November is Long-Term Care Awareness Month (or Long-Term Care Insurance Awareness Month, take your pick.) Either way it's a good time to talk about a subject that makes many of us uncomfortable - the increasing need for help we all face as we age.
As we get into our 50s and 60s, we start to notice little things we are doing differently than when we were in our 20s and 30s. One day we catch ourselves putting our hand out for balance and wonder when we started worrying about falling. We are wired to be self-protective so while we may not be aware of subtle changes in our bodies, our brains don’t miss a thing and they send our bodies the right signals to adjust for our own safety.
We all have some uncertainty about what our day-to-day life might look like as we get older. If you have parents or grandparents, for example, that are alive in their 90s and healthy and active, you may be confident that you will also live an active life into your 90s, which leads to worry about planning financially to avoid outliving your assets. On the other hand, if you witnessed parents or grandparents start to have a series of small but steady deteriorations in their mobility and cognitive skills after they turned 75 or 80, you may worry about what kind of help you’ll need as you age, as well as who will provide it and how you will pay for it.
Medical innovations have dramatically changed the landscape for aging in the last 100 years. A couple of generations ago only a small percentage of our parents and grandparents reached an age at which they couldn’t safely live alone. In many cultures, families lived together intergenerationally so there was usually someone around to help Nana or Grandpa get up from the couch. It is more common in the United States today for people to not have children to begin with, and even if they do, adult children move away from their parents, most often in pursuit of career goals, and as their parents age they are faced with worrying about their parents’ changing needs.
I don’t really like the term “long-term care” because for most of us it can conjure up an unpleasant image - being shuttled off to a nursing home, leaving our home with its treasured lifetime of memories behind as we essentially wait to die. Let’s change the focus and talk about “aging-in-place.”
Most of us are fiercely independent and want to stay that way. We also know that getting older may threaten our independence. We can close our eyes, cross our fingers and hope for the best, or we can plan to preserve as many choices as possible for as long as possible. That’s where “aging-in-place” and “extended care” planning come in.
This is the first in a series of articles. Subsequent posts will explain ADL's and IADLs, discuss different levels of care, and explore ways to maintain your financial independence as you age. Today I’d like you to get comfortable thinking about “aging-in-place” when you read “long-term care,” and “maintaining financial independence” when you read “paying for long-term care."
As I mentioned earlier, planning for aging in place and providing additional support for our older population is actually a relatively new concept. If you've read my post from last month about Retirement Security Awareness, you know that as recently as 100 years ago a much lower percentage of people born in any one year actually lived to age 65. For much of human history only a small percentage of people born in any one year have lived more than a couple of years beyond being able to work productively. Now that a much larger percentage of a cohort born in a particular year survives to age 65, the fastest growing age group is octogenarians and that is presenting society with new challenges. Aging-in-place requires looking at the range of needs that come with age and developing plans not only to provide for them but also to pay for the caregivers as many people would need more care than their families could provide.
It was only in the 1980s that the insurance industry recognized that there was a large enough segment of the population living long enough to need to pay for care and therefore creating an opportunity to insure against the risk of paying for that care.
As a financial planning professional, I started talking to my clients about using long term care insurance to help cover these costs in the early 1990s when these policies were brand new. At that time, you could even choose to buy a policy that would cover your care for the rest of your life! Policies were designed with Medicare benefits and extended life expectancy in mind, and priced based on existing insurance industry data regarding consumer behavior, which was primarily based on life insurance.
The insurance industry looked at Medicare benefits first because most people who needed some type of extended care as they got older came out of the hospital, most typically after a fall. While the details of Medicare coverage (for in-facility care following a hospitalization) have been tweaked, the basic concept has not. Medicare will cover the first 20 days plus the majority of another 80. This is enough to cover time in a rehabilitative center for most people following a hospitalization and surgery, particularly for broken bones. (Joint replacements didn't happen as frequently as they do today.)
Policies were designed for the consumer to choose benefits from a list of categories.
Daily or Monthly benefit (i.e. $200 per day, $3000 per month)
What percentage of that benefit would be payable for care provided in an Assisted Living Facility or at home? (i.e. 100%, 75%, 50%)
The duration of the benefit in years, including lifetime (i.e. 3, 5, 6 years or lifetime)
Would the benefits increase with inflation? If so, by how much? (early policies typically include CPI, 5% simple and 5% compound)
Spouses would often receive a discount if they both applied for coverage at the same time. Some policies provided money to modify a home to accommodate reduced mobility, and it wasn’t uncommon for each insurance company to offer a couple of unique features. For example, Paying for a Case Manager, providing Respite Care and paying to hold a bed in the nursing home if you needed to go to the hospital are features that were novel in the 1990s, although most are fairly standard today.
Another idea that some states experimented with was a public-private partnership structure. If people don't have money to pay for care they often apply for benefits via Medicaid. To be eligible for benefits under Medicaid you typically must have very limited assets and income. A common strategy discussed in Elder Law and Estate Planning has always been to transfer assets into an irrevocable trust to qualify for Medicaid while protecting assets for your family. To encourage people to purchase insurance to cover a certain amount of care, states set up guidelines for “Partnership” Long-Term Care Insurance. If you purchased insurance with certain minimum requirements and you exhaust the insurance benefits, the state will allow you to retain assets for your family equal to what the insurance company paid when determining your eligibility for Medicaid.
Partnership plans are designed for insurance to cover the most likely scenario (less than 2 years of care) while allowing you to protect assets if you are one of the few who need care for longer than average. In my opinion, this is an example of a rare public-private success, and unfortunately these policies haven’t always been given enough attention. I’ll get into more details about these policies in a later post. For now, here are some statistics from the Administration on Aging (https://acl.gov/ltc/basic-needs/how-much-care-will-you-need , www.longtermcare.gov)
Someone turning 65 today has a 70% chance of needing some kind of long-term care services in the future
Women need care longer than men (an average of 3.7 years vs. 2.2 years for men)
Most people accessing care will receive most of it at home
Most people who receive care in a facility do so for less than a year
What these statistics mean is that of the 2/3 of seniors who will need some sort of care, most will use less than a year of care, and a few will need more than five years.
As uncomfortable as it may be to think about being less independent as we get older, the reality is that most of us are likely to live long enough to need some help. I believe in trying to preserve as many choices as possible for as long as possible, so the sooner you start thinking about and planning for your own aging-in-place, the more choices you are likely to have.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.