With long-term care insurance (LTCi) executives reaffirming growth projections for the need for care, it’s worth asking: Who is paying for all this care?
No one is suggesting financial advisors get into the long-term care health advisory business, but as so many retirees cite health care costs as their major factor in budgeting for retirement, advisors may find themselves turning into long-term care advisors by default.
How are families preparing for a chronic or long-term illness? Have families even thought about what to do when parents start to falter physically and mentally? Who takes charge, mom or dad? Are children nearby? Are their homes equipped to receive elderly parents?
These questions matter because families, it turns out, are shouldering the costs of long-term care to the tune of billions of dollars in out-of-pocket expenses. In the absence of any long-term financing solution to long-term care, families are picking up the tab, either in the form of out-of-pocket expenses or out of love — in essence, pro bono.
The U.S. spends about $725 billion a year on chronic illness, according to the SCAN Foundation.
Of the estimated $725 billion spent on chronic illness every year, $7 billion is spent by private LTCi; $10 billion by veterans, state and local chronic care programs; $63 billion by families in the form of out-of-pocket expenses; $64 billion by Medicare; $130 billion by Medicaid, and $450 billion by families in the form of caregiving, according to a report by Prudential.
In other words, for every $100 spent on chronic care, $71 is paid for by families, according to Dr. Bob Pokorski, author of the report.
Fewer adults live in nursing homes. Nursing home occupancy for Americans over age 65 fell to an estimated 1.3 million in 2012 from a peak of about 2 million people in 1989, even as the number of elderly Americans grew, the report said.
The report, “The 5 Ws of Chronic Care Illness,” explores the challenges of dealing with long-term care.
Lower disability rates among the elderly, lower rates of widowhood and childlessness, a preference for staying at home rather than in an institution, and more Medicaid spending on community-based services have lowered demand for long-term care serves delivered through institutions, the report also said.
The bulk of chronic illness patents — 80 percent — receive chronic illness care in private homes, according to the report. Another 13 percent who receive chronic illness care live in nursing homes, 5 percent reside in assisted living or other facilities and 2 percent live in community-based residences with supportive services, the report said.
“The importance of care at home cannot be overemphasized: it delays or prevents nursing home care, thereby allowing loved ones to stay at home for as long as possible,” the report said. Even in the case of Alzheimer’s disease and dementia, 70 percent of people afflicted with those diseases are cared for at home.
Families that provide care go beyond the traditional duties of bathing, dressing, feeding and moving patients from a bed to a chair. Family members are called upon to administer medications and intravenous therapies, help with canes and walkers used for mobility, prepare meals and accommodate special diets, and even dress wounds, the report said.
Families take on the burden because many people don’t have private LTCi. They don’t have the coverage because they find it too expensive. Compounding the situation is that public programs like Medicare do not cover long-term care beyond the post-acute phase and qualifying for Medicaid is difficult.
Last year, a bipartisan commission issued recommendations to Congress about how to approach the future of long-term care in the U.S., but left aside questions of how to fund the care.
Mike Doughty, president and general manager with John Hancock, said during a recent conference of LTCi executives that the need for LTCi was “so real and just getting bigger and bigger.”
Underwriters are reacting by developing new LTCi products to fill that need. “We need to get the product design right,” he said at the annual conference of the American Association of Long-Term Care Insurance.
Insurance carriers have developed new stand-alone chronic care and LTCi policies.
New York Life introduced a chronic care rider to newly issued standard and custom whole life insurance policies.
Pruco Life Insurance, the subsidiary of Prudential Financial, also said it would introduce a universal life benefit rider to advance the death benefit to pay for a chronic or terminal illness.
American General Life added a chronic illness rider to its guaranteed universal life policy known as AG Secure Lifetime GUL II.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].