I wrote about this issue in 2014, and have updated for 2016 as it continues to be relevant. With 10,000 people in the United States entering full retirement age every day for the next eighteen years, long term care (LTC) is one of the things we should consider as we age. Nobody knows when healthcare related issues will surface – and they can be quite costly. Just take a look at my home state of Oregon, with recently approved rate increases for 2016.

Washington, Idaho, and Montana are right in line with these outrageous numbers. Medicare does not cover LTC and you would have to spend down all of your assets below $2,000 to be eligible for Medicaid. Many States offer some kind of long-term care partnership that allows you to keep some assets while still being eligible for Medicaid without spending them down completely. But you must apply and be covered. And, while Medicaid is a useful safety-net-program, a person who is covered isn’t guaranteed to receive timely or quality care.

Consider what retirees said in a recent Healthcare Research Survey across 2500 participants, asking what they would have done differently regarding planning for healthcare costs in retirement:

  • Planned ahead
  • Saved more
  • Invested wisely
  • Purchased long term care insurance
  • Retired at a later date

The average stay in a facility is 2 ½ years with a median price tag of $85,000 here in the Pacific Northwest. The father of a close friend of mine spent the last eight years in a facility. Luckily they could afford it. Even if you’re currently young and healthy, nearly 1 in 5 adults provided unpaid care for someone over 50 years of age in the past twelve months. A survey by Caring.com revealed that approximately 33% of family caregivers devote more than 30 hours a week to caregiving, spend $10,000/yr. of their own money in the process, and nearly 50% spend $5,000 out-of-pocket per year trying to keep family members out of expensive long-term care facilities. But it’s not just the money. Roughly 40% of the caregivers surveyed are working full time, part time, or are self-employed. Of those who are working, 60% say their duties have had a negative impact on their jobs and 17% say they have had to miss a significant amount of work because of caregiving duties.

To qualify for most LTC benefits, people must demonstrate a need for assistance with two of six activities of daily living – bathing, dressing and eating, for example. Be careful when selecting a policy….depending on the specific LTC policy, insurers may pay out benefits on a reimbursement or indemnity basis. This is important because reimbursement generally does not allow payment for expenses incurred by family caregivers. Indemnity offers a cash benefit, if policyholders meet eligibility criteria, meaning they are receiving a particular type of care as defined by the contract (a check is sent and can be used however the caregiver wishes).

Traditional LTC is approximately three to four times cheaper than other vehicles, according to regular cost analysis published in the Journal of Financial Planning. If you’re buying a product doing double duty, like life insurance and LTC insurance, we should all know the cost has already been calculated into the price (Hybrid). In fact, a combination of life insurance, liquidity, and long term care may be exactly what you want. These are typically sold through a lump-sum premium and have a return-of-premium liquidity feature built in if an investor surrenders the policy and hasn’t used any of the benefits. The policy owner could cancel or have buyers’ remorse and get the cash value back without penalty, depending on the contract. The one important thing given up is the opportunity cost of investing that money elsewhere. Here is a nice flyer example by Lyn Rowe.

For those of us who have aging parents, now is an appropriate time to have an adult conversation. How do they plan to maintain their dignity and independence in their later years? Do they plan to downsize the house in order to free up money for medical expenses? Are you part of that plan? Please feel free to contact us with your questions about investing and retirement planning. We do not sell insurance products, which allow us to give unbiased advice to clients when figuring out the best plan forward.

 

Blake Parrish
Senior VP, Portfolio Manager
Phone: (503) 619-7237
E-mail: blake@bpfinancialassoc.com

Certified Financial Planner Boardof Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”