Most families have to address the issue of long-term care (LTC), whether
you're in or near retirement or whether you or your spouse are expected
to care for, contribute to, or oversee your parents' care. If you are
making decisions about savings or insurance for your or a family
member's long -term care, it's best if you know all the costs.
What is LTC?
Long-term care is a continuum of medical and social support services
designed to support the needs of people living with chronic health
problems that affect their ability to perform everyday activities.
For the purposes of this article, we won't be focusing on the direct
medical costs, but rather the direct costs of support services, in-home
and institutional, and more importantly, the indirect costs to family
and other caregivers.
How prevalent is the need for LTC?
The need for LTC is usually arises from an inability of an individual to
perform one or more activities of daily life or ADLs. These could
include bathing, feeding oneself, dressing, etc. The individual may also
need help with less fundamental, but more complex tasks such as
cooking, cleaning, shopping, or managing their medications or finances.
These are known as IADLs or instrumental activities of daily life. This
need can arise through illness, accident, or merely frailty
The Congressional Budget Office estimated that 45% of 65-year olds will
eventually need some form of nursing home care and LTC care needs arise
at much lower levels than a full-on nursing home stay. 65-year old women
have a life expectancy of roughly 19.5 years. Of that, they are
expected to spend nearly six of those years with some form of
disability. Men are expected to spend three years out of their 15 year, 4
months on average with some sort of disability.
Who provides the care?
Overwhelmingly, LTC is provided by family and friends.
A 2008 study found that a quarter of adult children provide some form of
personal or financial care for their aging parents. A more recent
MetLife study estimated the aggregate lifetime cost in the U.S. for this
help is almost $3 trillion. This includes:
- Direct payment for care
- Lost wages from reduced hours
- Lost career opportunities for the caregiver
- Lost pension and Social Security benefits due to reduced lifetime earnings
This, of course, ignores the intangible costs including loss of free time, strain on other relationships, and caregiver stress.
Estimates are that the average family caregiver spends over $5,500 per
year in out-of-pocket expenses and loses over $300,000 lifetime in wages
& benefits as noted above.
The costs fall on employers as well with billions being lost due to
caregiver absenteeism and presenteeism, unpaid leave, and other work
interruptions.
Paid LTC
Nearly, two-thirds of
paid LTC comes
from Medicaid. Unfortunately, Medicaid pays only after an individual has
spent down their assets to a bare minimum. That amount varies by state,
but Missouri's limit of $1,000 is typical.
Roughly 15% of paid care comes out-of-pocket, either in its entirety or,
just as likely, as part of the Medicaid spend-down. These funds are
often in tax-deferred savings on which taxes must be paid as they are
spent. If there is a remaining spouse, they often have insufficient
funds left to finance their retirement or LTC needs.
Few are covered under LTC insurance. Less than 10% of all paid LTC costs
come from LTC insurance. In recent years, many have lapsed their LTC
policies in the face of large premium increases. Older policies suffered
from inadequate premiums that led to unexpected increases or, in
extreme cases, insurers exiting the market. In addition, LTC policies
can be quite expensive - not surprising as roughly half of
policy-holders file a claim at some point in their lives. I've written
elsewhere about what to look for in an LTC policy, but key to coverage
is applying for it while your health is still good enough to qualify.
Even rarer still is the use of continuing-care retirement communities
(CCRC), CCRCs are integrated care communities that one can live in as
they transition from independent senior living to assisted living to
nursing care. LTC is essentially pre-funded. CCRCs are generally limited
to the more wealthy and the healthy (there is an
application/qualification process).
Direct Costs
According to the 2012 Genworth Cost of Care Survey, the average cost of a
private nursing home room is $240/day, though there is a wide variance
by location. Assisted living rates averaged $3,500/mo. Home care
services came in at $19/hr for homemaker services and higher for home
health aides. The average nursing home stay is 2.4 years.
Needless to say, any need for LTC will cut into all but the largest of nest eggs.
Putting it all together
In preparing your financial plan, a lot of questions need to be addressed:
- How am I going to plan for my LTC?
- What are the current and expected (all-in) costs of:
- Long-term Care
- LTC Insurance
- Do I have enough assets that I can self-insure?
- Even in the most extreme case?
- Am I going to be responsible for my parents' (or anyone else's) LTC? And if so:
- Will it be in the form of financial contribution or direct care giving?
- Am I temperamentally suited to be a care giver?
- Have I factored in the hidden costs addressed above?
- Will it make more sense for me to buy them LTC insurance or fund a CCRC?
- Will I have any help from other family members?
- What are their limitations (fiscal, time, temperament)?
- How will this impact the extended family (spouses, children, etc.)?
- How does this impact pre-death giving or post-death bequests (e.g. "I took care of Mom, so she left me the house")?
Like so many things that involve money, it's not just about money.
Planning for roles, responsibilities, and relationships are just as
important as planning the finances.
Note: Many of the ideas and all of the statistics in this article come from a Society of Actuaries monograph that can be found at
www.soa.org.
Labels: Long-Term Care
