LTC Financing Strategies
A Retirement Riddle Answered, Or Not?
Last week a well known mutual fund company attempted to answer the question of why so many retirees die with significant savings left. Is it because they wish to leave large amounts for family? Perhaps they are afraid to spend the last dime just before death? This trend suggests many retirees don’t enjoy their final years as much as they could.
Few older folks seem interested in life income annuities, which could give them a guaranteed income for life with no worries, yet they keep the nest egg close at hand and don’t invade it.
The study seems to indicate that the reason is the fear of potential long term care costs that drives retirees to clip coupons, dine out at 4pm to catch the early bird special and forego expensive trips. If it comes down to it in the last year, and they had to choose between an uncomfortable year versus a comfortable year, they would choose to spend the money on making it more comfortable.
For the upper middle class, 75th percentile of wealth, health care was regarded as a necessity and bequests as a luxury. It was also surprising that people are interested in assistance with daily living expenses, but are not interested in long term care (LTC) insurance.
Perhaps this is due to old beliefs that LTC insurance only covers nursing homes. For many years now, such coverage is good for in-home care, adult day care, assisted living facilities or nursing homes. Nearly all policies also cover “alternative plan of care” for locations or strategies that have not been invented yet, but may be in the future.
The most surprising thing about this study (to me at least) is that traditional LTC insurance can be purchased with just the interest on a portion of the savings people set aside to pay for care. Instead of leaving a significant amount of assets set aside for care, the interest check from just part of that sum could provide the insurance coverage and leave the reminder that is unspent to be passed on to family.
Years ago, I was a representative from a LTC insurance company to a large bank chain in Wisconsin. My job was to show the stockbrokers there how to address LTC funding. I would attend teller meetings and ask if the tellers knew clients who withdrew $5000 or $7000 a month, every month. Every hand went up. My next question was what they spent it on and the answer in every case was a spouse needing LTC. With today’s costs reaching or exceeding $9000 a month, the problem is even worse.
There are many strategies to deal with the costs of LTC, but the least expensive is LTC insurance with a built in 5% compound inflation factor on the amount available for care. This will keep up with the costs of care over the years and frees up your life’s savings to experience life with – instead of waiting for that last year or two. This coverage is, in most cases, less than is typically thought it would cost (if chosen appropriately). For more information, visit www.TheLongTermCareGuy.com
Seven Things To Know About LTC Insurance
1. You may not need as much of it as you think
There is usually no need to purchase enough of it to cover the cost of care in the locale where you may use it. Bear in mind that most income such as Social Security continues until death, as do, pensions, interest income, etc. Lifestyle will change too, no Branson, MO trip anymore, cruise, camping, and other fun things may not happen when one cannot participate leaving more of your income to put towards the cost of care.
2. 70% of us will need care (2015 Medicare and You, Centers for Medicare and Medicaid Services)
So don’t think it won’t happen to you. As healthcare in the US improves, things that used to kill us, now only “wing” us, causing more need for care in later life.
3. Women are at significantly increased risk
About 68% of nursing home residents and 72% of assisted living residents are women. (Source: Long-Term Care Services in the United States: 2013 Overview, National Center for Health Statistics) Thus there is even more urgency for women to obtain coverage, and to do so before things like their first bone density test. Many LTC insurance companies charge women significantly more than men, BUT NOT ALL!
4. Don’t believe the average cost surveys.
Some areas of the country cost much less than other areas to receive LTC services. The lowest costs are in West Virginia and Louisiana. New England and Alaska are among the priciest locales. Check out the actual bills where you may need care, not just the median cost.
5. Medicare does not pay for LTC
This gets confusing as Medicare will pay for up to 100 days in a nursing home following 3 days inpatient in a hospital, for the same reason you were hospitalized, and while you are improving (medical care). It save Medicare money to have you recover in a $300/day nursing home bed than a $3000/day hospital bed. Most of us who need care, will need more than 100 days, and if we did not spend 3 days inpatient in a hospital, we may receive no Medicare coverage for the nursing home.
6. I can afford to pay if this happens to me
Really? Not all care is significant enough to allow deducting it as a medical expense. If you need $100,000 that you can spend out of your IRA or 401K account, you will need to withdraw approximately $200,000 so that you have $100,000 after the new “rich person” income tax bracket you will be in. Even if you can afford it, why would you want to when insurance can cost pennies on the dollar to pay the bill versus using up your assets that you may want to leave to family or charity.
7. It won’t be that long, none of my relatives have needed care for long
20% of people needing LTC will need it for more than 5 years. If you follow averages of how long people might spend in the nursing home, remember than only about 20% of LTC is provided there. The majority of care is provided in your own home (no statistics for that) or in assisted living facilities (4 years average stay). Now add that to the “average” nursing home stay of 2.5 to 2.8 years depending on which survey you read and it might be a while.
For more information, visit www.TheLongTermCareGuy.com
Why Do Medicare Reductions ($400 Billion) Matter?
Our president wants nursing homes to deliver care much more efficiently and for significantly less over the next ten years. The proposal indicates that Medicare can save $400 Billion over the next 10 years in reimbursements for nursing home recovery care following a hospital stay.
There are also proposals afoot to raise the minimum wage by nearly a third. Nursing home care is overwhelmingly bricks and mortar and minimum wage help. With labor costs going up, more and more utilization as the baby boomers turn 65 at a rate of 10,000 a day, how will Medicare save $400 Billion dollars?
Medicaid already requires impoverishment before it will pay for your Long Term Care. Perhaps the look-back could be extended to 10 years from the current 5 (that has already been introduced in Congress twice, but died in committee). Perhaps a new requirement will be to force reverse mortgaging of the family home before Medicaid eligibility is granted. Many options are on the table, and the result of each idea is less available government money to cover LTC for you and I.
I am fine. I have my LTC insurance policy. Do you? If not, is it because you heard that they are way too expensive? Or have you heard that you must be in perfect health get the coverage? neither of these excuses are valid – if you plan with someone knowledgeable on how LTC actually works.
Imagine if one of a couple becomes laid up and requires day to day care for bathing, dressing, toileting, etc. Will that couple still own two cars and a Harley or a pickup truck and camper? I think not. Will they go to Branson, MO this year? Probably not. Will there be a cruise in their future, I doubt that as well.
When one of a couple needs LTC, the “fun” budget shrinks drastically, or disappears entirely. If a single person requires LTC, they may find themselves “stuck” in the home versus living there, especially if they cannot drive. In that case, an assisted living facility might be less expensive and provide much more social interaction. With the household and auto expenses eliminated, and both of those items converted to cash that can earn interest, one might find themselves able to pay the majority of the monthly bill. It might only require a small addition from a properly sized LTC insurance policy to make up the difference.
That is the benefit of investigating LTC insurance with a specialist who understands the finances of care. Most people will never require a nursing home, but may be able to use an assisted living facility or stay at home with their family. Thus, a policy sized for that will handle the great majority of care situations. Then with health and ages taken into account, the most appropriate company can be priced and voila, reasonable, affordable LTC insurance can save the day.
If, however you wait, wait until your health changes and nobody will insure you, you have waited too long. You need homeowners insurance before the tornado. You need auto insurance before the accident. You need LTC insurance while you are still healthy enough to get it. When your annual physical comes up and the doctor says “I’m going to write a prescriptions for”…….. you know immediately that you waited too long. How long will you wait? Do you feel lucky this year? Do you?
Considering LTC Insurance? You Might Find Something Entirely Different Is Substituted
So, you’ve decided to investigate LTC insurance. Now, which type do you look at or might be suggested by the agent? You can keep things simple by concentrating on just a few important points:
1. How much money will it give me WHEN I NEED CARE?
2. How long will I be able to collect that money?
3. Will the policy increase each year automatically to keep up with the increasing costs?
4. Will it pay MY claim?
Traditional LTC insurance will guarantee how much you get, how much that dollar amount will increase by automatically each year, how many years of care it will pay for, as well as paying when you need assistance with 2 activities of daily living or a cognitive impairment.
The only traditional LTC insurance policy that cannot do the above is the one sold to teachers by their union that will only pay 3/4 of the claim, no matter how much benefit you may have paid for.
Some of the “new” products using life insurance or annuities as their base will only pay out if the need for care is permanent, meaning there is no chance of your recovery, ever. Others cannot tell you what the benefit will be when claim time comes. It is only determined at that time by some complicated formula.
Some of these offer what seems like a large amount of money each month to pay for care, but fail to mention that the monthly benefit never changes as inflation eats away at that benefit. Recall back to what gasoline cost per gallon when you first learned to drive and you will realize that inflation is real.
There are a few of the life/LTC insurance policies that will give you a guaranteed 5% compound increase in your benefit every year. If this strategy appeals to you, be sure it does include that automatic 5% compound inflation benefit. Costs of care have been going up a bit slower the past 5 years, but the past 5 years have been the worst economy since the great depression. With the 80 and over gang predicted to triple in 20 years, and a shortage of caregivers is already evident, cost will go up by at least 5% compound in our foreseeable future.
As you can see, there are many different types of products, with many options, some important, and others not so much. Rather than purchase something because your neighbor bought it, you might consult with an expert in LTC financing to learn what is best for you. There are even options for people who have been told they cannot get this coverage, or may already be receiving care in their own home or a facility.
More information is available at www.TheLongTermCareGuy.com
Thanksgiving is Coming, How is Your Family Doing?
Thanksgiving comes around every year about this time. Families get together, hopefully getting along. Sometimes it is the one time a year everyone sees how the older members of the family are doing since last year.
For some families, it will be a difficult time when they realize that grandma or grandpa are not as sharp as they used to be. Perhaps it is difficulty in getting around, or driving, or perhaps it is in confusion that seems to be getting worse and frustrating the person no end.
Well, the family is all together, so let’s discuss what to do. Perhaps nobody is willing to start the discussion, ignoring the elephant in the room. Or perhaps someone attempts to make suggestions and is quickly shot down.
Talking about losing independence is never easy. Help may be offered and declined since “I can do it myself”! In any case, some family members can see that a problem is evident and wonder what to do about it.
A big part of searching for solutions is learning what options are available. All sorts of support services exist, to help people in their homes, day care several times a week, or even an assisted living facility. Many of these have pools or hot tubs, and most now offer happy hour one afternoon a week to help with socialization. However, who will bring up the topic and risk the wrath of the loved one you all care about?
All of the options can be expensive. The good news is that only about 15% to 20% of LTC is done in nursing homes now. Home care and assisted living facilities cost half or less than a traditional nursing home. However, $1500 to $4500 per month will strain most budgets or put a large dent in the family funds rather quickly. Perhaps it might be prudent to learn what financing arrangements for LTC services are available.
Medicare does not pay for LTC. Medicaid will, but only once the person has spent-down to impoverishment and cashed in any life insurance. There are other, better options available. LTC insurance, if purchased while still healthy is the least expensive way to address this, but even after the need arises, there are other strategies. In a worst case, there is still the option to move some money to family without Medicaid penalties. You simply need to consult an expert in this area and learn what options can work for you.
More information is available at www.TheLongTermCareGuy.com
More Bad News For The Sandwich Generation – Filial Responsibility Laws
The sandwich generation are the folks who are currently raising teens, paying for school, and taking care of their parents as well. This causes much missed work, missed work opportunities, missed events with children, and general exhaustion. How could you possibly accept a promotion requiring a move when you are taking care of an aged loved one here?
Now there is another worry to consider, Filial Responsibility Laws. 30 states have them and they state that adult children have a duty to provide necessities for parents who cannot do so for themselves. This includes long term care (LTC)!
Here is a list of the states that have such laws: Alaska, Arkansas, California, Connecticut, Delaware, Georgia, Idaho, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Mississippi, Montana, Nevada, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, and West Virginia. If your state is not listed here you are NOT out of the woods. If you have parents living in one of those states, you could become responsible for their bills including the cost of home care, assisted living or a nursing home.
Judges use a number of factors when determining the adult child’s responsibility to cover the indigent parent’s bills. I personally thought I would never see these laws enforced, but California, New York, and Pennsylvania have each had a number of cases.
You may have heard the various rumors of shortfalls in government budgets. You may also be aware that the baby boomers are turning 65 at a rate of 10,000 a day and will for the next 18 years. Where do you think the money will come from to pay for the LTC these people will need, if they do not have the funds, or insurance to pay their own bills?
You might view this as a way to get even with your kids, like the bumper sticker that says we are spending our children’s inheritance. But do you really want to bankrupt them from their financial security? Perhaps you should investigate LTC insurance for yourselves, if you are still able to qualify for it. for more information, visit www.TheLongTermCareGuy.com
How To Save Money When Claiming on Your LTC Insurance
I get frequent calls from people asking how the claim process on a loved one’s LTC insurance works. The most common question is on what is called the elimination period, which I call the deductible.
The most common “deductible” on LTC insurance policies is 90 days. Most policies require one to actually pay and show receipts for 90 days of care to prove you have met your deductible. Some policies do have features that will credit 2 days per week as a week of your deductible, but these are not the norm.
Thus, to get through the deductible, you must have had, been billed for, and paid for 90 days of care. If hospice care is provided from a hospice organization, and Medicare paid for their services, you received no bill, nor did you pay for that care, then those days may not count towards your deductible.
If children help out, on weekends perhaps, so that no professional care is received, billed, or paid for – those days may not count towards your deductible either.
Thus, the fastest, and often the least expensive way to satisfy the deductible of a LTC insurance policy is to have paid care every day, and at the smallest bill possible. Let me interject a short story here to make this easier to understand.
An adult son of a client of mine called one day to tell me that mom had moved in with he and his wife and was being cared for by them in their home. He indicated that in the near future she will need to move into an assisted living facility (costing about $4500 per month, or $150 per day). He wanted to know what he should do to prepare for filing a claim on her LTC insurance policy.
I explained that the 90 day deductible was measured in days of care, whether they are expensive days or inexpensive days. Assuming he wanted his mother to satisfy the deductible at the lowest possible cost, I suggested they hire home care to come in and help out for the shortest (least expensive) visit available, even though they could manage on their own. As long as mom needed help with 2 activities of daily living or was cognitively impaired, she qualified for care and coverage on the policy.
I explained that this would help satisfy her deductible at a cost of perhaps $35/day for 90 days, versus $150/day for 90 days in the assisted living facility. Once he understood how this would save his mother significant money, even though he and his wife could provide the care themselves, he readily agreed to bring in help each day for the shortest, least expensive bill possible.
Remember that most LTC insurance deductibles are for so many days, not so many dollars. Thus planning the paid caregiving for the least expensive 90 visits, one per day, can help you satisfy the deductible at the lowest out of pocket cost to the insured person.
More information is available at www.TheLongTermCareGuy.com or call 920 884-3030 to schedule a time to investigate LTC insurance for yourself. Call or email if you have questions about your LTC insurance coverage.
Protect Mom’s Money
Here is a not untypical situation where Mom needs care and even though Medicaid will soon be needed, some funds can be moved to family.
In our example, Mom is 83 years old and suffering from dementia. She has 2 daughters, one of which is married, the other divorced. The daughters have finally convinced Mom that she will be happier, safer, and better cared for in an assisted living facility. Mom agrees to move in.
The daughters now need to liquidate Mom’s modest house and her car. An estate sale ensues to dispose of the unneeded contents of the house. When all is liquidated, and Mom’s first month is paid for, she retains about $110,000 in her bank account.
If Mom spends down to Medicaid impoverishment, and is left with just $2000 of assets, the daughters will end up paying for Mom’s funeral at death. This is due to the requirement that any life insurance paying more than $1500 at death be “cashed in” and spent to qualify for Medicaid.
However, Mom can put up to $15,000 (varies by state) into an irrevocable burial trust (IBT). These accounts are allowed by Medicaid, there is no 5 year look-back on transfers to an IBT, and the money earns interest until the date of Mom’s death. At that time, the funds are available, by wire transfer, to pay for funeral costs immediately, even before the death certificate has been printed. By comparison, life insurance proceeds are usually not received until 5 weeks or more after death, commonly causing someone to put up a credit card at the funeral home for at least partial payment.
In addition, in many states, Mom can also fund irrevocable funeral spaces trusts for up to $15,000 for each of her children and spouses thereof. The funds will be immediately available for their funeral costs at death, and in the meantime are protected from any creditors, nursing facilities, lawsuits, etc., as they are outside the estate of the beneficiary of such trust. The money is truly protected.
For those of you who thought that all Mom’s money would be spent on her Long Term Care costs, now you know that some funds can be left to family. Of course, preparing for LTC while healthy with a LTC insurance policy is the least expensive way to deal with the care that the Health and Human Services government agency says will be needed by 70% of us. But for those who did not prepare, options exist. For more information visit www.TheLongTermCareGuy.com
Do You Know Someone Who May Soon Need Help Managing On Their Own?
We all dread the time when we may need some assistance due to not being able to manage on our own anymore. It happens to others, but surely, not us. We are never prepared when a loved one needs help, and then we find out how expensive such care is. There seems to be no one place with all the information we need to formulate a plan.
Many family meetings occur in my office, trying to figure out how the family will care for Mom or Dad. The usual questions include: will the VA provide any assistance? Yes, perhaps, through a program called Aid and Attendance. It is a needs based program (meaning your assets must be somewhat limited) that can be available to veterans and even their spouses to help pay for care.
Medicaid is another possible assistance program. It, however, requires strict impoverishment, spending down to very low asset and income levels and is a last resort. There are things a family can do to protect some assets from this spend-down requirement, and this is often a topic of much interest.
If some funds are available from savings or home equity, there are some little known strategies to produce an income for life that requires far less of these assets than a typical life annuity. When life expectancy is less than “average” for someone’s chronological age, this can seem like a miracle. Being able to pay for the needed care and never running out of money is a very good thing indeed.
If you or someone you care about is going to need some help with day to day activities, and you have no idea where to start looking for help, call us at The Long Term Care Guy. We are Wisconsin specialists based in Green Bay, but can help with questions no matter where you are.
Give us a call at (920) 884-3030 or (800) 219-9203 or send us an email at [email protected]
Help Wanted – Home Health Aides
Another article appeared in the Wall Street Journal recently about home health care workers. If you want job security, long hours and low pay, this is the career for you.
I have mentioned in prior posts about the shortage of workers caring for our elderly in the US. The turnover rate for home health care workers is 40% to 65% every year. The US Labor Department predicts this profession will grow by nearly 50%, or the equivalent of nearly a million new jobs by 2022. That is nearly five times the average of all occupations.
This also confirms the New York Times study that caregiving will overtake retail as the number on occupation in America by 2020, only 5 1/2 years from now. Where will all these workers come from? Who will want these jobs at a median wage of $20,000 a year? ResCare, one of the nations largest home care providers hires 2000 workers a month, just to replace workers who have left.
When your health changes and you can no longer manage on your own, who will care for you? Will it be your children? How many do you have, where do they live, and can they leave their careers and families to care for you?
Do you think the government will provide your care? Spend your money and let Uncle Sam take over? He can’t print it fast enough now and the baby boomers continue to turn 65 at a rate of 10,000 a DAY!
A nice assisted living facility that costs $3600 a month now (assuming your need for care is not significant) will be close to $15,000 a month when today’s 50 year olds are 80. Many 80 year olds think this is something they might not need for 10-15 years yet, when it will cost $30,000 a month.
I have Long Term Care insurance that will help pay these bills. Every year its benefits increase automatically at 5% compounded. Many insurance companies and agents are promoting LTC insurance policies that do not increase at all or do so at only 3% inflation. That will not pay the bills in the future! The only good those policies will do is to earn them a commission and leave the (woefully inadequately) insured clients to spend down to Medicaid impoverishment.
Congress wants to raise the minimum wage by a third. Caregiving providers cannot hire or retain workers at current pay grades. Wages will go up, and those with money will be able to get the care they want. I will. Will you? Long Term Care insurance is still available at reasonable rates, if it is chosen appropriately. That’s where I can help.
More information is available at www.TheLongTermCareGuy.com or call me, let’s talk. (920) 884-3030 or at (800) 213-9203 if are from out of town