Long-term care, often interpreted as a euphemism for nursing home residency, is hard to think about. And even harder to discuss. “It won’t happen to me,” is the mantra that plays in our minds – until a loved one has the need for it. Not-so-fun fact: The U.S. Department of Health and Human Services projects that 70 percent of Americans over age 65 will need some form of long-term care during their remaining lifetime. Time for a talk.
For planning purposes, a broader vision of long-term care must be embraced. Establishing the actual care plan is the primary task. If I become incapacitated for longer than X amount of time, how would I want to be cared for? Who would provide the care? Where would it be provided? These are critical questions that must be discussed by each of us, with our families, before we can fully address how it will be paid for.
We are not talking about end of life planning (though I highly recommend Dr. Ken Murray’s excellent 2011 article, “How Doctors Die”). What we are talking about is the time between now and whatever you would define as the trigger that time is short. During that time, should a health event or an accident cause incapacitation, the answers to the questions above can prove to be invaluable – especially if they have been thoroughly considered, discussed with family, and written down long before they are actually needed.
Of course, as financial planners we do ultimately place focused attention on the cost of such care, and our job is made easier and much less expensive with the answers to the questions above. This year, I have attended continuing education sponsored by the Institute for Healthcare Improvement with the focus on facilitating these conversations with clients and their family members. We have developed a more extensive long-term care questionnaire and will be happy to send it to any reader upon request. We have one for singles and a separate one for couples.
Genworth just published its 2016 study on the cost of care by state and region. The study breaks down levels of care into the following categories and related median annual cost of each for Kentucky: home health aides ($42,900), homemaker services ($41,184), adult day services ($17,940), assisted living ($39,600), nursing home private ($83,722), and nursing home semi-private ($75,192). The good news is that the annual cost of care for each category except adult day services has actually declined in Kentucky from 2015 levels.
There are essentially three ways to pay for needed care. They are: private pay, insurance, and the government via Medicaid. Most of our clients simply dismiss the idea of Medicaid planning, assuming that they could never qualify for the benefit, or assuming that care paid for by Medicaid would somehow be sub-standard. Some are ethically opposed to having the government pay if they are able to pay themselves. We respect these views but believe that the decision needs to be more fully informed. There are also other very family-specific considerations.
Private pay should be considered an option only if assets are reasonably expected to be available when needed. However, it should not be thought of in a vacuum without also thinking about the risk of sacrificing other family goals. When a need arises, the stress on the family increases exponentially. Generally, when addressing the potential cost of care, it is important to note that these are not always added expenses. Some living expenses will likely go down should the need for care arise. Identifying these ahead of time and informing family of expectations is an important communication to have with all the family members who might be impacted.
The long-term care insurance industry has changed dramatically over the last several years. Lifetime benefits are a thing of the past. Additionally, some policies can be partnered with governmental assistance to allow the policy holder to retain assets through a feature known as “asset disregard” under Kentucky’s Medicaid Policy. If you have insurance, it is important to review your coverage from time to time. If you don’t, we suggest that you evaluate the risk and if insurance is indicated or desired, develop a request for proposal before talking with an insurance agent. We can help you with that.
Some will ask why we haven’t addressed the news of Great Britain’s exit from the Eu. At this writing, the Brexit is very much an evolving story that could have long-ranging implications. Everything from “much ado about nothing” all the way to global recession is still on the table for discussion. Watch for a future article for our diagnosis about Brexit and our prognosis of its impact on our planning and investments.
Scott Neal is the president of D. Scott Neal, Inc., a fee-only financial planning and investment advisory firm with offices in Lexington and Louisville. He can be reached at email@example.com or by calling 1-800-344-9098.