What to do about long term care is a perplexing dilemma for planners.
I attended two sessions on the topic while at the conference, trying to gain insight into what the experts are thinking on the topic.
Of significant concern across the board is availability of care. The baby boom generation threatens to overwhelm the system – both caregivers and government programs which pay for those services. Everyone seems to agree – relying on the government to take care of you in your old age is not a viable plan.
That leaves two possibilities. Insurance, self-pay, or family care.
One concern with relying on self pay is a tendency among the elderly to defer needed care when they have to pay for it – even if the resources are available. “It’s too expensive!” or “I don’t want to spend my kids inheritance!” One benefit of insurance is it makes it more likely the policy owner will obtain care when needed.
One way to potentially get around this (without insurance) is to fund a separate account which is agreed to be dedicated to long term care expenses.
A downside to self pay is that the large potential expense is always looming. If paying yourself, you need to always be prepared for the “extreme need” – i.e. to pay for many years of care. This can make seniors reluctant to spend on their own enjoyment in retirement, since there is always this “what if” scenario in the back of their minds.
How much do you need to be prepared for? Average stay in a nursing home is under 3 years, but the problem is that higher income and healthier people tend to live longer and then need longer periods of care than lower income people.
Insurance is perhaps a more efficient approach. The cost of care is averaged among all policy holders. A big benefit is that planning is more certain. There is no need to preserve assets for a big unknown.
Cost of insurance has risen dramatically. This was fueled by a) poor underwriting assumptions in the past and b) very low interest rates limiting investment income to the insurer. These problems have been corrected (and probably overcorrected) so todays premium rates, while high, are probably more stable than they were a few years ago.
There is a trend toward increasing home care, being fueled by improvements in medical and mobility technologies allowing seniors to be safe in their homes. That is good because home care is less expensive. This might make smaller insurance policies (i.e. $100/day vs. the typical $200) more useful than we might otherwise think. This is good news for those who can’t afford a full long term care policy.
Reverse mortgages and home equity represent a significant tax favored resource for seniors to pay for extraordinary care expenses. This is why we prefer never to include home equity as a source of retirement income unless there is no choice – we like to protect it as an asset of last resort.
Impact of caring for family members:
According to the presenter, 15% of seniors suffer depression. 40% of seniors who are also caregivers (i.e. to a sick spouse) suffer depression. Care givers are twice as likely as non care givers to have chronic health conditions themselves and tend to die sooner than non-care givers.
Care of an aging parent is a frequent cause of family strife. Careers are put on hold or sacrificed. Elderly persons without Long Term Care Insurance are 50% more likely to move in with their children.
All of this argues toward having a sound financial plan for long term care and discussing it with the family. Good long term care planning is about trying to reduce the likelihood of bad outcomes approaching end of life.