Taking The Long View On Long-Term Care

By Ron Mastrogiovanni

Americans recognize that they may require end-of-life long-term care, but many choose to roll the dice instead of planning for these future expenses, despite the best efforts of their advisors. When it comes to LTC, encouraging clients to adequately plan requires an understanding of both the expected costs and the probability that care will be needed.

Drawing upon actuarial data and current LTC cost trends, HealthView Services’ most recent white paper, “Long-Term Care and Financial Planning,” and the planning tools it draws upon, provide this information as a foundation for LTC planning discussions with clients.

Here are six key takeaways.

1. Three out of four married couples will incur significant LTC costs.

Long-term care may not be the easiest retirement planning issue to bring up with clients, but avoiding the topic not only puts their financial and legacy plans at risk but also risks their care expectations in the final years of life.

A healthy 65-year-old male/female couple has a 44% and 56% chance, respectively, of needing some level of LTC if they each live to their actuarial life expectancies. Combined, there is a 75% chance that at least one spouse will require end-of-life LTC. Assuming national average costs across all states and a blended average cost of care, the man can expect $237,368 ($123,881 present value) in total LTC costs. His spouse can expect costs of $373,712 ($183,841 present value), or 58% higher than her partner.

2. The duration of LTC costs reflects changing care needs and may be longer than clients anticipate.

Many LTC patients transition from home health care to assisted living to skilled nursing facilities. At each stage, clients will have to pay for different levels of service and cover generally increasing costs. They may start with a home helper for a few hours a day, and several years later require 24-hour care at a facility. The period in a skilled nursing home — that many associate with care — is only one component of the LTC journey. The high overall cost of LTC care reflects these different expenses and the duration for which care will be required — which for a man will be 660 days, on average.

3. Women face unique LTC challenges.

Actuarially, women are projected to live two to four years longer than men. For male/female married couples, this longevity difference — combined with data indicating husbands are, on average, 2.3 years older than their wives — means that most women will outlive their partners. As a result, they need to ensure they have the financial resources to address their own LTC needs, which as the data shows, will in general be significantly more expensive than that of their male partner.

On average, the duration of care for a woman across all settings will be about 11 months longer than for their spouse. Since LTC may be required after a woman’s husband’s end-of-life care has consumed a substantial portion of the couple’s savings, financial advisors need to work with couples — and women in particular — to develop a plan that ensures their needs will be met.

4. Location, age and health conditions matter in addition to gender.

Across state lines, costs can vary significantly for all care types. LTC expenses reflect the demographics of the location, with higher-cost areas, such as Connecticut and the District of Columbia, often topping the list of most expensive states and territories. Notably, costs for 44 hours of weekly home health care in the District of Columbia are nearly double that of Louisiana, and that adds up to an annual difference of more than $42,000.

Narrowing cost comparisons within state lines shows a similar pattern, as higher-cost metro regions often come with greater LTC expenses. For example, someone in Washington state may spend more than 50% more for home health care than someone else in the same state, based on their area of residence. Age matters, because the younger the client’s current age, the higher the projected cost, with more years of LTC inflation driving annual expenses higher.

Health conditions also matter. Clients with chronic conditions are more likely to die younger than their healthy counterparts. The annual costs of care may be lower, but poor health often requires longer periods of care and thus higher costs.

5. Medicare offers short-term care, but not long-term care.

Many Americans mistakenly believe that Medicare will cover LTC needs. The website Medicare.gov prominently displays the following statement: “You pay 100% for non-covered services, including most long-term care.” Clients need to be reminded of this.

There is one instance in which Medicare recipients may be eligible for limited nursing home coverage: individuals whose injuries or conditions require an admission (not admission for observation) for a three-day inpatient hospital stay. They may receive up to 20 days of free care and another 80 days of subsidized care ($185.50 coinsurance per day). After this period, the patient assumes all nursing home costs.

Medicaid may cover LTC, but as advisors are well aware, this is only an option for clients with low levels of income and essentially no assets. In Massachusetts, for example, individuals are eligible for Medicaid if their annual pretax earnings are below $16,971 and they have less than $2,000 in total assets (or $3,000 for couples), including property.

6. There are options to help clients address the future cost of care.

This data provides advisors with a way to frame potential future LTC expenses. A range of options is available to ensure that those expenses can be met for both spouses and reduce the risk that LTC costs derail plans for legacy giving.

Savings options may include one, or a combination of, the following:

» Long-term care insurance. Premiums are based on a host of variables. A key benefit is that LTCi is available to address costs that may be incurred at any point during a client’s lifetime when care is required (subject to the contract terms). It is important to remember that catastrophic health events can result in long-term care being required at any age.

» Other insurance products. Life insurance policies with a chronic illness rider may provide payments for medical conditions such as Alzheimer’s disease that could require years of care. Annuities with LTC riders may provide contract holders with access to a portion of the death benefit to pay for required end-of-life health expenses.

» Self-insurance. Since LTC expenses are generally incurred at the end of life, advisors can work with clients to make an investment today that will cover their future costs. A 50-year-old couple earning 7% annually on their investments could fund $855,000 in future nursing home expenses with a $74,935 investment today.

A health savings account is another way to help address LTC needs because it is not subject to required minimum distributions and withdrawals remain tax-free if used for approved health-related expenditures.

The data shows that LTC is both a high probability and high-cost event for clients. Advisors have access to a broad range of financial products and long-term investment strategies to help clients ensure that when care is needed, they will have the necessary financial resources to provide the comfort they seek at the end of their lives.