Getting serious with clients about providing long-term care

A 65-year-old couple retiring in 2022 can expect to spend an average of $315,000 on health care and medical expenses throughout retirement — according to a May 2022 report from Fidelity Investments. But that staggering figure doesn’t take into account the cost of long-term care, which can cost another $225,000 or more per person.

Eric Rosenbloom, Vice President, Wealth Services, Alera Group Wealth Services

For customers who think it can’t happen to them, the reality is that anyone turning 65 has one 70% chance of needing long-term care at some point in their lives. Twenty percent of older Americans it will need more than five years. The question becomes: how do Americans pay for extended care without depleting the savings and income streams intended to see them through the rest of their lives.

One way individuals can start saving for future health and long-term care needs is by opening a health savings account. Accumulating funds in an HSA – be acceptablea customer must have a high-deductible health insurance plan—there are several distinct advantages. The bank or investment account has a triple tax advantage, with a tax deduction at the time of contribution, tax-free growth and tax-free withdrawal if used for qualifying expenses. For 2022, the maximum contribution amounts for an HSA are $3,650 for individuals and $7,300 for family coverage. Those 55 and older can contribute up to an additional $1,000 as a top-up contribution.

But even for wealthy clients with strong wallets, self-financing alone may not be enough to cover the costs of long-term care, which can range from home care a few hours a day to round-the-clock care. at home or in a nursing facility. Costs can range from $5,000 to $9,000 per monthaccording to Genworth’s 2021 Cost of Care Survey. And those prices have risen in recent years: home care costs rose 5% year over year from 2017 to 2021while assisted living care grew 3% to 4% per year during that period.

One in 30
Many people fail to plan for such an event, expecting Medicare or Medicaid to cover their needs. But Medicare only pays up to 100 days in a nursing home and does not cover professional LTC services provided at home for long periods of time. Further, the program does not pay for unskilled home aides, which make up the majority of long-term care services, according to the U.S. Department of Health and Human Services.

Long-term care insurance is an option that can cover the cost of a long-term care event. But from a final assessmentfewer than one in 30 Americans, and only 7% of those over 50, have a long-term care policy.

To be sure, LTCI is not for all customers. It may not be appropriate for those who qualify for Medicaid as they may be able to get some level of care from their state. And not everyone who wants such a policy can have one. According to American Association for Long Term Care Insurance, 22% of Americans who apply for LTCI in their 50s are denied. This percentage rises to 30% for individuals in their 60s and up to 44% for those in their 70s.

Additionally, in order to be eligible to collect benefits under an LTCI plan, you must prove or prove their condition – usually with doctors’ records and/or letters from the insured’s doctors stating their condition. For an individual to qualify, they must be diagnosed with a cognitive impairment, such as dementia or Alzheimer’s disease, or need help with two of six “activities of daily living,” or ADLs—bathing, continence, dressing, eating, toileting. and “transfer”. Most policies require a 90-day elimination period, which is the time a disabled or hospitalized person must wait from the onset of their condition until coverage begins.

Conversation
Financial planners can start the conversation by discussing the client’s family health history and life expectancy. A family history of dementia or Alzheimer’s, for example, may suggest a need for insurance or supplemental insurance. Typically, retirement savings are there to fund living expenses for both spouses as they age, not long-term care. Given the fact that so many end up seeking some type of assistance, it’s important to plan and set aside money specifically for a potential long-term care event.

Planning for long-term illness and providing the appropriate care needed when the time comes are complex issues. An LTCI professional and/or financial advisor familiar with LTCI policies and the market – including underwriting and product options – should be very hands-on in discussing strategies with the client and helping them determine the right amount. of coverage, the appropriate benefit period and the many types of LTCI policies and their various features.

It is important that the advantages and disadvantages between different strategies are discussed with the client—for example, how a cash compensation plan may or may not be more favorable than a reimbursement-type plan. In the age of COVID, people may prefer to receive their care at home as opposed to a nursing home. With this in mind, cash compensation options may gain popularity as they may offer the family greater flexibility in choosing caregivers. Each plan under consideration must model three to five years of care and include an LTC event beginning at age 80 to 85.

As a financial planner, it is difficult to see how disability and long-term illness negatively affects families, especially those that are not properly prepared in advance. When a loved one becomes ill, it is an extremely emotional and stressful time. Properly chosen and administered, LTCI can take a layer of stress off the family, knowing they won’t have to figure out what to do at a very stressful time because it’s already been handled. Such protection can also help alleviate potential tensions and disputes between family members about how much should be spent on care or which assets to liquidate if necessary.

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