Paying for long-term care

 It’s estimated that 50% to 60% of 65-year-olds will require some form of long-term care at some point in their lives, often in 80s or later. Physician  John Lim recommends considering an alternative to self-funding (often followed by Medicaid), traditional long term care insurance (LTCI), or hybrid policies (afford payouts even if you don't need LTC). (Check out links to these options in this searchable blog.)

Lim recommends deferred income annuities (DIAs), also known as longevity insurance or—if purchased with retirement account money—as a qualified longevity annuity contract. DIAs provide protection against outliving your assets, regardless of whether you need to pay for long term care or not. DIAs are also known as Qualified Longevity Annuity Contracts.

A DIA is a basic income annuity with one quirk: The annuity doesn’t pay out immediately, but only after a delay. For example, you could buy a DIA at age 50 or 60. Similar to a traditional income annuity, you would pay an insurance company a onetime lump-sum payment in return for a lifetime income. The quirk is that the income stream wouldn’t begin until late in life, perhaps age 75 or 80. Age 80 is when mental and physical problems are likely to arise, requiring care. 

"Because the annuity’s payout is deferred until age 75, mortality credits—the secret sauce of annuities—are maximized. Put bluntly, those who die before 75 don’t receive a cent, which leaves far more generous payouts for those who live longer than 75. These “survivors” are precisely the ones who face the greatest financial risks from long-term care and longevity." IF you need care before the DIA kicks in you can pay out of your Social Security and assets, confident that the DIA is available. Of course, there is the option that one dies before the DIA payout begins but living past one's expiration date is much more of a financial hazard.

Unlike insurance policies, income annuities (DIAs) don't require a medical exam which might preclude one's eligibility for buying LTCI. 

Many mid-life adults are faced with caring for and paying for elderly parents. A DIA could be the answer.

Check this blog's posts on the basics of annuities to fully understand the concept.

https://humbledollar.com/2022/03/paying-for-aging/

Will you need long term care in old age?

 "Seventeen percent of 65-year-olds will need no long-term care. Almost one-quarter will develop severe needs, requiring many hours of help for more than three years."

"Most older people will fall between those poles, with 22 percent having only minimal needs. The largest group, 38 percent, can expect moderate needs — like support while they recover from a heart attack, after which they can again function independently."

Tallying the Cost of Growing Older

 By Paula Span, writing for The New York Times

"married people are less likely to need extensive care than those who are single."

Time to start planning for potential cost but not necessarily with long term care insurance. Check out other related items in this blog.

Thinking about long-term-care insurance?

 Readers of my blog know I'm not a fan of long-term-care insurance (LTCI) for a variety of reasons. Check out previous posts. One exception is when LTCI is combined with life insurance and/or an annuity in a hybrid policy. 

But... the Feb. 8 Wall Street Journal features an excellent article by Glenn Ruffenach: LTCI: "First, you should find an agent." 

First, shop for a knowledgeable, independent agent. Ruffenach explains that LTCI "is a ridiculously complicated product." An agent who specializes in LTCI and sells policies from multiple companies is what you need to find to start the process (after you've read and educated yourself). 

Sources: Certification for Long-Term Care has a locator on its website for its graduates: https://www.ltc-cltc.com/

Search online for LTCI experts in your area and ask other trusted professionals (attorneys, financial planners, accountants, tax professionals) if they can recommend a specialist. 

Once you have a few names, it is essential to interview some experts. What you don't want is someone who immediately starts in on policy features and costs. Instead you want someone who takes time to understand your situation and needs and how various options may help... before getting into policy perspectives. 

Questions to ask (from Bill Comfort, a LTCI specialist in Durham, NC): 

Experience: How many years have they sold LTCI? How many policies each year? 

How many insurance companies they represent, whether they sell hybrid as well as traditional policies.

Check out a list of questions at: https://www.comfortltc.com/

A Shopper's Guide to Long-term Care Insurance is a helpful resource from the national Association of Insurance Commissioners. You can find this guide on the NAIC website https://content.naic.org/ but any agent should offer you a copy before you have to ask for one. 

Your complete guide to a succesful and secure retirement

"Investment and personal finance experts Larry Swedroe and Kevin Grogan present uniquely comprehensive coverage of every important aspect you need to think about as you approach retirement, including:

Social Security, Medicare, investment planning strategy, portfolio maintenance, preparing your heirs, retirement issues faced by women, the threat of elder financial abuse, going beyond financials to think about your happiness, and much more.

These topics are explained with the help of specialists in each subject. And everything is based on the “science of investing” – evidenced with studies from peer-reviewed journals.

Overall, this adds up to a complete retirement guide, packed with the latest and best knowledge. Don’t enter your retirement without it."
https://www.goodreads.com/book/show/42925681-your-complete-guide-to-a-successful-secure-retirement 

Retirement Caregiver Crisis

A labor shortage in the caregiving market could have widespread implications for families. Nursing homes in Maine, the state with the oldest average age, are having to close down due to not being able to hire enough staff. Other nursing homes throughout the U.S. struggle with keeping qualified staff. This situation does not portend well for the massive baby boom generation that is reaching the period when they need assistance with daily living activities. Other nursing homes have lost accreditation due to resident abuse or neglect.
No one likes to think that they will need care in cold age but plenty of us boomers have had experience with dealing with aging parents and know the facts are we will likely need support. But who will be there to provide it?
 
This shortage could be readily alleviated if we were more friendly to immigrants who would love to have steady employment in the U.S.

Source: https://www.wealthmanagement.com/retirement-planning/retirement-caregiver-crisis

10 Alternate Ways to Pay for Long-Term Care

10 Alternate Ways to Pay for Long-Term Care

Don't count on Medicare to pay for nursing home, assisted living or ongoing home health care. Medicare benefits for that type of care are typically only available after a hospitalization or injury and for a limited duration. While Medicare isn't an option, here are 10 alternatives that are:

• Group Long-Term Care Insurance

• Short-Term Care Insurance

• Life/Long-Term Care Insurance

• Health Savings Accounts

• Long-Term Care Annuities

• Life Plan Communities

• Veterans Benefits

• Home Equity

• Pensions or Social Security

• Medicaid

 Source: https://money.usnews.com/money/personal-finance/family-finance/articles/the-high-cost-of-long-term-care-insurance-and-what-to-use-instead

Long Term Care Insurance: Options for buying

Check out this opinion piece about the benefits of buying LTCI as part of a package deal with life insurance or an annuity instead of buying straight insurance:
"THE INSURANCE market for long-term-care coverage has had a checkered history—and yet there’s an increasing need for LTC insurance among aging baby boomers. My advice: Forget the original standalone insurance products and instead focus on the new hybrid policies. What went wrong with the original standalone products? They proved to be underpriced." from Humble Dollar.
Get the details:
https://humbledollar.com/2019/06/package-deals/

Hybrid long term care policies

Due to the high cost of traditional long term care insurance (LTCI) and the likelihood of substantial premium increases in the future, insurance companies are offering hybrid policies that combine LTC protection with whole life insurance or with an annuity. With these policies the insured can be assured that their beneficiaries will receive a payout (from the life insurance) if they never need to pay for LTC. Also, if they pay for the LTC/life insurance policy with a single premium then no worries about future premium increases. The LTC/annuity hybrid offers flexibility on using the proceeds.

Check out this article and other items in this blog: https://www.thinkadvisor.com/2019/05/31/standalone-ltci-premiums-skyrocket-but-alternatives-abound/

Single persons without children who have no strong desire to leave an estate should first consider their assets and Social Security and pension payments along with the value of their house as a way to cover LTC costs before buying insurance. If SS + Pension + assets + proceeds from sale of house would cover LTC, then buying a policy would not be the best option. 

Hybrid Long Term Care Insurance

Actuaries miscalculated when insurance companies first started selling Long term care insurance (LTCI). As insurance company losses mounted many purchasers faced unaffordable increases in their annual premiums. Rather quickly the number of companies offering LTCI shrunk from about 100 to a dozen as it became clear that the product was not properly priced.
Now a variation combines annuities or whole (or universal) life insurance with LTC protection. These hybrid policies are worth considering.

A blog with reliable, understandable information about LTCI and the new hybrid policies is: https://www.insuranceandestates.com/long-term-care-insurance/
The site explains the pros and cons of buying LTCI vs. combining LTC protection with an annuity of whole life coverage. One of the main drawbacks of the hybrid policies is that they typically require a single, large, upfront premium compared to a yearly premium for traditional coverage. The disadvantage of the lower annual premium is that companies can raise the premium whereas a one time payment provides cost certainty.

Hybrid policies offer: Life Insurance with Long Term Care Rider or Chronic Illness Rider
https://www.insuranceandestates.com/long-term-care-rider-vs-chronic-illness-rider/

The site provides information on the 10 best (highly rated by independent raters) insurance companies and plenty of information that consumers should read before talking to any sales persons.  Be sure to read through the entire website for in depth information and check out AARP info. Due to the large upfront premium for hybrid LTCI policies, thorough due diligence is essential. Keep in mind that insurance agents are sales people working on commission. 

Another reliable source providing an overview of the new hybrid policies is AARP: https://www.aarp.org/caregiving/financial-legal/info-2018/long-term-care-insurance-fd.html

5 Things You SHOULD Know About Long-Term Care Insurance

Asset Based Long Term Care Insurance

A new development in the long term care insurance (LTCI) industry is "asset-based" policies  that link long term care (LTC) coverage with a whole life insurance policy or a deferred annuity. Huge premium increases in the early years of LTCI often caused insured to drop their policies because they simply could not afford the much higher premiums. Premium increases were a result of lack of experience in the early years of the industry and projections by actuaries that were too conservative.

Keep in mind that most mid to old age Americans simply cannot afford any type of LTCI because they have so little saved for retirement. They will have to rely on Medicaid or relatives if they need nursing home care. The wealthiest Americans can afford to self-insure and pay any LTC expenses out of their extensive assets. It's the folks in the middle who need to decide how to prepare for potential LTC costs.

New developments in the LTCI industry include "asset-based" insurance. This means that coverage for LTC is linked to a whole life (NOT term) insurance policy or to a deferred annuity (a tax advantaged way to invest for retirement). The primary advantage to asset-based policies is that typically there will be assets left over after paying for LTC for children or other beneficiaries.

While insurance covers the insured in the event of a loss, one may pay decades of premiums and never collect on a homeowners or auto insurance policy. That's how insurance is structured and most consumers understand that they paid for protection against possibly devastating losses but may never collect on a policy. Traditional LTCI is the same way. You may never need care and may die suddenly of a heart attack or stroke and never collect on a policy. However, because LTC is different from an auto accident or house fire, and because premiums often skyrocketed making them unaffordable, the industry has devised ways to make paying premiums more palatable by guaranteeing some sort of payout to heirs in the event there is not LTC claim.

Another factor is that far too many Americans think that Medicare will pay for LTC. It won't. Or they assume they will be eligible for Medicare paying for their care without understanding how the system works.

So welcome to "asset-based" LTCI, a way to make paying premiums more palatable.
"Asset-based long-term care (“ABLTC”) is an innovative insurance strategy that provides coverage for long-term care expenses without running the risk of “wasting” premiums if you don’t need long-term care."
ABLTC insurance links coverage to a whole life insurance policy or a deferred annuity.

"The beauty of ABLTC is that, if you don’t need long-term care, the annuity or whole-life policy retains its value and pays out to your designated beneficiary.  And many people who might not qualify for traditional LTCI due to preexisting conditions may still be able to obtain coverage."

Get details and lots more info from:
https://www.insuranceandestates.com/asset-based-long-term-care/

Useful Reference & Planning Guides: 2018 Taxes, Long term care, Social Security, & Medicare

Manning & Napier produced four 2-page guides to the latest developments in federal income taxes,  long term care, Social Security, & medicare that are succinct and easy to understand. Check out: 

Tax Reference Guide

Our new tax guide has everything you need to know about tax reform, and changes to contribution limits and tax rates.

Social Security Guide

Social Security can be complicated. We break it down to the simple information you need.

Long-Term Care Guide

We offer key statistics, median costs around the country, and common funding options to help you plan for long-term care.

Medicare Guide

We provide 2018 rates, enrollment periods, planning considerations, and more.

Download and print: 

http://go.manning-napier.com/2018ReferenceGuides

Who will care for aging Americans if the flow of immigrants is curtailed?

Immigrants play a big and growing part of providing care for America’s elderly parents and grandparents  

Gerald F. Seib explains the critical role of immigrants in caring for America's elderly in The Wall Street Journal (Jan. 28, 2018): How a Heated Immigration Debate Might Affect Grandma’s Care 

• "America is getting older. Some 10,000 baby boomers reach the age of 65 each day. By 2050, a fifth of the U.S. population will be age 65 or older, the Congressional Budget Office projects, up from 12% in 2000 and 8% in 1950."

• "Moreover, this large contingent of Americans isn’t simply retiring; it will live longer after retiring."

• "As Americans get older and live longer, they will require more long-term care"

"So who provides, and who will provide, the help the elderly need getting in and out of bed, bathing, dressing, cooking, taking medication and simply coping? A growing number of immigrants provide that care."

• 25% of home health aides, personal-care aides and nursing assistants are immigrants

"Moreover, the share of these workers who are immigrants has been rising, to 24% in 2015 from 20% in 2005. In some of the nation’s biggest states—New York, California, New Jersey and Florida—40% or more of these workers are immigrants. Among these immigrant workers nationwide, the PHI study found, 56% are citizens by naturalization, and 44% aren’t citizens."

• There already is a shortage of such workers, and that problem may become more acute as demand grows. 

• Demand for these workers is going to explode in coming decades
• The rate of disability and chronic conditions is increasing…

"We will need more people to fill that workforce gap, and immigrants are part of that solution.”
"Perhaps not surprisingly, many of these care workers come from countries that are in the crosshairs of the immigration debate. The largest shares come from Mexico, the Philippines, Jamaica, Haiti and the Dominican Republic."

 

Long Term Care Insurance: Pros and Cons

"Stiff annual premium increases are making long-term-care insurance unaffordable for some retirees, and the high cost can be traced to few insurers remaining in the market, writes Darla Mercado. Yet, with annual nursing home costs approaching $100,000, such policies may be worth holding on to if possible, she writes."
"Near-retirees wanting to shield themselves from nursing home costs face a quandary: Should they eat double-digit rate hikes for long-term care insurance, or should they walk away from their policy?
It's a $97,455 question." https://www.cnbc.com/2018/01/23/nursing-home-care-can-quickly-deplete-your-retirement-savings.html

On the Other Hand... The Wall Street Journal paints a negative view of the dramatically rising premium costs and shrinking pool of insurers.

Millions Bought Insurance to Cover Retirement Health Costs. Now They Face an Awful Choice

Battered by losses, long-term-care insurers hit policyholders with steep rate increases that many never saw coming

By Leslie Scism,Updated Jan. 17, 2018

"Long-term-care insurance was supposed to help pay for nursing homes, assisted living and personal aides for tens of millions of Americans when they became unable to take care of themselves.
Now, though, the industry is in financial turmoil, causing misery for many of the 7.3 million people who own a long-term-care policy, equal to about a fifth of the U.S. population at least 65 years old. Steep rate increases that many policyholders never saw coming are confronting them with an awful choice: Come up with the money to pay more—or walk away from their coverage."
“Never in our wildest imagination did we consider that the company would double the premium,” "says Sally Wylie, 67, a retired learning specialist who lives on Vinalhaven Island, Maine." The article explains the problems in the industry and the dilemma facing consumers who have policies or are considering purchasing coverage.

Another factor to consider:

Immigrants play a big and growing part of providing care for America’s elderly parents and grandparents

 Gerald F. Seib writes in The Wall Street Journal, Jan. 22, 2018:
"We are a nation with an increasing population of elderly parents and grandparents needing care their families can’t offer directly. Immigrants play a big and growing part of providing that care. The question quietly running beneath the surface is whether the changes now being debated in immigration laws and policies will upset all that."

 

Long Term Care: Rely on Saving Rather Than Insurance

Teresa Miller, the Pennsylvania insurance commissioner, and the head of the Long Term Care Innovation Subgroup says Americans must save more for potential long-term care costs and rely less on insurance. (See related posts about problems with the LTC insurance industry 12/15/16 post.) More savings may be the best option for the well-off, but most Americans suffer from far too little in retirement savings. Medicaid (NOT Medicare) pays for long-term care in nursing homes for the indigent but Medicaid is in serious trouble due to insufficient funding. Politicians get elected by promising to cut taxes but why do voters fail to ask what services and benefits will be cut? A good question for your members of Congress.

Older Veterans Often Miss Out on Long-Term-Care Benefits

"Many older war-era veterans and surviving spouses over the age of 65 across America are missing out on a major element in securing their retirements: the Aid and Attendance benefit for long-term care."
"The Aid and Attendance benefit is available to veterans and their spouses to help offset recurring medical costs and some of the costs for home care and assisted living care. This is a benefit for senior veterans who served during wartime—World War II, the Korean War, Vietnam and the Gulf War—for at least 90 days of active duty and who are 65 or older, as well as their surviving spouses. It doesn't matter if the veteran served stateside or internationally, saw combat or didn't, was wounded or wasn't. If the veteran's doctor—not a VA doctor—affirms the veteran or spouse needs assistance, then he or she may be eligible for Aid and Attendance, regardless of Social Security, Medicare, pensions or other benefits." Get the details by Kevin Richards at: http://www.kiplinger.com/article/insurance/T036-C032-S014-older-veterans-miss-out-long-term-care-benefits.html

Long Term Care Insurance Industry Problems

 I've advocated that most people would be better off saving the amount of the premium and investing it for retirement expenses rather than buy LTC insurance. The Wall Street Journal reports (12/4/2016) widespread problems in the industry. "Collapse of Long-Term Care Insurer Reflects Deep Industry Woes: Actuarial miscalculations on long-term-care policies by two units of Penn Treaty American have proved fatal," by WSJ writer Leslie Scism. "A pair of small Pennsylvania insurers focused on long-term care could soon become one of the nation’s costliest insurance failures ever, highlighting the widespread problems that have plagued the industry niche for more than a decade." Scism explains:
"From the 1990s through the early part of the last decade, dozens of insurers sold long-term-care policies, viewing the then-new product as a growth engine that would address aging middle-class Americans’ worries about paying for care later in life. The policies pay for personal aides and extended nursing-home stays that Medicare, the federal health-insurance program for the elderly and disabled, doesn’t generally cover. The federal-state Medicaid program does pay for nursing homes, but is available only to the poor."
"But most actuaries badly underestimated costs, and the insurers then met resistance in many state insurance departments when trying to push the pricing miscalculation onto policyholders through steep rate increases. Some states did allow double-digit-percentage increases, distressing the often-elderly policyholders. Sales have collapsed amid the turmoil, and fewer than a dozen insurers sell any significant volume today." 

More than a dozen years ago Lance Palmer and I recommended an alternative to long term care insurance:

Lown, J. M., & Palmer, L. (2004). Long term care insurance purchase decisions: An alternative approach. Financial Counseling and Planning, 15(2), 1-11. Abstract:     

"Due to uncertain future income and premium increases as well as the negative ramifications of letting a policy lapse, educators and advisors should consider the advantages of the self insurance option for long term care. Self insurance offers the flexibility of using funds for long term care or basic living expenses if other funds are depleted, and allows assets to be passed onto heirs if no or little long term care is required. However, self insuring would provide only approximately one third of the insurance coverage provided by a competitive long term care insurance policy."  http://ssrn.com/abstract=2255137

Hazards of Financial Advice Columnists

In "Money Talks" (8/10/16) Dave Ramsey advises that an elderly woman with $1.5 million in assets needs long term care insurance! OMG! First of all, details are lacking on her age, projected longevity, health, family situation and possible plans for how she might prefer to receive care. Futher, Ramsey fails to acknowledge the continuing problems in the LTCI industry (see other items in this blog describing the problems), including dramatically rising premiums. There was no discussion of the nuances that need to be considered before making such an expensive decision. Moral of the story: beware simplistic answers, regardless of how famous the person giving the advice. This kind of decision requires a detailed analysis of the family's finances and the preferences of the woman in question.

Help for Caregivers

The mission of Share the Care (http://sharethecare.org) is "to improve the 'quality of life' of anyone who needs support–and to reduce the stress, depression, isolation and economic hardship of their caregivers.
"Caregiving will touch everyone at some point in life yet it often remains in the shadows of the public/media spotlight because it does not make for a picture that melts the heart but rather one to be avoided at all costs. Not so much because people are uncaring but rather frightened and uneducated.
Sometimes, friends disappear when illness strikes because they don’t know “what to do or what to say.”
And often the person needing support and their caregiver hide the fact and carry the entire burden alone rather than admit they could use help.
STC’s focus is on educating caregivers, patients and their concerned friends, neighbors, co-workers and acquaintances about the profound personal benefits to everyone involved through sharing the care.
Because we find that family caregivers often tend to be isolated and therefore less likely to reach out for help, we target professionals, and faith communities. They see caregivers and patients on a daily basis and are best situated to identify those who could benefit from a STC group. We also seek to reach working caregivers through corporations."
         '

In-home Senior Care- a lot to learn

Check out this informative article from one of my favorite blogs (Squared Away Blog). It's an interview with expert Carol Levine, author of Planning for long-term care for dummies.
http://squaredawayblog.bc.edu/squared-away/in-home-senior-care-%E2%80%93-a-lot-to-learn/

Long Term Care Planning & Information

Thanks to the Squared Away Blog http://squaredawayblog.bc.edu/squared-away/hhs-website-decodes-long-term-care/ for pointing out the great long term care resources at http://longtermcare.gov/. Learn what services are available, costs in your area, various payment options and planning strategies.