Something Personal Episode 10: Long-Term Care
Roughly 70% of Americans who reach the age of 65 will need some sort of long-term care, and nearly one in five of them will need care for five years or longer. Given the odds you will need care one day, and given the rising cost of that care, it is essential to include this possibility in your financial plan. But should you consider long-term care insurance? What sorts of strategies can help you effectively pay for your care? Besides saving, what else do you need to do to be sure you’re ready for any needs that may arise? Senior client service manager Melinda Kibler is here to answer these questions and more. Melinda and host Amy Laburda discuss how to navigate the realities of needing support without disastrously draining your assets — or inadvertently burning out your loved ones.
About the Guest
Melinda Kibler, CFP®, EA, supervises the staff of client service professionals in the firm’s Fort Lauderdale, Florida headquarters, where she is based. Melinda serves on the firm’s investment committee and is a member of its Entertainment and Sports Team. Melinda graduated cum laude from the University of Rochester, where she earned Bachelor of Arts degrees in economics and statistics, as well as a Certificate in Management in accounting and finance. She is among the authors of the firm's book Looking Ahead: Life, Family, Wealth and Business After 55; her chapter on long-term care was the inspiration for this episode. For Melinda's full biography, click here.
Episode Transcript (click arrow to expand)
Welcome to “Something Personal,” the podcast where a team of financial planners often tells you about death and taxes. But today we're talking about what happens before death — and that can be even more expensive. I'm Amy Laburda, editorial manager at Palisades Hudson Financial Group. And joining me today is Melinda Kibler, one of our senior client service managers. Thanks for being here, Melinda.
My pleasure, Amy.
So Melinda, we're on the third edition of our firm's book, Looking Ahead.
From an author's perspective, how has the chapter on long-term care changed over the years?
Melinda Kibler 00:44
Well, COVID really reshaped the way people think about long-term care. The virus's elevated risk for the elderly, combined with the unknowns about the condition, at least at the time, initially, really increased anxiety about how to pay for intensive care in longer stretches. So that's one of the aspects that we've seen change it more recently. Then, in terms of how companies are handling the product, we've seen more and more headlines in the last 10 years.
One of the earlier blow-ups we saw was back in 2008. Conseco, a company that carried long-term care policies, walked away from the market, leaving about 140,000 customers in the lurch. This obviously led to lawsuits, and the state of Pennsylvania ultimately had to take over administration of the remaining policies. Since then, companies have been dropping like flies. MetLife stopped writing policies in 2010, John Hancock in 2016.
Genworth has stayed in the business, but they've aggressively raised rates in states where they could. Or they've dropped out in states where there are regulations preventing them from having huge hikes in premiums.
So what is it about long-term care insurance that's making all these companies decide to drop the product or back off?
So with most types of insurance, policyholders pay to protect themselves against an unlikely catastrophic event.
Many policyholders never receive a payout, so the insurer has the money to pay the people who do make the claims. Think about car insurance, for example. When you get car insurance, you aren't planning to have a car accident, so most days you drive around with no issue, right? So for years, your insurer collects your premiums and you never make a claim. And then, you know, maybe in 10 years, you're distracted one day and oops, you rear-end someone at a stoplight and now you have to make the claim.
So it's an isolated incident, but you're glad not to have to fork out the cash at that point to cover all of the repairs. That's not the case with long-term care insurance. According to the U.S. Department of Health, 70% of Americans who reach the age of 65 will need some sort of long-term care, and 20% of those people will need it for five years or more. So a lot of policyholders will need to make claims. As
premiums rise, what you're going to find is the healthier individuals, they might drop their policies, because they're less likely to use it. And the remaining pool of policyholders are also the ones who are most likely to make the claims sooner than later.
So that actually leads us into sort of an opportunity to define our terms. What are we talking about when we talk about long-term care? What does that mean in this context?
Yeah, sure. So we can back up a little bit and kind of define this a little better. So there's
two types of help that people use for long-term care insurance. There's what we call “activities of daily living.” So that's things like bathing, dressing, eating, taking your medications, going to the bathroom. And then there's sort of a second category called “instrumental activities of daily living.” So that includes things like getting your housework done, preparing meals, shopping, and stocking your house with food and other things that you might need.
And then for those two types of tasks, there's two categories of care that someone can receive. So you have care that you receive at home, and you have care that's received at a facility. So for home care, it might be that you're paying for the cost of a health aide or someone to come in and take care of your homemaker services, somebody to clean and cook and get your house tidied up. And then there's also
adult daycare centers to cover during the day. Say you have somebody who needs assistance and they live with a family member. So that family member is covering things in the evenings and mornings, but they need to go to work. So then they can drop off this person at an adult daycare center.
There's also live-in facilities. So there's assisted living facilities. That's where the adult can maintain some level of independence and privacy, but have assistance with getting their medications, housekeeping, meals. There's also skilled nursing facilities. And those are best for someone that's either recovering from, like, a major illness, or it's very common for patients that have dementia.
And then there's the other categories — the continuing care centers, which have different levels of care as the adult ages and needs more assistance. So you might go into a continuing care center only needing some minor help. And as you age, that upticks. And they have different levels, and maybe they separate it by floors or whatever. And so you can really stay put in the same facility, and they'll adjust with your needs. And then the final one is usually hospice care, which is known for being end-of-life care.
So we've covered
a huge variety of options for what's truly a huge variety of situations. Someone who's having trouble getting around but is mentally very acute, versus someone who's having memory problems or early stage dementia are going to need very different kinds of help, very different amounts of help. So I imagine from a financial planner point of view, there's quite a bit of variation in cost in terms of these options too.
Oh, yes. I mean, it's like saying you're going to go buy a car. What kind of car are you going to buy? There's all kinds of levels.
They did statistics back in, we had some in here that were from 2016. The average adult daycare cost was $68 per day, while the average cost of a private room in a nursing home was $253 per day. And those costs, that's an average. Those costs can vary pretty widely depending on what state you're at, and what level of service you're receiving. And they're increasing
every year. So with how inflation has been over the last couple years, I would guess adult daycare costs are probably more like $75 to $80 a day at this point, on average.
And we’re not talking only about older adults, but many of the people who need long-term care are older. A lot of them may have qualified for Medicare. Does Medicare pay for this sort of thing?
Melinda Kibler 06:50
Medicare can pay for some of the types of care that we're talking about, but generally only after specific debilitating events or only for a specific period of time. Medicaid also covers long-term care costs, but you may not qualify. It's more of a safety net for the worst-case scenarios and shouldn't be your primary plan when you're thinking about how you're going to afford this financially.
Amy Laburda 07:13
That brings us back to long-term care insurance, because many people will need long-term care and it can be quite expensive. Now you mentioned already that a lot of insurers have pulled away from the product, and that that can leave insured high and dry if their insurer stops providing the service. Beyond that, what should a listener keep in mind if they already have a policy? Should they go ahead and get out, or is it a thing they should hold on to for now? Or does it depend?
This is actually a question I get
pretty frequently. So chances are, if you already have it, your premiums have increased significantly since you bought it. But there are still some scenarios where you'd want to keep your policy. So one thing you'll want to think about is whether you think your insurer will be in the position to pay the benefits when you need them. The younger you are, the less likely this is. We're seeing the trend already.
Even if you don't think your insurer will fail and abandon its policies, there's also a chance they continue to raise these premiums. So you want to evaluate the financial health of your insurer. If your company has kept its premiums consistent, and you're close to a time that you might need care, it might make sense to hold on to your policy. I've also seen situations where the premium jumps have been huge, but the client may be older. They may have a few existing medical conditions that are worsening their health.
In those cases, it may work out better to just suck up the cost of the higher premiums for another couple of years, if you expect you're going to make larger claims in the near term. Like I referenced earlier, you might be making these claims for five years of care or more. So in those situations, it pays off to pay the premiums now.
OK. So, say someone decides it doesn't make sense to keep it, or say they don't have long-term care insurance and they've now understood why it's not a good idea. They still need to
possibly pay for long-term care. So what do you advise instead?
So this is where good planning comes in. Most people want to make sure that they can afford care for a long time. And they also want to not wipe out all their assets they plan on passing down to their heirs. But I actually recommend that people separate those two goals. You can provide for your heirs through annuities or life insurance, and then consider other strategies for protecting assets. But
let's focus on goal number one. You've already talked about permanent life insurance on this podcast, right?
We have in an earlier episode, yes.
OK. So long-term care annuities work similarly. But the assets [are] earning funds for an insurance policy that pay a monthly benefit if the beneficiary needs long-term care. Usually, there's a payout cap two to three times the face value of the policy. But a risk is that companies offering these assets might
decide to stop offering them in the future, just like long-term care insurance. But they can provide some financial benefit, even if you don't wind up needing long-term care. Another alternative is life insurance that includes a living benefit rider. The living benefit rider comes into play if there's a terminal illness, for example. So instead of paying a death benefit, the benefits are paid out early to cover the care costs that they might need, but it's treated like a loan with interest.
So depending on how much is taken out prior to death, the death benefit may or may not be totally wiped out at the end.
So do people just pay for long-term care out of pocket? Do you have clients who just set aside some amount of assets for that, and that's their full plan?
In a lot of cases, that can be the most cost-effective option. If you have enough time horizon, where you can factor in long-term care into your retirement plan and save for it, if you have enough lead time, you can invest the money that you've set aside for long-term care.
And this comes with the added benefit of not having to use it for long-term care if you wind up not needing it and being able to pass those assets down to your heirs.
So, if someone doesn't have a long time horizon — say you've gotten bad news as far as a diagnosis goes, or something sort of comes out of the blue, what are their options then?
One option that we've had to consider for clients is reverse mortgages. If you're a homeowner, that can be an option. Essentially you take a loan, based on the equity that you have in your home.
There's a variety of structures — taking a lump sum, or a credit line, or a series of monthly payments — but the payments on the reverse mortgage are delayed until you either move or die. At that point, you or your estate sells the home, pays back the principal and interest from the reverse mortgage with the proceeds of the sale of the property. Depending on where that nets out, they might end up with cash at the end or, in all likelihood, that wipes out everything. Since you're paying interest on this,
plus the fees to close on the reverse mortgage, you may end up netting less than you would have if you had sold your home in the first place. But it alleviates the immediate need for cash, and it allows you to continue living in your home, which can be a huge perk if you're someone who's not interested in moving or getting a new apartment or anything like that. It fills the gap.
Sure, and for some people, it seems like staying in place with home health aides or support can be really beneficial to their quality of life and their mental outlook, too.
Melinda Kibler 12:22
Exactly. Sometimes you're making decisions not just based on what's best for the financial, but what's best for your health.
OK. So we touched on a lot of options for types of long-term care. From a financial point of view, are there any others that you would especially encourage particular clients to take a look at if they had a certain situation, anything else jumps to mind?
So there's one particular type of long-term care facility that works a little differently, and those are the continuing care centers, which I mentioned earlier.
So those are the centers that offer varying levels of care in one particular location. So you can come in, you might be living in an apartment with very little or no outside help or interventions, and then as you continue on, like I said, you'll receive more and more help as you need it. So when you move into a continuing care center, you sign a lifelong contract that guarantees a fixed monthly rate, regardless of the level of care you might end up needing. So there's usually a one-time entrance fee, and that can vary.
And I'm going to give you this swing. It might sound ridiculous, but that entrance fee can be anywhere from $100,000 to $1 million. It really just depends on your location, the level of care at the center that you're going to receive. But it can be beneficial for people who have a fear of the unknown, of how much help they're going to need in the future or whether they want to kind of lock in a price right now.
So it's a big upfront commitment, even at the low end of that level.
But it sort of takes away some of that fear of the unknown, some of that uncertainty about the future.
Exactly. It can take the guesswork out of your future care costs. Even if your future care costs don't end up being very high, ultimately, you're still benefiting from having housing that works for your needs as you grow older.
So I think everyone listening is aware that medical costs can be quite high. And we've touched on how high housing costs can be for people who need assistance.
If someone is not committed to staying in their home, or if they have a condition where they really can't, is selling their home outright also an option that you see people use?
Yes, that's another route you can take. If that's an option for you, and you're willing to part with your home to make the cash available, that's absolutely a route you can take.
One thing we talked about in our estate planning [episode], and in life insurance, it’s come up again and again, is talking with your adult children, with your spouse, with your loved ones.
I have to assume for your long-term care plans, this is also pretty critical, especially because a lot of these conditions can make it harder for you to make your own decisions.
Yes, absolutely. I think it's very, very important to pull in a trusted family member or, if you don't have a family member, a friend that is in the loop on what your needs are going to be.
Makes sense. And we talked about, earlier on a separate episode, setting up a healthcare proxy. That person would obviously be directly involved also in these kinds of decisions, especially if you can't be
an advocate for yourself anymore.
Exactly. And just giving them some guidance. So they have an expectation of what you're hoping for when that time comes. So it takes the guesswork out of it, and that will help alleviate some stress on them.
So Melinda, is there anything else about long-term care or long-term care insurance that you think listeners should be thinking about that we haven't really covered yet?
Yeah. I just want to impress the importance of planning for long-term care. I saw a statistic recently that over
50% of elder care is being handled by an adult child, unpaid. And then another 25% of it is being completed by another family member. And while this is heartwarming from a family perspective, to know they are taking care of each other, there are two things that pop into my mind. One: Are these people actually equipped to be doing this type of care? They have no medical background, they might just be — their hand is forced to be handling this.
And two: This is a huge burden for the caretaker and can create strains in the family relationships, either between the patient and the caretaker, or the caretaker with other family members, who maybe haven't volunteered to help. So if you plan for long-term care to alleviate this stress, you can avoid entirely relying on another family member to care for you. And that can result in healthier, happier family dynamics.
Amy Laburda 16:37
Sure. And I imagine you have a lot of adult children, younger people taking care of their parents, who then sort of get caught in the, what they sometimes call the “sandwich” of also taking care of young children at the same time. So you've really got a lot of stress in that situation too.
Exactly. They want to take care of their parents. It's an affectionate thing, or maybe it's because they feel guilty, but usually it's because they want to take care of their parents. They want to support them. The parents likely are most comfortable with them.
So it's a positive thing from a family dynamic perspective, but it is an incredible amount of stress. And it can cost money for them in terms of unavailable hours to be working, or they might have to hire other people to cover things at their own home, because they're off helping a sick parent or other family member. So exactly, it can create a lot of stress for that environment.
So from the older person's perspective,
I think it sounds like it makes sense to think about saving for long-term care, even if you don't need a facility or a skilled nurse, you may want to make some of those more resources available to your adult child or whoever else is taking care of you. Is that something that you have thought about as far as planning and setting aside money as well, just for groceries or child care or that kind of thing?
Melinda Kibler 17:53
Yeah, that would be one way to look at it is setting aside — even if your child says, “Oh, I plan to care for you. I'm going to take on that responsibility. I'm happy to.” Or another family member, in certain circumstances — still to set aside money to maybe at least cover their expenses that they're losing by having to care for you. Or maybe you can hire somebody to do the cleaning and the cooking, and just let your child be the one that's helping you for the medical things, or whatever the case may be.
you have a client who has adult children with whom they have a good relationship, or even maybe younger children who they hope one day will take care of them. Are there things that they should be aware of or cautious of as far as making this their primary plan?
I think that family dynamics change quickly. And we've seen very healthy, happy family environments. We've seen very fragile family dynamics. We've seen very stressful, not good family dynamics. And so I think
the future is always uncertain, and it's better to have your planning mechanisms in place and have the money saved that, if you need to hire someone to help you, you can. Sometimes parents and children have great relationships, and then they have a falling out in the adult ages. Or they could move far across the country, or out of the country, and be unavailable to help you with this. And so you don't want to be saddling them with that kind of stress. It's the same thought process with people who don't have children.
Who are you going to rely on? You might have a best friend who's planning to take this role on. But again, friendships can fracture. There can be job changes, personal life changes that can impact the ability to do this down the road.
Sure, and you never know, if someone's a peer they may end up needing care before they can provide care to you. You can never be sure. Even if you have a health diagnosis earlier, things can happen. As COVID proved to us all, things can happen pretty abruptly.
Melinda Kibler 19:50
Exactly. It's the same reason that when you write any of your legal documents for, you know, your powers of attorney or your medical directives, we usually recommend you name one person to be in charge of these things and have a backup person, because situations change.
Speaking of powers of attorney, we've mentioned it now a couple times. If you know what your wishes are for long-term care, or even a plan A/plan B kind of situation, is that something you usually would recommend people put in writing? And if so, how should they go about that?
Melinda Kibler 20:20
I think it's always a good idea to put things in writing. You will never hear me complain about a client who has written down their requests. So yes, I think that's a great idea, as part of your estate planning, to include a document that provides guidance on what your hopes and wishes are in terms of whether or not you want to be in a facility, whether or not you want your care at home, if you have a preferential caretaker. I think it's great to document all of those things.
Well, I think we've
covered a lot of ground. Melinda, thank you so much for being on the show today. It was really great talking to you.
Oh, thanks for having me. It was a pleasure.
“Something Personal” is a production of Palisades Hudson Financial Group, a financial planning and investment firm headquartered in South Florida. Our other offices are in Atlanta; Austin; the Portland, Oregon metropolitan area; and the New York City metro area. “Something Personal” is hosted by me, Amy Laburda.
Our producers are Ali Elkin and Joseph Ranghelli. Joseph Ranghelli is also our director, editor and mixer. Our firm has written two books: Looking Ahead: Life, Family, Wealth, and Business After 55 and The High Achiever’s Guide to Wealth, which offers advice for younger professionals, entrepreneurs, athletes and performers. Both books are available on Amazon, in paperback and as e-books.