The best time to start planning long-term care is long before you need it, but where to start? We’ll break down the basics of long-term care including costs, coverage, and care options to help you think ahead and make the best choice for your military family.
Understanding Long-Term Care: Costs, Coverage, and Caretakers
Slide 5:
{Speaker: Brittany}
Agenda:
Thanks everyone for joining us today.
As Kathleen mentioned, I’m joined today by Maddie Sharpe. Maddie is an independent LTC consultant from Alexandria, Virginia. Since 2002, Maddie has worked with individuals and couples (many military given her proximity to D.C.) to guide them as they seek out a LTC solution. We hand-selected Maddie to work with our valued members because of her experience and depth of knowledge in this topic as well as her familiarity with military and federal benefits.
We know why folks don’t like to talk about long-term care. It can be an uncomfortable and depressing topic. We don’t like to visualize ourselves in a situation where we become dependent on others for all those tasks that are so often taken for granted.
Most of our clients mistakenly assume that Tricare for Life or VA disability benefits will cover long-term care costs, leading to crisis management at one of the most vulnerable phases in their retirement.
But, as uncomfortable as this topic may be, we at AAFMAA Wealth Management & Trust would be remiss if we didn't bring it to the forefront for our Members. It’s part of our commitment to you—to protect you from unexpected consequences of not having a LTC solution. Our experience tells us that talking about a problem is the first step to solving it. And that when it comes to LTC, having a solid plan early can create financial and emotional peace of mind for you and your family.
You’ve taken a crucial step in your own LTC planning by learning more about it today. In this webinar we’ll cover (refer to agenda bullets)
This presentation is an overview of long-term care, but every situation is unique. At the end, we’ll provide our contact information. Feel free to reach out with any additional questions and we’ll be happy to help you.
So, let’s get started…
Maddie, why is the topic of Long Term Care such an important discussion?
Slide 6: Healthcare in America
{Speaker: Maddie}
Americans are living longer – the longer you live the higher probability that you will need care. Right now, 70% of Americans 65 and over will need some level of long-term care during their lifetime, for an average of three years.
Having the LTC discussion is critical. An LTC event is more likely to happen than not, and failing to plan for it (more often than not) results in crisis management and by that I mean how is your family going to handle this event? Assume your illness/disease/accident results not only in your needing care but you’re not able to part of the solution. Your spouse and/or your children have learned, as Brittany said earlier, that Tricare and VA don’t pay for care and they don’t. So, how will Dad get the care that he needs? And if that answer isn’t family caregivers, how will the bills for care be paid? Can Dad’s income support a caregiver expense? If assets are needed to be used, which ones and how long will they last?
Now I know that there are folks whose response to this statement is, ‘well, I have the assets, so I’ll just pay for care IF I need it.’” Brittany, that’s a nice statement but it’s not reality. In my experience, when the need for care comes about, no one, no matter their income and no matter their assets, wants to pay $5,000 or $6,000/mo to have someone ‘help’ them. It goes against every grain of their existence.
Denial
So, what happens? The spouse becomes the full-time caregiver—a role that is demanding, difficult, and relentless. There are a plethora of studies (available on line) that discuss the very topic of the health effect of caring for a spouse or parent. So, while using a spouse as a caregiver is a potentially attractive alternative to formal care, the real cost comes in the negative impact on the mental and physical health of the caregiver. (The Journal of the Economics of Aging, Vol 12, 2019). But, sometimes, maybe it’s really not about the money but about denial—denial that you need care. Your spouse will likely play that denial game with you, to spare you the truth of the reality of the situation. So the spousal caregiver solution seems to be, initially anyway, a good solution. It’s cost effective and maybe no one will notice that Dad is failing--Mom is covering it up. And, oh, by the way, it’s a quick and potentially easy solution for the kids, too. Mom is home all day and retired. Seems perfect, right?
It’s only ‘perfect’ for a short time...and then things start to crumble...I’ve seen it happen many times.
BUT, if a plan is in place where the care is already paid for, it’s MUCH more ‘palatable’ for the spouse in need to get the care WHEN it is needed and alleviate the burden on the healthy spouse. Afterall, didn’t Mom and Dad buy the policy for this VERY situation--to lessen the burden on the ‘healthy’ spouse?
Let’s take a look at a slide that really tells the story. I’ll admit that this slide is a bit dismal but better to address reality when you can do something about an outcome versus when it’s too late!
So, how will YOU die?
About 7% of us will be lucky enough to experience a quick and sudden death. Again, 7%. The other 93% of us won’t be as lucky. Those deaths will take time: terminal illness (22%) and organ failure (heart, lungs, kidneys) about 25%. 46% of us will die slowly due to frailty—each day, week, month that goes by, our bodies will continue to wither and we’ll become dependent on others to assist us with common and everyday tasks. Now, not all of those that are not within the 7% of sudden death will need long-term care. Let’s look at those statistics…
Slide 7: Healthcare in America
{Speaker: Maddie}
I like this grid because there are NO words but the picture alone tells the story. Our first grid is the probability of your becoming hospitalized for a major operation in your ‘old age.’ That’s about 8% of us. Chances are good that you’ll not be a RED DOT. Let me just say here that although the odds are relatively small, no one would give up their health insurance even after looking at this grid.
Now, let’s look at grid #2. Wow! A sea of RED! This grid shows us the odds of needing long term care as we age. That’s 70% of us. 70% compared to 8% for a major hospitalization. And, you know which one is more expensive—I mean, comparing the cost of a major operation to the cost of needing care for an average of three years? Well, it surely depends on the type of operation but let’s suffice it to say that both are VERY expensive.
Why then, are folks NOT willing to self-insure healthcare but are often readily willing to insure their own long-term care? Again, we are talking about 8% versus 70%.
{Speaker: Brittany} Wow, 70% Maddie. That is a staggering statistic. This is a great time to break down what defines long-term care and what circumstances require it.
Slide 8: What Is LTC?
{Speaker: Brittany}
So what is long-term care?
attack or stroke, however, most often, it develops gradually, as people age and certain activities become more difficult. The prevalence of cognitive disorders poses the greatest long term care risk. As reported by the Alzheimer's Association people with Alzheimer's or other dementias make up a large portion of all of those receiving care. In assisted living facilities over 40% have alzheimer's or some form of dementia and in nursing homes over 50% (Source: Alzheimer's Facts & Figures 2019 - Pg 48)
Of course, the goal of long-term care is to help you maintain your lifestyle as you age. Slide 9: Common Care Settings
{Speaker:Brittany}
Now, when we think about care, we often only think about nursing homes, however, there are several types of care depending on your needs. But in fact, most care occurs in the home -- according to a study by AARP, nearly 50% of caregiving occurs in the recipient's home.
Next, I want to cover the cost of care...
Slide 10: Cost of Care
{Speaker:Brittany}
This is a great slide -- We have a map here to illustrate the cost of care by type and by a handful of states.
What I want to illustrate here is the difference in care by type as you can see there is a big difference in in-home care versus nursing home care. And then if you also compare the cost of care by state.
Let’s just take a look at the difference between Texas and Maryland for example -- there is a sizable difference in the cost of nursing home care.if you inflate this by 1% annually, in 25 years the cost is: $70,400. For nursing home care today’s cost is An important note is that the estimated cost associated with in-home care is assuming that care is provided 44 hours a week by 52 weeks.
Maryland
In-Home Care: $54,900
Nursing Home (Semi-Private Room): $116,070
Texas
In-Home Care: $48,000
Nursing Home (Semi-Private Room): $58,400
Florida
In-Home Care: $42,000
Nursing Home (Semi-Private Room): $102,565
North Dakota
In-Home Care: $63,900
Nursing Home (Semi-Private Room): $142,503
California
In-Home Care: $64,000
Nursing Home (Semi-Private Room): $105,120
The national average cost for in-home care is roughly $53,000 and the national average for nursing home care in a semi-private room is $90,100.
*Source: Genworth Cost of Care Survey 2019 (Median Cost Tables)
{Speaker; Maddie}
Brittany, those are some big numbers. As someone who works exclusively with military families, do you see a lot of clients that already have long-term care plans in place?
Slide 11: Cost of Care - Financial
{Speaker: Brittany}
That is a great question, Maddie. As a financial planner, it’s great when a client already has a long-term care funding solution, but that doesn't always happen. Many of our clients mistakenly assume their government or healthcare benefits will cover the cost. And sometimes find themselves in the position of needing long-term care without an established plan to pay for it.
So, as their financial advocate, our job is to help educate our clients on long term care options early and often, because over an extended period of time it can not only potentially cause irreversible financial consequences but also a potentially destructive impact on the entire family and caretakers.
By developing a plan, we help our clients mitigate the risks of a long term care event. Let’s first talk about some of those risks now:
We know that paying for care requires reallocation of resources. What are some of the consequences of using assets to pay for LTC?
are now in advanced years and although are well taken care of, may soon be running out of assets to support their care.
For the sake of simplicity, let's assume they have an account valued at $1M and of that $350,000 of that is gains. If you take the difference between the values, that makes their cost basis $ 650,000. At the first person to pass, the surviving spouse would receive a ½ step up in basis. Again, for simplicity, that would mean that the surviving spouse’s new basis would be $825,000. Meaning if he/she needs to make a sale of holdings after death, they would pay less in taxes. Taking it a step further, if both parents passed away without touching the assets, the child as the beneficiary would receive a full step up and would receive the assets with a new basis of $1,000,00. -- Potentially huge tax savings.
{Speaker; Maddie}
Great point, Brittany. I've found in my practice that folks don't realize the tax ramifications of paying for care on their own. I know we'll touch more on this later.
{Speaker: Brittany}
{Speaker; Maddie}
Another great point. Clients often double count assets. The same assets that are generating their current income stream is the same money that they say they'll use to pay for their care. Well, if the assets are used for care, the income is impacted. Is that income going towards an expense or commitment that does not stop just b/c care is required?
{Speaker: Brittany}
Exactly, Maddie. This is certainly a major consideration when making long term care decisions.
Slide 12: Cost of Care - Emotional
{Speaker: Brittany}
Moving on from financial consequences, let's talk about the other risks of long-term care, which can cause irreversible damage to the caretakers.
least one person will have to put aside his or her life to be a caretaker and this can have a direct impact on the caretaker's wellbeing and family.
I’ll give you a great example of this that hits close to home. My father-in-law came down with pick's disease, a form of dementia. His diagnosis was devastating, but so too were the consequences to my mother-in-law. His condition deteriorated over time and eventually he needed 24/7 support. With her son, my husband, in the Army, he was unable to help her with the burden. She had to plan to alternate care for every routine outing she needed to make like going to the grocery store or getting an oil change. She did not have support or care to allow her time to visit with friends, volunteer, or even exercise. As you can imagine, this had a tremendous impact on her health. Her own health and wellbeing became second priority. She was so stressed by the immense responsibility and lack of support, which I know had a negative impact on her.
Maddie, I know you have a personal example of this -- Do you mind sharing? {Speaker; Maddie}
Sure. Let’s talk about the impact of a blended family b/c that’s becoming more and more common today than ever. My good friend’s mother, Diane, remarried later in life--she was 75. Diane has two adult daughters, Kerry and Chris. Diane married Jim, 5 years her senior. Jim has two adult children, Blake and Lauren. Like many, Diane nor Jim had a ‘real’ LTC plan. Their plan was hope--hope we never need care. Jim had a stroke that left him largely immobile on his left side. Medicare paid for rehab for 17 days and then he was on his own. Diane, 78 at the time, was full-time caregiver. Kerry and Chris, her children, quickly recognized the toll that Jim’s care was taking on their mom. Kerry and Chris encouraged their mom to reach out to Jim’s children to provide some of the care. Blake and Lauren did not step up to the plate--they both were working full time jobs and they lived a few hours from Jim’s home. It just wasn’t feasible. A few months go by and Diane’s health is deteriorating. She is stressed, tired, and overwhelmed. Kerry reaches out to Jim’s children for help. No return call. She calls again, no return call. Kerry and Chris encourage Diane to ‘put JIm in a home.’ Jim’s pension cannot afford the cost of a care facility and much of Jim’s assets went to wife #1 when Jim and she divorced. If Jim went into a facility, Diane would have to subsidize the cost with her own savings. Ouch says Kerry and Chris--that doesn’t seem ‘fair.’ Another call is made by Kerry to Blake and Lauren...and this time it’s answered. Blake says, “it’s your mom’s job to take care of her husband, not ours.’ Since then, Jim has passed and Diane lives with Kerry. There is no relationship, now, between Diane and Jim’s children. It’s a reality that many blended families will face when LTC planning is neglected or hope is used as a strategy.
{Speaker: Brittany}
Wow, thank you for sharing, Maddie. This is a great example as blended families and the complexities should not be overlooked.
And so often we’re focused on the transition from full-time work to the freedom of a retirement lifestyle that we do not think about all of the complexities of this situation and the impact. But with 70% of all 65-year-olds today needing some long-term care for an average of three years, you can’t ignore this critical phase of your retirement planning.
So, Maddie, long-term care insurance is an effective option for people to cover the costs of long-term care. Can you tell us more about that?
Slide 13: Types of LTC Coverage
{Speaker: Maddie}
Absolutely. I firmly agree that it’s a solid solution for this phase of your life, it’s not for everyone. But the discussion is. Also note that too often the decision to investigate an insurance solution is too late. An insurer will not take on undue risk--what I mean by that is that if you are already in need of care, soon will need care or have a condition that is likely to result in your needing care, the insurer will reject the application. LTC insurance applicants are medically reviewed to be sure there are no health conditions that would disqualify them. Now, we could spend a whole session on discussing what is ‘healthy enough.’ I’m confident in telling you that if you are already in need of care, you will not qualify. But, don’t not look into insurance because you ‘think’ you are uninsurable. Get the facts.
Essentially, there are 4 different way to pay for long-term care:
LTC--whether your care is at home or in a facility. You also pick how long you want the insurer to make that monthly amount available to you--maybe 36, 48, or 60 months. Your monthly benefit will grow each year, by ~3%, to try to keep up with the rising cost of care. This is critical b/c you may not need care for the next 10 or 20 or even 30 years.
funding, in this instance, is great. But, there is NO way to know that we will be in the 30% of the population that does not need care. Statistically, we will not be in that group. Insurance provides you leverage on your dollars and we’ll look at that, soon. But, the biggest reason that self-insuring is a bad idea is that even though the money is there to self insure, that is NOT the first defense when a LTC arises. As discussed earlier, the method is spousal care. No one wants to spend their hard earned money on care no matter how much they’ve
accumulated. That’s why Mom is taking care of Dad. They often have the money. They just don’t wish to spend it. When you have LTC insurance, you have told your children that when the time comes, you want the insurer to pay for your care. You don’t want your spouse to do it, you don’t want your children to do it, and you don’t want to deplete your assets paying for it. You bought the policy to protect your family AND your assets.
When I’m reviewing these options with military clients, I often get the question “Don’t I already have coverage for this?”
{Speaker: Brittany}
Thanks, Maddie. Yes, as I’ve mentioned, most of my clients mistakenly assume that their government benefits will cover LTC. So, let’s take a little time to review that in more detail on the next slide.
Slide 14: Benefits that Don't Cover LTC
{Speaker:Brittany}
It's important to clarify the types of insurance that do not cover a long-term care event.
○ Rehabilitative benefits on a short-term basis, and is subject to restrictions. And to be more specific: Medicare pays (in full) up to 20 days and copays for another 80 and all days are based on medical necessity
○ It primarily pays for only nursing home care.
○ You must spend down your assets to qualify. Additionally, a Medicaid facility must have a bed available.
○ There are income limits; your pension or annuity may, and likely, does exceed your states eligibility requirements.
{Speaker; Maddie}
Great point, Brittany The income limits in most states are going to be well below the military pension. So Medicaid is not a solution for most. Many things that they can give their assets away to qualify, however, there is a 5-year look back period to review your assets to ensure qualification.
{Speaker: Brittany}
We often get asked about whether or not the VA Administration pays for long-term care for Veterans, the short answer is, yes, but there are many stipulations
○ Service connected disability – must be 70% or higher service connected disability.
○ Available funding – There must be available funding for this coverage from the Federal Government.
○ To qualify with the Veterans Health Administration you will need to go through their arduous process of qualification and acceptance. I think it’s important to note that while you're in need of this type of care, you could be unable or unwilling to complete this process on your own.
○ Aid and Attendance Benefit and has similar income and asset limitations such as Medicaid and therefore is only available to those with low income or assets.
{Speaker: Brittany}
Maddie, what is your experience with the VA?
{Speaker; Maddie}
I cannot articulate enough just how ardous the process can be to qualify for benefits, not only is the qualification process difficult, it can be a frustrating process. Coupled with one’s deteriorating condition (mentally and/or physically) it can be a steep hill to climb.Except for those that served that are in financial need, I would not use VA as my fallback.
{Speaker: Brittany}
Maddie, can you now talk on why many people that do have assets might choose to use LTC insurance to fund their potential LTC needs instead of self-funding?
Slide 15: Funding Your LTC Insurance
{Speaker: Maddie}
Here is a typical portfolio with multiple asset classes. Some folks have more slices within their pie and some less but the idea is the same. Instead of relying on a host of these pieces to cover LTC services, why should someone pay for insurance? Brittany, you addressed this question earlier when you pointed out that a change in health cannot be timed--it could happen when the stock market or housing market is down. If the stock market or your real estate holding are your LTC plan, there are severe ramifications from selling in a down market. You also mentioned that all too often clients double count an asset. The same asset that is generating income for various lifestyle purposes is the same asset that clients will earmark for LTC. And, the problem with that is a LTC event does not necessarily negate the need for the earnings that the asset creates.
But it’s more than this, self-insuring can be risky, inefficient, and I’ve said this multiple times, it is a barrier to getting care when one needs care b/c no one wants to use their own assets to pay for it. Period. They HOPE that Tricare pays, or Medicare pays or VA pays.
Slide 16: Leveraging an Insurance Solution
{Speaker; Maddie}
In my 20 years of helping folks better understand the LTC insurance offer, the question that the client vocalizes (or is thinking about) is this one? Maddie, LTC insurance looks great and it makes sense given what I’ve seen happen in my family or in other families, but what if I just “Save the Premium” instead?
Let me answer that question. IF you never need care, saving the premium will be a stellar way to have planned for LTC. But, chances are you (or your spouse) WILL need care and if you need it for more than ~6-9 months, you’ll not only be ahead by NOT self insuring but it may be the key to losing everything you’ve worked for.
Before we get into the numbers, let me ask this question. What’s the bigger evil? Having insurance and never needing it OR not having insurance and needing it? If you agree that the latter is more troubling, then you’ll want to learn how ‘saving the premium’ is typically costly and inefficient.
I caution you to realize that on this slide, these numbers are NOT for you. I am using them to make a point. These numbers are for a fictitious couple, both in their early 60s with reasonable health.
You can view these numbers as a single or as a couple--you’ll see the numbers simply are doubled for a couple. So, here we go. Let’s assume you are single for the purpose of discussing the slide. You ‘invest’ $100K into LTC insurance (the leftmost bubble). That is a cumulative premium that can be paid in lump sum or over many years. On DAY 1, you
immediately have a $225K LTC benefit. You’ve leveraged $100K (or considerably less if you are not paying lump sum) to get a $225K benefit. Let’s just stop right there. How could you possibly invest $100K TODAY and get an immediate $225K benefit should your health fail you tomorrow?
Next bubble is looking ten year out. Your LTC benefit has grown to $300K and in 20 years, your LTC benefit is $405K and growing.
Now, the question you are probably asking is, ‘what if I invested the $100K instead?’ Well, if you did that and you needed care the next day, you’d have $100K to pay for it and NOT $225K. Don’t think you’ll need care the next day? Probably not but it does happen.
Let’s look at the next slide.
Slide 18: Leveraging an Insurance Solution (2)
{Speaker; Maddie}
Let’s invest your $100K. Brittany, if a client brings you $100K and tells you that they are going to set aside this money for their LTC needs, how might you invest it and what rate of return (on an after tax basis) would you expect they’d receive? Let me also say that since this is money that is more likely than not that will be needed in the future, the investment would need to be relatively safe. We don’t want to chance losing 20% because of a market ‘correction.’
{Speaker: Brittany}
I’d say 2-3%
{Speaker; Maddie}
I’m going to be a bit more aggressive (just to make a point). I agree with your number but I’m guessing we have some folks in the audience that think we are being way too conservative. Let’s use 5% AFTER TAX. That means that for someone in the 20% tax bracket, you are earning, CONSISTENTLY, about 6.25%. Well, if you invested your $100K today, in 20 years, you will have saved $265K. Your LTC benefit pool is that same period of time is worth $405K. And, again, that requires a rate of return of 6.25% (consistently) and it does not take into account your needing care earlier in life. Self funding falls apart if you need the care sooner.
Are you thinking, “Yeah, it might be nice to have $405K reserved for LTC services but what happens if I never need care?” Well, if you don’t need care, when you pass, your beneficiary will get back your premium.
Now understand that this is ONE example of how LTC insurance works and these numbers are not YOURS. There are many more options. Perhaps you want a larger pool of LTC money or a smaller pool. Perhaps you are willing to forgo a death benefit. It’s all possible. These high level illustrations are not meant to give you information to make a decision. They are meant to encourage you to take action to look at a plan designed specifically for your situation.
Now, let me turn it back to Brittany to talk about how you can request more information on LTC planning.
Slide 16: Protect Your Future With a Financial Plan
{Speaker:Brittany}
Thank you, Maddie.
There are plenty of reasons to delay planning long-term care. But people who have started on this path have good things to say; they feel more in control and less worried about the future. They’ve made important decisions about where and how they want to live as they age, who will care for them if they need it, and how their financial resources will be used to cover costs.
Another reason to start now is that long-term care is a little complicated. With time on your side, you can take the process step-by-step and figure out what’s best for you. The perfect place to start is with a financial plan developed by a CERTIFIED FINANCIAL PLANNER.
A financial plan helps you define all of your financial goals, including long-term care, and charts a path to help you achieve them. It’s the roadmap to a secure financial future.
Slide 17 - Questions
{Speaker:Brittany}
As I mentioned, this has been a brief overview, but there’s a lot more to cover. Every client circumstance is unique, and it can take time and attention to develop the right plan for you and your family. We’ll be following up with you by email after this presentation, but If you’d like more information on LTC or financial planning, in the meantime, I’m here to help. Feel free to reach out to me using the contact information below.
And a special thanks to Maddie Sharpe for lending her expertise to this presentation.