and staffers on Medicaid and LTC issues.
Many were not aware of the Partnership between Medicaid and LTC insurance which came about as part of the Deficit Reduction Act of 2005. Partnership is an incentive from the government to encourage people of modest means to purchase at least some LTC insurance.
The time will come when the purchasers of partnership policies may need LTC services. After the LTC insurance has paid for care, if more cash flow is needed, or the policy is exhausted, it may be necessary to apply for Medicaid. Instead of being required to spend-down to Medicaid impoverishment, Medicaid will ignore assets equal to what the partnership LTC insurance policy has already paid out. If citizens take some personal responsibility for their LTC, then the government will reward them if more care is needed.
Unfortunately, many states do not promote this program, to their financial loss. Texas has a wonderful website of http://www.OwnYourFutureTexas.org and the state of Connecticut sends state employees out to public venues to host seminars on the Partnership concept. I am told that Connecticut can document 10% of the attendees purchasing some partnership LTC insurance and an additional number decide that Medicaid planning is not in their best interest.
While in Washington I pointed out that many requests legislators receive involve a concession of some type to possibly receive a tax benefit later. This program requires the government to give away nothing now, to reap the benefit of citizens paying at least some of their own LTC costs in the future. It is good for everyone. I asked for legislators to consider promotion of this concept to save protect Medicaid from future budget shortfalls.
After making these points with Congressman Paul Ryan Wednesday, I saw in the Green Bay, WI newspaper on Friday an article about him where he mentions taking the first steps toward fixing a serious problem: a debt-ridden federal government facing an onslaught of retiring baby boomers draining entitlement programs.
The timing of this article, of just what I spoke to him about, was probably a coincidence. However, congressmen need input from people in the various fields that affect government programs to know the best way to improve them.
Now that you know what the partnership program is, and how it can protect assets in the event you have exhausted or need more cash flow than your partnership LTC insurance policy provides, wy would you wait to investigate it? Policies are becoming less generous as the insurance companies are finding more and more people collecting on them. Medical underwriting is becoming much more stringent – do NOT wait until you can no longer qualify to purchase this coverage. Call TheLongTermCareGuy.com, Romeo Raabe, at (920) 884-3030 or (800) 219-9203 to investigate. Most people do not need as much LTC insurance as they might initially suspect.
HealthCare.Gov (ACA) and Long Term Care
No, long term care is not directly affected by the Affordable Care Act (ACA, AKA Obamacare) but there are some scary correlations between the two. I refer to this morning’s Wall Street Journal article about what is coming – in both healthcare and long term care.
Doctors are retiring in droves. Those near are taking early retirement to avoid the losses of treating people for less than they are reimbursed. Medicare payments are being cut way back just as 10,000 Americans a day are coming on board (and will each day for the next 18-19 years). The ACA takes large sums from Medicare to fund the ACA. Doctors are reimbursed less and less, as more people are starting to use Medicare, hoping to get Dr. appointments scheduled. Doctors often discourage their children from entering the profession. Others won’t accept new patients over the age of 50 (who will get Medicare in 15 years).
Medicaid, the primary payer of long term care in America, is being stretched to millions of uninsured Americans for medical care now. This leaves less for the already under-reimbursed long term care facilities. Nursing facilities tell me they lose between $2000 and $3400 per month on every resident on Medicaid. They cannot make you leave if you run out of funds and turn to Medicaid, but they can – and do – say no to your entrance. If you lose money on every customer, you cannot make it up on volume! They do it gently, asking about what care you will need, and then apologizing that they do not have the staff, currently, to deal with those needs. If the “desirable” LTC facilities turn you away, what choice does this leave you? The less desirable facilities, or one far away that will accept you? I wonder if the people who “wisely” divested their homes and fortunes years ago realized the box they have put themselves in.
More doctors are going into “concierge” medicine, accepting only those patients willing to pay an annual retainer of $500-$3000 a year for ready access and longer consultations. Some LTC facilities also are turning away all Medicaid entrants. The ambience will be nicer, with more staff and better activities and food, and all will pay their fair share with no cost shifting. That is where I want to go when needed, and I have the income from my LTC insurance policy to pay for it. Wouldn’t you like to be in a position to choose such care as well?
With the ACA starting enrollments just as the Medicare Advantage season starts, there is confusion with some going to the wrong site for information and to sign up. Many Americans already believe that LTC is free from the government, and do not realize that Medicaid is not given because you are old, or disabled, it is given because you are impoverished – a fancy word for broke. Why would someone plan to end up that way and dependent on a government that you may have heard rumors of being short on funds itself? LTC insurance is often less expensive than people imagine, and most do not need as much as they initially suspect. Wouldn’t it be prudent to at least investigate? Call Romeo Raabe, TheLongTermCareGuy.com at (902) 884-3030 or (800) 219-9203 to get started.
A Billboard in Green Bay, WI
I noticed a billboard in Green Bay, WI last week. Green Bay is a nice midwest town that I call home in middle America which is obsessed with football. What struck me was the item being advertised.
The billboard was advertising a home elevator that travels up and down alongside a stairway. These items have been around for years, and were advertised in the back pages of certain magazines. The fact that they are now appearing on billboards is testament to the aging of America. Perhaps we might start seeing billboards for wheelchairs, walkers, home care agencies, etc.
The point is that America (and the world) is getting older. 10,000 Americans a day turn 65 and start Medicare. This is the baby boomer generation and is expected to continue for the next 18-19 years. Due to the recent financial conditions we have experienced, many do not have the assets or income they hoped to have at this time of their lives. Fewer yet have the finances to handle the costs of Long Term Care either. I do, but that is because I purchased LTC insurance years ago at age 52. I was younger then, thinner, did not yet have arthritis or diabetes, and could get it.
Many waited or are waiting until it is too late to get this coverage. For those folks, a bill of $30,000 to $95,000 a year will devastate them. They will leave spouses with little and children with nothing. Once their money is spent, they will transition to Medicaid, a program for the indigent. In many areas this means a nursing home instead of home care or assisted living facilities. The facilities lose about $2400 a month on the Medicaid reimbursement, but you can go to any one of them that will accept you, and that financial loss. If they lose money on every customer, can they make it up on volume? I think not.
There are concerns about the long term viability of Social Security, and some about Medicare as well. Some people think the government will take over and pay for all Long Term Care. something like this was proposed for the Affordable Care Act just getting ready to start, but was removed as it was financially unsustainable.
Financially unsustainable is an appropriate phrase when used to describe the Long Term Care financing situation in this country. Will we revert to the strategies used in the 1950’s when parents moved in with children? The days of Ozzie and Harriet, a stay at home housewife with time and energy and room to spare are long gone. Perhaps we have unemployed children who will move in with us and provide care. If this is done without a formal employer-employee relationship, and Medicaid is later needed, any payments may be considered gifts, and disqualify us from receiving Medicaid.
If you are still healthy enough to investigate LTC insurance, perhaps that would be wise to do. You must get it before you need it, or you won’t be able to get it. I can help you investigate this and size things appropriately for your situation, then you decide. Call me at 920 884-3030 and lets investigate.
Huge Shortage of Caregivers Looms For baby Boomers
A recent Washington Post article stated what Long Term Care (LTC) planners have known for some time, that it’s difficult to find sufficient caregivers to staff nursing homes, assisted living facilities, and home care agencies. What happens to wages in any industry when sufficient employees cannot be found? Correct, wages rise.
This situation is already causing problems. A study done December of 2012 found a fivefold increase of help wanted advertisements in the LTC caregiving industry over just a year earlier. Who wants to do this work for minimum wage? Only those who really like this type of work. The hours can be long, lifting can cause or aggravate back injuries, and benefits are scarce.
10,000 baby boomers are turning 65 on average every day in America, and this will continue for 18-19 more years. They are a flood coming in to Medicare health insurance now, and many will need LTC in the future. The costs of LTC services have been increasing at an average of 5% to 6% annually over the past 20 years. Costs are likely to increase even faster with less and less people seeking such employment.
LTC insurance has a feature which makes the daily or monthly benefit increase each year to keep up with rising costs. I personally have never written such coverage without the automatic 5% compound increase feature. Some companies are now suggesting that agents offer the 3% compound increase instead (or even worse, simple interest) to make their policy less expensive and easier to sell. The problem with this is that many people will not need to use their policies for 20-40 years. How will they fare?
If a 50 year old purchases a $4000 a month LTC insurance benefit with a 5% compound inflation rider, 40 years later that policy will pay benefits of $28,160 a month. With a 5% simple interest the same person would have only $12,000 a month benefit in 40 years. With 3% compound the benefit is $13,050 in 40 years and at 3% simple interest only $8,800 a month is available in 40 years. Will the shortfall come from a monthly Social Security check?
If these numbers seem quite large, just think back to what gasoline cost 40 years ago. Going back just a few more than 40 years, a 1977 Ford Maverick automobile retailed for $1995 with a 6 cylinder engine and automatic transmission. Yes, we have had inflation and we will continue to have inflation. Compound that with a shortage of workers to do the caregiving and a government struggling to meet the demands of Social Security and Medicare (let alone Medicaid for LTC), and I see trouble.
Every year one waits to purchase LTC insurance means a larger benefit must be purchased. Once you own a policy, it will get larger automatically to keep up as costs rise. Why would someone wait to purchase LTC insurance? Perhaps they are waiting for their health to get better? The time to investigate is when you are still healthy enough to qualify. Call TheLongTermCareGuy.com at (920) 884-3030 or (800) 219-9203 to investigate.
Get It While The Getting is Good (LTC Insurance, That Is)
The insurance companies that sell LTCi are scared to death of us. We are living too long, we hang onto our policies and never let them go, and many of us will be collecting on them. We are smarter than the LTC insurance companies.
I bought mine back when I was 52 years old. Back then it was assumed that a certain percentage of us would drop our coverage over time. That did not happen. The older, stiffer, and the more chronic conditions we accumulate, the more I am glad I got mine when I did. The odds of my deciding to drop or cancel this coverage are less than zero.
I could never qualify to buy a LTCi policy now. I won’t go into details or mention my pants size, but like others, I’ve picked up a few nicks and scratches along the way. As longevity increases, there will be more years at the end when we may need assistance because we cannot manage on our own. The LTC insurance companies have learned from incorrect assumptions in the past and are now charging considerably higher prices for coverage than they did even a few years ago.
Health conditions that were not a concern years back, are now being much more closely scrutinized. It is very difficult for diabetics to find coverage and may soon be impossible. Osteoporosis, strokes, heart conditions, etc. can disable people for many years resulting in much larger claims.
Thus people need to investigate and obtain coverage much sooner than they have in the past. If a condition exists that could lead to a need for care many years in the future, it may already be too late to get LTC insurance.
Another company has just announced they are instituting higher prices for females, since most facility residents are female. They often care for their husbands and then need hired help or a facility to care for them, thus higher prices. I still have companies not charging females more, but that time is getting short.
The moral of this story is that if you are over 40, healthy, and are not living paycheck to paycheck, you would be well advised to investigate LTCi. If purchased at age 40, and premiums paid for 50 years, the total will be less than waiting until 50 and only paying for 40 years, etc., etc. Once purchased, inflation works for you, as the policy benefits grow at 5% compounded each year automatically. The longer you wait, the larger a policy will be needed, the more it will cost, and your health may never be better than it is right now.
Start by visiting my website www.TheLongTermCareGuy.com or call Romeo Raabe at (920) 884-3030 or (800) 219-9203 to schedule a time to investigate.
Will The Hybrid Life/LTC Policies Really Come Through For Your Clients?
Today’s blog is aimed at financial planners and insurance agents
Many financial advisors think that the Hybrid Life/LTC products are the perfect mix of current protection and future coverage in a product that is understandable (to them) for their clients. At the risk of starting a firestorm among devotees of these products, I offer a challenge: what will happen when the hybrid polices are called on to pay the bills for LTC? I realize many of you say they are for those who simply won’t buy LTCi, or plan to self insure–but is that the client’s opinion, or are you just defaulting to an easier-to-sell product?
This question was brought to my attention again recently when a financial planner called me about a client meeting he just concluded. His clients had purchased such a life/LTC hybrid several years ago from their previous advisor. During their annual review with their current advisor, they went through what the product would pay if they needed care at age 80 or later. This is when the client realized that there is no built in inflation with their plan for LTC. They thought they had discussed inflation with their prior advisor, and they probably had if real traditional LTCi was discussed. However in the plan they purchased, there is no inflation coverage.
The cost of LTC could easily increase fourfold over the 30 years between the time they purchased the product and the time they need its’ benefits. This does not even take into account the potential increase in LTC inflation due to the multitude of baby boomers needing care and fewer workers willing to work for minimum wage. At this point the planner pointed out to them the significant shortfall which would ruin their plan–almost as though they had not done anything to plan for LTC.
The planner was calling me to ask for quotes on a supplemental LTCi plan with 5% automatic compound inflation to potentially add to their existing plan. As it turned out, the two premiums together (the hybrid product plus the supplemental plan) would cost more than if they had purchased traditional LTCi with automatic 5% compound inflation to start with. Fortunately these clients are still healthy enough to get LTCi, but what if they weren’t?
We are just starting to see the problems concerning LTC in America. The baby boomers have always been a formidable force, and their impact on long term care will be no different – on average, 10,000 people turn age 65 in America every day; this will continue doing so for the next 18+ years. We do not have sufficient staff willing to work for near minimum wage, which will drive wage inflation at an increasing rate. LTC costs have been averaging 5% to 6% annually over the past 20 years, and that will likely increase faster in the future.
Baby boomers who think that they can protect assets by moving them and who think that Medicaid will then take care of everything is like the sailor who throws out the life jackets to make the lifeboat lighter – is it really smart to count on only the life boat to save you when the storm comes along? What makes you think the government will have the funds to pay for care for all the baby boomers? Germany already has a 10 year look-back for their Medicaid type system, and England requires spousal impoverishment down to about $37,000 of assets. When money is not available to pay the bills, similar steps will be taken here. Do you really want to tie yourself into depending on this future?
How many of your clients have the funds to self fund LTC, really? Certainly not the ones who think they are financially secure with $250,000 for their retirement. Even if they purchase an LTCi hybrid benefit of $10,000 a month – which certainly is a high benefit in today’s dollars – what will that be worth in 30 years when the cost of care may well be $32,000 a month? Will the difference come from their Social Security check, or from that $250,000 of retirement savings? Why do we fret over whether their assets will keep up with inflation, but ignore inflation related to LTC?
Perhaps if we actually explained the inflation concerns regarding LTC our clients would be far more willing to spend $2500 to $5000 a year for insurance. In many cases the yield on assets will easily cover this. Since not many people need LTC for 10 years or more we should be offering real, inflating coverage for 2-3 or 4 years, coverage that will keep up and actually pay for care, instead of taking the easy way out.
It seems “use it or lose it” and “let me show you something you can collect on – no matter what”, are easy ways to make a sale. Is that sale good for your client when they need it and you are retired, or is it the easy way to make a sale now and tell them everything will be okay? And for those of you who say something is better than nothing, I disagree. If your clients do not have the cash flow to pay for needed care, and must fall back on Medicaid, they will spend down to impoverishment (welfare), cash in their life insurance (including the hybrid you sold them), and stand in line for ever scarcer Medicaid benefits. How is that better than nothing?
Are You Concerned About How You Will Pay For Long Term Nursing Care?
You’ve read that nursing homes can cost up to $8500 a month, assisted living half of that, and home care anywhere from very little to more than the nursing home. Your first thought might be there is no way I can afford such care. That is often an accurate first impression. However, there are strategies that can help.
First, consider how much of the cost you may be able to bear on your own. When someone needs care, lifestyle changes, often considerably. If one of a couple needs care there may be no need for a second car or pickup truck. That can equate to less mouths to feed. Then there are the toys; boat, motorcycle, snowmobile, camper, etc.
The travel and fun budget will also shrink with no trip to Branson, a cruise, a bed and breakfast weekend, etc. Note: you should be having fun while you are healthy as you only go around once in this life. Thus with basic necessities budgeted for, less gasoline, insurance, tires, trips, toys, etc., you may find that a significant amount of income may be freed up.
Long Term Care insurance is a great way to pay for care, if you purchase it while still healthy enough to get it. The trick is to investigate it when it becomes affordable, and take into account the budget changes mentioned above and not buy too much. Most long term care is NOT done in nursing homes, so an amount that, along with available income, can cover home care or an assisted living facility may be sufficient for many. And don’t forget the IRA or other nest eggs. Even if you want to preserve them for a spouse or heirs, you can still use the income (yield) they produce. I realize interest rates are not the highest right now, but every little bit helps.
Medicare does not pay for long term care. It will pay for a short recovery stay in a skilled nursing facility following 3 days in the hospital (and you know how quickly they get you out), but that is only for your active recovery for a very short time. Medicaid can pay for care, but only after you are impoverished, meaning you have spent all available assets, cash, savings, real estate, etc. It is a last resort to be avoided if possible. If this becomes necessary, do plan to set aside some money in an irrevocable trust to pay for funeral, which most states allow (life insurance must be cashed in to get Medicaid).
There is a strategy that uses as its base an annuity, an insurance product that converts a sum of money into a monthly income for life. Obviously the older you are, the smaller a check you write to receive the needed monthly check for life in return. One company has fine tuned this for long term nursing care, however, and takes health into consideration. If you need care, your health is probably not as good as the average person of your chronological age. Thus your shorter life expectancy, when taken into account, means a smaller sum may buy you the income you require for the rest of your life. The worse your health, the better the deal.
If funds are not available in your regular bank, do not discount the “bank of house” (reverse mortgage). Since you can’t take it with you, why not use its equity to help you stay at home in it? Some people have even used home equity through a reverse mortgage to pay for long term care insurance. This gives them a much better chance to remain in the home and have money left over at the end to pass on.
For more information on what is best for your situation, contact TheLongTermCareGuy.com Romeo Raabe at (920) 884-3030 or (800) 219-9203