Elderly (LTC) Health Issues
Long-Term Care
Most people understand the need for major medical health insurance and for Medicare coverage once they retire. They may even understand why many people purchase Medicare supplemental insurance to cover the gaps left by Medicare coverage. When it comes to long-term care insurance, however, only a minority of consumers understand why it might be applicable to them.
When people think of a nursing home the general perception is poor. Too many people remember old tales of bad care, bad food, and eventual death. Unfortunately, many of the old horror tales have not faded away even though today’s facilities tend to be excellent.
As people live into their nineties with increasing frequency nursing homes will continue to see increased use. At some point, individuals cannot live alone, and family members are not always available to provide personal care, such as help moving around, dressing, and bathroom functions. Nursing homes are expensive yet relatively few Americans consider how they would pay this cost. We seem to be content to let the government or our family members wrestle with the financial details when the time for care arrives.
Long-term care insurance is expensive. Along with the rising premiums came expanded benefits that cover most costs associated with long-term care expenses. Of course, no policy pays for everything. It is important that policyholders and their families read the policies and ask questions if anything seems confusing.
Long-term care policies do not pay costs associated with hospitalization, surgery, or physician charges. The broken arm is unlikely to be covered under the nursing home policy, for example, unless it leads to a condition that requires recovery in a facility covered by the policy (such as assisted living).
Agents selling long-term care policies face challenges that the auto insurer does not have to deal with. Americans realize they need coverage for their auto liability but that cannot be said for nursing home coverage. Many people feel they cannot afford yet another insurance premium, even one for something as catastrophic as long-term medical care services.
We know many families are facing severe financial shortfalls. There are many reasons for this, including unemployment rates and mortgages that are outpacing incomes. What many people may not realize is that nearly half of all U.S. bankruptcies were filed by working families in the aftermath of a major illness or injury, according to Elizabeth Warren, a consumer watchdog.[1] Elizabeth further states that retirement should be about grandchildren and hobbies but before leisure activities can be enjoyed retirees must first put their financial affairs in order – or risk impoverishment.
Many people would be surprised to learn that long-term care is not always a retiree’s issue. A substantial number of individuals in nursing homes are younger people suffering from diseases, such as AIDS, and accidents, including automobile accidents and industrial accidents.
We constantly hear about the need to save sufficiently for retirement; what we don’t constantly hear is how easily those savings can be wiped out by an extended health care situation. Professor Richard L. Kaplan calls funding long-term care services the greatest gap in retirement planning. It is easy to understand why this happens - after all, who wants to go to a nursing home? Many long-term care services occur outside of nursing homes, although a nursing home is certainly the costliest of the options and the one that first comes to the consumer’s mind.
Healthcare is a term we often hear, especially with the reforms that are being debated, but we often fail to include long-term care services in the discussions. Healthcare refers to maintaining one’s health to the end of life. Healthcare is expensive, which is why insurance coverage is so high. American consumers seem willing to pay for major medical coverage, but they often are not willing to pay the premiums for long-term care services.
Business owners are cutting back as their expenses continue to increase. Health coverage is commonly one of the first things to be either curtailed or eliminated. Even so, some companies are beginning to include group long-term care coverage. The company does not necessarily pay the premiums for their employees, but coverage may be offered on a group basis with employees paying their own way.
Changing Times
Baby boomers are the first to have their retirement funds originating primarily from their own savings rather than an employee funded retirement plan. Americans can no longer rely on an employer to supply the majority of their retirement income; employers have found such plans too costly given our longer life spans. Retirees who did not take any steps to create their own retirement income will find it difficult to live on Social Security income alone. Many retirees, due to inadequate planning (or no planning at all) will be forced to work well into their retirement years.
That will be only one of their problems. Many Americans nearing retirement are also caring for elderly parents. While some companies do offer elder care benefits, they are seldom adequate and often benefits are hard to understand.[2] Unfortunately many of the benefits are based on childcare models, but these models seldom fit the needs of elderly patients. At a time when healthcare benefits are being curtailed or eliminated, elder care benefits are not likely to improve. Only one percent of companies subsidize elder care according to the Society for Human Resource Management. That’s understandable in these uncertain financial times.
There are many information sources on the numerous ways of financing retirement through such things as 401(k) plans and individual retirement accounts (IRA), but most of these sources give little or no attention to long-term medical care requirements or elder care for ailing parents. Long-term care needs are not always “medical” either; many people simply need personal care for a long period of time. Personal care refers to the activities we take for granted, such as walking without assistance, getting into and out of chairs and beds, dressing, bathing, cooking meals and performing housekeeping duties.
Most financial planning sources provide a calculator to determine how much cash and assets will be required for retirement. These calculations utilize rough estimates of several critical factors, including estimated living expenses, the effects of inflation over time, anticipated future investment returns, and mortality statistics to determine the amount of income and assets that will be required for approximately thirty years of living without earned income from a job. Some financial calculators are better than others at determining the quantity of assets that must be saved, but they all have one thing in common: virtually none of them take into consideration the effect a long-term care requirement will have on the retiree’s savings and assets. There may be some mention of health care but typically it refers to Medicare benefits and the pros and cons of purchasing a Medicare supplemental policy for doctors and hospitals. As we know (or should know by now) Medicare and Medicare supplemental insurance policies do not cover long-term care in any meaningful way. The benefits that are offered through Medicare are inadequate to say the least, with coverage only for skilled nursing home care. There is no Medicare coverage for the type of care most often needed: custodial care, often referred to as personal care. Custodial or personal care is non-medical care and can be performed by an individual without medical training. However, most states do provide programs providing basic training for home care workers.
It is encouraging that some calculation websites, while mentioning health care, include a disclaimer that the potential cost of long-term care and long-term care insurance premiums are not included in their health care estimates. Unfortunately, that disclaimer merely protects the company providing the retirement calculations; it is unlikely that the general consumer understands how important that statement is to their future.
Most of us realize that we are living longer, healthier lives. As long as our health holds that is good news. The bad news comes when good health deserts us and we must deal with dementia, Alzheimer’s disease, heart problems, or simply the frailty that comes with old age. Yes, we would all like to believe that our children will care for us in those last years. However, as one very smart woman once pointed out, if our children can barely take care of themselves now, do we really want to rely upon them to take care of us in the future?
An individual who is no longer able to care for him or herself must consider receiving care from an outside source, whether that happens to be a family member or a hired health care worker. Even when family members are willing, they may not be physically or financially able to devote their full time to an ailing family member. Sometimes the only realistic option is some type of facility such as an assisted living facility (ALF), a nursing home, or care at home from a trained medical worker. Any long-term option will be costly.
The Emerging Need for Long-Term Care Services
Why does it seem that more people need long-term care services today than in the past? Of course, a major reason is our longer life spans. However, it goes beyond that. Health conditions that once killed us no longer do; we are more likely to survive the strokes and heart attacks today. Some conditions that once killed us now simply render us dependent upon others. Even if we remain healthy, as we age, we will become frail at some point. Many people end up needing long-term care due to simple frailty (a major reason to remain physically active is to avoid or delay frailty).
Most of us hope to remain at home as long as possible. The insurance companies and federal and state authorities are also hoping for this, since care at home is typically less expensive than care in an institution. Figures compiled by Care.com in 2018 show homemaker services, which do not require any special medical education, ran on average $17 per hour when obtained independently, but $22 per hour average when obtained through an agency. A certified caregiver, with more training than a home health aide, will be more expensive, of course.
Few workers provide live-in services so if care is required 24 hours per day, the patient or the patient’s family must fund three shifts of care. The cost would be beyond the financial means of most retirees. Often family members try to fill in to avoid hiring three shifts of care for their elderly family members. Children or grandchildren may stay the night, for example, to avoid a third shift of hired health care workers. In the beginning it may not seem difficult to have a family member there each night, but most families soon find some members more willing than others to take on this nightly chore. Eventually the work falls on one or two people.
A Typical Case
Let’s look at a typical case. Martha is 75 years old. She has enjoyed good health for most of her life. Even at age 75 her health is still relatively good, although she takes medication for high blood pressure and high cholesterol. Martha is still able to cook for herself and she gets around fairly well with a cane. However, her daughter and two sons are noticing some changes.
Martha’s daughter, Janet, has been coming by weekly to organize her medications. Janet has noticed that her mother frequently forgets which pills she has taken, sometimes doubling up on her medications and other times not taking them at all.
One of Martha’s sons, Jim, who also lives near his mother, has commented to Janet that Martha’s house has become cluttered and somewhat dirty; something that never happened in the past. Martha’s third child, Fred, lives in another state and calls frequently but is otherwise unable to assist in Martha’s care. Although Jim lives near his mother he assumes his sister will care for his mother. It does not occur to Jim that he might have equal responsibility for her physical care. Jim is willing to donate towards her care financially if Janet prefers to hire outside help.
At 55 years old, Janet works full time. Jim is age 52 and recently retired early due to poor health. He and his wife hope to travel part of the year once Jim’s wife retires in three years. The youngest, Fred is 48 years old. Fred is divorced; his divorce required that he split his retirement fund with his ex-wife. Fred’s divorce also resulted in additional expenses, including his attorney fees and furnishings for his new apartment.
Initially Janet is determined to supply whatever help may be needed so Martha can remain at home. What began as weekly visits to her mother’s house now seems inadequate, so Janet begins stopping by after work each day to make sure her mother took her medications correctly. Coming by each day does not always mean medications were correctly taken, however. Even so, Janet feels reassured by her daily visits. Before Janet goes home, she does the dishes for her mother and does some minor housekeeping duties. Martha is still able to cook her own meals. Janet has also taken over Martha’s checkbook and pays her bills each month. Each weekend she drives Martha to the grocery store and takes her to lunch. The outings seem to please her mother, and this gratifies Janet.
Jim mows the grass at his mother’s house each weekend, but he is contemplating hiring a neighbor boy to take over this chore. It wouldn’t cost much, and Jim knows he does not want to be tied down to this chore each weekend.
Fred offers emotional support, but he is not able to offer much more than that. His divorce has taken a financial toll and he is busy trying to correct the situation. At age 48 he feels the pressure of being under-funded for his retirement, so he takes on extra work whenever it is available.
None of Martha’s three children are concerned. Janet feels she can continue to help her mother since the help needed is not great. Although Jim has offered financial assistance Janet does not think it is necessary to hire a housekeeper at this time, but Janet also knows she cannot donate financially. Her husband’s employer is financially struggling, and he was laid off last year; when he reached age 62 this year, he considered himself retired and began drawing his Social Security. Janet’s husband Mike did not save adequately for retirement and there was no employee sponsored pension where he worked for the last twenty years as a clerk in a plumbing supply store. Mike does have $50,000 in a personal IRA and the two of them have routinely purchased small amounts of stock for the last thirty years, but the recent downturn in the stock market has severely reduced their stock’s values. Now they are waiting for the stock market to rebound. Janet and her husband are not worried; both will have Social Security income, and both feel their stock portfolio will eventually recover. Even so, they know they cannot support Martha financially. It will take everything they have to live in retirement themselves.
Martha is currently financially sound. She receives her deceased husband’s $1,950 employee sponsored pension income each month. She also draws Social Security from her husband’s work record each month. Additionally, Martha and her husband saved from the time they were married. Martha has $269,000 in assets that produce modest interest earnings each month. Her home is also paid for, so she only pays insurance and taxes each year. Her house does need some maintenance; she will eventually need to replace the roof and her porch is sagging in one corner. However, nothing seems to be immediately necessary.
Over the next two years things go smoothly. Janet continues to do the minor chores her mother does not seem able to do. Jim turns over the yard and lawn chores to a neighborhood boy who seems glad to get the work. Fred keeps in touch but remains out of state and unable to offer financial assistance.
Without warning Janet sees a sudden downturn in Martha’s condition. She wonders if her mother may have had a few slight strokes and the doctor agrees it is a possibility. They eventually confirm the events through medical testing. Martha’s doctor suggests that Janet begin considering nursing care for her mother. Dr. Jones does not believe a nursing home is currently needed, but he suggests that it could be required in the near future if more strokes happen. He believes Janet and her brothers need to consider this possibility and make financial preparations ahead of time. He warns Janet that she cannot continue providing all of Martha’s care if her health worsens. Dr. Jones has seen others attempt this and understands the difficulty of doing so. A long-term illness involves the whole family, not just the ill individual.
Currently Janet goes by her mother’s home twice each day; in the morning she cooks a light breakfast for Martha. In the evening she serves her dinner. Martha is able to snack throughout the day on fruit and vegetables Janet has left for her. Janet is now trying to control what Martha eats, avoiding salt and fats. Janet is still doing light housekeeping for her mother as well. Janet’s husband now handles Martha’s checkbook and pays her bills to relieve Janet of this duty.
Jim continues to offer financial support, although Janet does not accept it. At this time Janet is not willing to turn over her mother’s care to a stranger. Jim’s wife Susan has retired so they are often traveling out of state. Jim still pays for the lawn and garden care although Janet’s husband Mike has offered to take over this duty since he is retired. Jim seems to want to pay for this, so he continues to have the neighborhood boy handle it.
Fred still calls often but his financial situation has not changed, and he offers no monetary help for his mother’s care.
Martha continues to worsen. Her ambulation is not good; her sense of balance has been affected at some point by continued stokes. Martha’s strength is also poor. She can lower herself into a chair but then cannot rise out of it, for example. Dr. Jones requests a lift chair for Martha, which is covered by Medicare. It will help her to remain in her home longer since it will allow her to get in and out of her chair without help from another person.
Martha also has difficulty getting out of bed. When Janet arrives in the morning before going to work, she often has to help her mother get up and help her get dressed for the day. If Martha needs to use the bathroom during the night, getting out of bed becomes a necessity. Janet’s husband Mike builds her a hand grip that is attached to the bed. This allows Martha to hold it and pull herself up. For awhile it seems to have solved the problem.
Eventually even the hand grip is not enough as Martha’s strength deteriorates. Dr. Jones has set up visits by a physical therapist in the hope it will maintain her physical strength, allowing her to remain at home. Eventually it becomes clear, however, that Martha is becoming increasingly frail and may need to move to an assisted living facility.
Janet has taken care of Martha for four years at this point. Martha is now 79 years old. Janet’s day now consists of:
Although Janet is exhausted, she does not mind this routine. She is very grateful she has Mike to help her. Janet could ask her children to help but they have small children and their own jobs to contend with. One of Janet’s coworkers is also caring for her two elderly parents as well as raising a grandchild. Janet is thankful she has only her mother to care for.
Martha continues to make poor decisions and Janet becomes increasingly concerned for her safety. Neighbors have told Janet that Martha has begun wandering around her yard aimlessly. Janet worries that she will walk away and get lost.
It now seems unsafe for Martha to be home alone. Janet places an advertisement in the local newspaper for someone to stay with her mother during the day. After interviewing numerous individuals, she settles on a woman in her thirties named Dorothy. Dorothy’s children are in school and she tells Janet she needs something to do during the day. She is friendly and Martha seems to like her. Dorothy has no previous experience taking care of an elderly person, but Janet knows her primary job is simply to supervise Martha and keep her safe. She cannot pay Dorothy more than a minimum wage, but she doesn’t seem to object to the low pay.
For the first month all goes well. Then Dorothy begins taking days off. The reasons vary, but over the next six months she begins taking days off nearly every week. When she called it was often at the very last minute as Janet was leaving for work. Janet or Mike would then need to call their employer to arrange time off. Since Mike worked part time, he was often the one who called for the day off. Eventually his employer tells him he either stops doing so or he will be fired. That meant Janet had to take more time off. Although her employer never said her job was in jeopardy it soon became clear that her employer was not satisfied with the situation.
Janet and Jim’s children begin to help by taking turns staying with her. Janet’s youngest daughter and son-in-law have two young children. Janet’s daughter brings them with her when she cares for Martha, but it is sometimes difficult. The children prefer their own home where their toys are. Even bringing toys doesn’t always make it easier since they prefer naps in their own beds. Martha complains about the children’s noise and their clutter. Sometimes there is no other choice, however.
Their oldest child Donald works at a job that he cannot take time off from but his wife offers to help out when necessary. She also works but can take sick and vacation time without much fuss from her employer. Eventually, however, she will deplete all the sick and vacation time she has; if she becomes ill she will have nothing to fall back on. Janet and Mike realize this and prefer she not be put in this situation.
It was clear that Dorothy could not be a long-term solution. When Janet talked to Dorothy about her frequent absences, she would promise to do better, but each time the improvement was temporary. She always reverted back to frequent absences. In addition to this problem, Janet realized Martha was having issues during the night. Janet knew she needed someone with her then too. Now Janet would have to also find a person to stay nights. Mike offered to do this since it would not interfere with his job but Janet realized they were not equipped to supply 24-hour care.
Janet talks with Jim and Fred of her frustration but neither brother seem to have an answer. Fred is too far away to help, and Jim feels his life should not be turned upside down, especially when help can be hired. Jim knows his mother’s finances and knows she can afford to hire in help.
Janet contacts a local company that specializes in providing help that has received training and will be supervised by the company. The cost is $25 per hour for a non-medical worker. At $200 per 8-hour shift the cost would amount to $400 per day if she hired both a day and night shift. Janet decides to hire only a day shift. Mike and Janet begin taking turns staying the night at Martha’s home. Sometimes one of their children or one of Jim’s children would stay with her to give Janet and Mike a break.
Friends suggest they should move Martha in with them and Mike and Janet consider this. When they talk to Martha about moving in with them, she is adamant that she does not want to. Janet and Mike also realize that their home is not suited for elder care. They do not have the handrails and other items that have been equipped in Martha’s house over the last few years. Their bedrooms are also all on a second floor. Janet is concerned Martha could fall down the stairs.
During one of Martha’s appointments with her physician, Dr. Jones, Janet discusses the situation with him. Dr. Jones has seen this before with other patients; he feels Martha needs to be moved to an assisted living facility. Janet has told him about their difficulties as well as safety related issues if Martha is left alone. Martha is lucky that assisted living facilities now exist. In the past the only solution would have been to continue caring for her at home or moving Martha to a nursing home. In the past a Board and Care facility might also have been used, but they did not have the quality that today’s assisted living facilities offer. Assisted living facilities allow individuals in Martha’s situation to live in an apartment-like setting while having full time supervision. Elderly patients seem to adjust better when they have their own living quarters versus sharing space as is typically the situation in a nursing home.
When Janet arrives home after Martha’s appointment, she calls both Fred and Jim to tell them of her conversation with Dr. Jones. Both agree she must move Martha into an assisted living facility. Janet is actually relieved to be doing so. Over the past four years she has felt increasingly tired. Of course, Janet is now 59 years old and still working full time as well as caring for her mother. Without Mike’s help Janet wonders if she could have kept with the routine for four years.
Janet notifies her employer that she will not be at work the next day since she must find accommodations for her mother. The next morning, she begins calling assisted living facilities in the area. She is initially surprised that so many of them have no available rooms for Martha. She is also surprised at the conditions they impose on accepting her as a resident: her mother must be mobile, able to come to the common dining room, and be substantially independent. The facilities do offer many services, such as dispensing medications (so Janet can be sure they are correctly taken), helping patients with some daily activities such as dressing and bathing, and periodic contact by staff to be sure all is going well. The constant daily monitoring is the service that is most needed by Martha. Although she has had multiple strokes, except for the safety issues, she has been doing well at home. Martha’s health is good and Dr. Jones believes they have stabilized her so she is not likely to continue having the small strokes. Dr. Jones feels it is possible that Martha could live another ten years, if nothing else adverse happens.
Janet finally locates an assisted living facility with a vacancy that is not too far from her place of employment. The residence offers apartments that have a small living room, bedroom and private bathroom. Martha will not have a full kitchen in this particular apartment, but there is an area with a sink, cupboard, counter space and refrigerator. The facility does offer apartments with full kitchenettes, but Janet had relayed her concerns about stove burners being left on. There is a communal kitchen where Martha could make herself tea, coffee, or even cook and bake if she wishes to. If necessary, a staff member is available to assist her. The facility offers all three meals, so it is not necessary for Martha to cook at all. Janet will continue to supply snack foods and Martha’s personal hygiene items, as these are not covered by the facility. Martha can take her coffee pot with her so she can have coffee whenever she wants just as she would at home. Martha must supply her own furniture since the apartment comes unfurnished. Personal laundry service is offered for a fee, but there are also laundry facilities in the building for anyone wishing to do their own laundry. The monthly apartment cost provides three meals each day, prescription medication supervision (but Martha must purchase her own medications), Martha’s personal care, apartment cleaning services including changing Martha’s bed as often as necessary, but at least weekly, transportation services, and organized group activities. There is a beauty salon on the grounds, so Martha could even get her hair washed and styled regularly if she wishes. Janet would be relieved of nearly all the duties she has been providing for the last four years.
Martha was ready to accept the room – until she learned the cost. Medicare does not cover any portion of assisted living facilities so the entire cost must be paid by Martha or Martha’s family. If Martha has private long-term care insurance, it may be covered in part or whole by the policy. However, Martha never purchased any long-term care coverage from her agent, although he did once suggest it. The facility charges $3,600 per month. If Janet requests personal laundry service for Martha it will be extra. Janet was not at all prepared for this. She had assumed it would be priced as an expensive apartment might be.
Janet and Mike looked at Martha’s income: she receives $1,950 each month from her husband’s pension. With her Social Security income and the modest interest earnings from investments, she was better prepared than most people in her situation would be. All together Martha receives approximately $2,825 each month in income. That included interest from her savings, but Martha could begin using the principle to cover her costs. Mike urged Janet to immediately take the apartment so it would not be lost to another patient.
Janet immediately contacted Jim and Susan. Jim felt Mike was right; he saw no reason Martha could not cover the cost since that money had been saved for this reason – to cover costs associated with retirement. Fred felt the decision was Janet and Jim’s since he was not able to offer either physical or economic assistance to his mother.
Janet accepted the apartment and began preparations for moving her mother. When Janet and Martha arrived they were given a tour. Janet had only seen the facility from the outside; all other contact had been by telephone. Janet was surprised to see how many people lived there. The facility had 50 apartments in this section, plus a nursing home on the grounds. The building was only five years old, so it was in excellent condition and appeared to be very clean and appropriately staffed. The common dining room was large enough to accommodate wheelchairs and walkers. Four people sat at each table during meals; seating was assigned and rotated regularly so residents would become acquainted with everyone. Weekly entertainment was provided at the facility, which included music, singers, or whatever else they were able to obtain. A local humane society brought by dogs and cats twice each month, going from room to room. Residents were allowed to pet and hold the animals if they wished.
Martha appeared to believe they were visiting someone. She kept asking who lived there even though Janet and the resident’s guide tried to stress that this would be her new home. Janet showed Martha the apartment’s second story view of a grassy walking area surrounding the facility, pointing out the park benches that were placed every few yards. She showed Martha where the coffee pot would sit on the kitchenette counter, the refrigerator and the hand grips in the bathroom. She demonstrated to Martha how well equipped the tub and shower area were – much more convenient than the small bathroom she had at home. Still Martha did not seem to understand she was moving there.
That night at home Janet found herself depressed. She wondered if she was doing the best thing for her mother. Maybe she should have tried to work out 24-hour care at home. She knew Mike was willing to do whatever she needed; her two children were also willing to help out. Even though Janet knew she had made the best decision, she couldn’t help feeling she was letting her mother down.
Over the next two weeks Janet and Mike moved furniture and belongings to the new apartment. Martha’s large bed was too big for the small bedroom, so they purchased a twin bed and small matching 5-drawer chest. Janet placed two side tables by her bed and had a telephone installed next to the bed and in the small living room. On the appropriate day, the telephone company would switch her current telephone number to the new apartment.
Martha seemed confused when Mike and Donald moved some of her living room furniture out of her house. When they took her dining room table she objected, telling them she needed it for that night’s meal. Despite their constant assurances, Martha was unhappy with the activity.
That evening Janet and Mike took Martha to her new apartment. Martha immediately realized her furniture was there and seemed to take some comfort in that. Janet showed her the bedroom with her new bed and new quilt in Martha’s favorite color. She took Martha down to the common dining room and seated her at the table that had been reserved for Martha, Janet and Mike. The three of them ate dinner together, while discussing all the people coming in and seating themselves by their name cards. Janet showed Martha her name card and explained that it would be at one of the tables each day for that day’s three meals.
Martha commented that there were not very many men in the dining room. Yes, Janet said, there are more women than men. She supposed that was because, like Martha, the women took care of their husbands at home until their death (often ruining their own health in the process).
It took a few months, but Martha did become comfortable in her new surroundings. She found she especially enjoyed the daily company of people her age with her life experiences. Martha joined a card club, although she said she never was very good at the games. Apparently, the other players didn’t mind her lapses of memory; the conversation seemed to be the point – not winning.
As Martha became comfortable in her new apartment, Janet had the chore of clearing out her mother’s home of all her life’s possessions. This proved much more difficult than Janet expected. Every saved birthday card, school project, and knick knack held a memory for her or one of her brothers. Jim and Susan returned home to help; even Fred took a long weekend and helped sort through all the acquired memories. What should have taken only a few days ended up taking two weeks. How could they simply throw away their mother’s life? As the boxes of dishes, clothes, and other items piled up they talked about having a garage sale. In the end the furniture and other items were taken to a local homeless shelter. They found they could not put a price on the items of their mother’s life. Martha had never lived extravagantly so she did not have artwork or jewelry that had great value; just the symbols of a long life with children and a husband she loved.
Martha’s house was eventually put up for sale. In the beginning all three children hoped their mother might regain enough health to return home. As the months went by, however, it became obvious that she enjoyed living with others in her health and life stage. Janet and Mike both felt she would actually oppose moving back home. Martha was not always happy of course. There were days when she talked of going back home but such moments did not occur often. Usually Martha felt safe and secure in her apartment and she liked that she could call down to the reception desk if something was bothering her or if she did not feel well. The assisted living facility had a nurse on duty 24 hours per day. Once Martha realized this, she feared leaving the facility even to go out to dinner with Mike and Janet. Janet realized that Martha may have sometimes felt scared when she lived alone. Perhaps that was why she often stayed up late into the night.
After three years in assisted living Martha suffered a severe stroke and was moved to the nursing home in the same complex. The friends she had made came often to visit but she never fully recovered, often not recognizing the people who came to see her. Of course, her children also visited her, but she did not always recognize even them.
Eventually Martha’s assets were depleted as were the funds from the sale of her home. However, Martha was far luckier than most because she had a decent monthly income and some assets. She was able to fund her health care much better than most could have.
Considering the Future
All three of Martha’s children realized from their experiences with their mother that they had not considered their future need for long-term care. Yes, all of them knew of others who had required such care, but they never applied that knowledge to their own situations. Dealing with their mother changed that.
Fred was the first one to buy his own long-term care policy. He made sure it contained payment provisions for assisted living facilities, claiming he bought it only so he could live somewhere that offered a dozen women for every man.
Jim and Susan bought their policies soon after Fred did. Jim complained about the high cost of the policy, but Susan told Janet privately that he was the one who insisted they buy it. Jim said he did not want his children to have to put in the amount of time he saw Janet provide for their mother. Furthermore, he was concerned his children were too spread out to do so. Jim was afraid they would have to rely on people like Dorothy, people who had no personal stake in their quality of care.
Both Jim and Fred were surprised that Janet and Mike did not initially purchase long-term care policies until several years later. Janet found herself unable to consider it for several years because every time she looked at policy brochures, she became depressed. What Janet did not realize is that the child giving the most is also the most profoundly affected by the experience. Her brothers didn’t see their mother’s decline as closely as she did, remember the bruises from her frequent falls, see her wasted body as she was bathed, or hear her slurred speech as she recovered from the small strokes. They didn’t experience the quick heartbeat that came with discovering the hot iron in the laundry room or the red hot burner in the kitchen.
Most of us might assume this would be the very reason Janet would quickly buy such a policy, but she had to heal before she could act. In many cases it would have been Mike that stepped forward to get the policy purchased but in this case, he felt it needed to be Janet’s decision. Mike’s personality did not lend itself to preparing for the future. Just as Mike had not been aggressive in saving adequately for retirement, or make other financial decisions, he did not worry about having insurance. He would always be willing to do whatever was necessary in the moment, but he would never be one to plan ahead.
Janet had always taken the financial lead in her household, but in this case, she felt paralyzed by her experience with her mother. Part of it was fear of what the future might bring. Part of it was denial; she took good care of herself and didn’t want to believe she might follow in her mother’s footsteps. Even when her mother eventually needed more care and was transferred to the nursing home Janet did not act.
Martha remained in the nursing home for two years. During that time, she exhausted what was left of her assets and began drawing from the funds she received when her home was sold.
One evening a young woman knocked on Janet’s door with a card in her hand that Mike had mailed in. It was an inquiry into long-term care nursing home products. Janet immediately recognized her husband’s handwriting and was surprised. He never sent such things in. She invited the agent in and the three of them sat around the kitchen table drinking coffee and discussing Janet’s experience. The agent was patient but firm in her opinion that Janet and Mike needed this coverage. Janet had always believed she might but had never moved forward with the idea.
After the agent left Janet studied the receipt for the check she had written. Surprisingly she felt relieved. For reasons she could not identify, she felt less stressed. Leaving the dishes unwashed, she went to bed. For the first time in months she slept well that night.
The Strength to Act
Americans seem to be a very optimistic bunch of people. We insist on believing our financial futures will work out. Somehow, some way we will be taken care of. Martha was lucky to have some assets and sufficient income to cover her monthly bills. She also had a house that could be sold to contribute to her care costs. The current generation is unlikely to have the pension Martha had from her husband’s job. Today’s retirees will need to create their own pension income because it is not likely to come from our employers. It is now common to change jobs approximately every six years. Employers seldom consider job changes a detriment when hiring new employees. In fact, they expect these changes in a woman’s job history since women often work around children and their husband’s job.
It is not up to our government to take care of us in retirement although it often ends up that way. Most people do not save adequately for retirement and they certainly don’t consider the high cost of long-term care. As a result, many become impoverished within a year of entering a long-term care facility, whether that happens to be a nursing home or some other situation. Of course, the nursing home is the most expensive long-term care setting, but like Martha, many people do not immediately go to a nursing home.
It takes mental strength to do the responsible thing: save adequately for retirement including long-term care needs. Many people are not candidates for home care, but that is the least expensive setting – in most cases. If Janet had hired medical care from a responsible home health care agency it would have quickly become very expensive to have around-the-clock help. As a result, home care is typically supplied at least in part by family members. Like Janet, they give up their personal life to care for their family member. It is most typically a daughter caring for her elderly parents, but sons may also become involved, especially if no sister or granddaughter is available. This is not to say that sons are not concerned but few men feel adequately prepared to physically care for an ailing mother and all that involves (bathing, for example, as well as other bathroom duties). Furthermore, most mothers would not want their sons performing this chore. Patients without family support networks may do better in facilities. It can be difficult for ill individuals to stand up for themselves when their home care worker does a poor job or even physically or emotionally abuses them. While we believe most health care workers do a good job and treat their patients well, this is not always the case. Elder abuse happens frequently (sometimes even by their own family members).
Some individuals are not good candidates for home care due to their health conditions. The required level of care may require a nursing home or assisted living facility. Some people do not want strangers coming into their home or, as we have discussed, they may feel vulnerable since they have no person in authority to complain to if the care they receive is inadequate.
Some elderly individuals are fearful of strangers and their fears may be warranted since there have been many cases of elder abuse by unsupervised paid care givers. As well as elder abuse, financial exploitation and theft of personal assets have been reported in unsupervised home care situations. If a family member or close friend is adequately involved such situations are less likely to happen, but they can still occur. Despite these problems, in the right situation home care can prevent or delay institutionalization so it should be considered.
Newer technologies are expanding the number of people that flourish in home care environments, sometimes totally preventing institutionalization. Insurers and the state and federal government hope to expand home care since it is less expensive to provide in many cases. What most people may not realize is that the general taxpayer also benefits from home care since it is our taxes that end up funding the majority of nursing home confinements. Even some types of institutional care, such as assisted living facilities, help save tax dollars when more expensive nursing home confinements are avoided.
When home care is not possible or practical, assisted living arrangements are often an excellent choice. Like Martha, many people find these facilities to be a good home care replacement since the residents maintain their privacy and dignity. Assisted care is designed for individuals who do not yet need the medical intensity of a nursing home but who cannot remain safely at home either.
Assisted living facilities were developed as successors to the traditional board and care homes that were previously widely utilized. Board and care homes were usually small organizations with no more than 25 residents. They typically provided personal care (custodial care) rather than medical care, although a person with medical training could be available upon request. The developers of assisted living facilities realized that more could be done with the board and care concept, making it a profitable business venture.
In the 1990s corporations developed assisted living facilities for the elderly, typically providing more care than that typically offered by board and care homes, but not the higher medical care provided in nursing homes. Although assisted living facilities are similar in concept to the board and care facilities, they tend to be larger, often housing several hundred residents. Communal dining is generally used so that staff can take head counts and check on the general well-being of the residents. Most apartments do include kitchenettes and some only serve two meals a day (usually breakfast and dinner); some assisted living facilities may only serve the evening meal. When only one or two meals are served, the units typically provide full kitchens for the residents. Only those who have the physical ability to cook for themselves are likely to live in these facilities. Other services would still exist, such as medical supervision and some personal care services. Generally speaking, ALFs cater to elderly people without extensive nursing care requirements.
Assisted living facilities, called ALFs, are known for the safety features they provide. Like Martha, many residents are there because it was no longer safe for them to remain at home. Safety features include many things, including (but not limited to) pull cords for emergency help, grab bars in bathrooms, and daily contact by staff members. Most facilities make a point of daily contact, especially if meals are missed due to the advanced age and health conditions of their residents. Medications are also usually dispensed by staff members to insure they are properly taken. There are usually social events designed to keep the residents interacting, which is vital to good health. Many offer small community services such as barbershops and beauty salons, post offices, bank machines and laundry services.
Many eldercare professionals feel it is the social interaction that has made assisted living facilities so successful, although the other services are certainly important too. It has been recognized for some years that regular social contact tends to improve health. This is true for people of any age, but it becomes especially important for those of advanced age.
The organized meals are also linked to improved health since the facilities follow specific diets for their residents. The one-on-one contact at meals also allows staff members to know immediately if health is deteriorating since lack of appetite often precedes health issues. Facilities with properly trained staff will know to look for signs of possible down turns in health based on their resident’s daily social interaction and eating habits.
There are nearly always contractual requirements for entering an assisted living facility. The admission contracts state the conditions of residency and the services that will be provided for the monthly fee. Contracts will further state any additional services that cost extra, such as personal laundry services. It is very important that the resident or the resident’s family understand the fees. Martha paid $3,600 per month or $43,200 per year. She and her family must understand what they are getting for this monthly cost and what they will not get. Rates for assisted living facilities can go up, but usually the initial cost is set for the first year of residence, with increases occurring upon admission anniversary dates. However, facilities vary; it is important to ask such questions upon signing the admission forms/contracts.
There are wide national and regional differences in facility costs. New York City is likely to be much more expensive than Colorado Springs, for example. There are many reasons costs vary, but one reason is the cost of hiring medical staff. Some areas have higher wage rates than others.
Cost will also depend upon the apartment. For example, a two-bedroom unit will cost more than a one-bedroom unit. A studio apartment is typically the least expensive, consisting of one large room and a private or semi-private bathroom. Some facilities have two apartments sharing the same bathroom, although most of the newer facilities give each apartment their own private bathroom. When money is tight, sharing a bathroom is one way of paying less for the apartment.
Assisted living facilities have done a great job of minimizing nursing home admissions since they can often provide the care needed; going to a nursing home is not required unless the resident becomes totally unable to care for themselves. Most ALFs will help with many of the daily activities such as bathing and dressing. Assisted living facilities often house people not because of health requirements but rather, as in Martha’s case, because it would be unsafe for them to live alone.
With the creation of assisted living facilities, nursing homes are now more likely to house the very ill or disabled. While nursing home facilities vary in the services they offer, most offer a level of medical care that assisted living facilities cannot provide. The care in a nursing home is not as intense as that provided in a hospital, but it is medical care that is beyond the ability of assisted living facilities.
Nursing home care is expensive. According to a Genworth 2019 survey, the average yearly cost of LTC ranges from $48,612 to $102,200, depending the type of care needed. The average nursing home costs an average of $70,000 to $100,000 annually, depending on where in the U.S. care is received. Medicaid is the major payer of nursing home bills.
It would be easy to blame nursing homes for the high rates they charge, but that would be unfair. It is very expensive to care for severely sick or injured people and nursing homes actually run much more efficiently than most hospitals do. Extensive federal and state regulations cover most aspects of operating a nursing home, including room size, nursing credentials and staff, meal hours and medical supervision. Nursing homes provide a vital service and seldom receive any praise for the work they perform. We only hear about what goes wrong in a nursing home; we never read about the good work they do or the number of people they help on a daily basis.
It’s a lot like being an insurance agent: if the agent makes a bad mistake everyone will be told and state authorities may even penalize the agent, but no one announces or applauds the good work insurance agents perform every day. When a house burns no one proclaims: “They had an excellent agent who made sure they were well covered.” When a policyholder goes into a nursing home no one says: “Isn’t it wonderful that her agent provided the financial backup she needs!” It is more likely a family member will say “Well, yes the policy pays some of the bill, but it is still costing us a couple of hundred each month.”
People often associate nursing homes with the facilities of the past that were perhaps dirty, understaffed, offering inferior nursing and personal care. While we cannot say that such facilities no longer exist, most nursing homes now offer excellent care. That doesn’t mean that individuals now want to go to nursing homes because of course most of us do not want to; we would obviously prefer to remain at home. There have been past abuses and generally speaking residents of nursing homes continue to be vulnerable since they may not be able to speak out. Nursing home residents are protected by a “bill of rights” that was enacted to guarantee certain basic standards, but if there are no family members, no friends to check on the residents, the “bill of rights” means very little. Ultimately good care is guaranteed by the people who visit the residents and speak out if they feel the care is substandard. The patient’s doctor should also be present on a monthly basis. Not all doctors spend much time going to the area nursing homes; some have their patients brought to their office for checkups. Ask the patient’s doctor what his or her procedures are. When doctors appear routinely at the nursing home the facility is more likely to be aware of shortcomings and take steps to correct them.
Who Should Consider LTC Insurance?
There are so many types of insurance that could be purchased, so how do we assess which types are really necessary? Nearly everyone wants health insurance and dental coverage. Most states require us to purchase automobile insurance; most people want to insure their homes against fire. We know we need liability insurance to protect us from lawsuits. We have recently become aware that we should also have disability insurance since we are more likely to become disabled than we are to die (although people are still more likely to buy life insurance than disability coverage). We could buy many types of coverage; some are very important while others are more of a personal choice.
Long-term care insurance is certainly expensive and that is a major reason many people never buy it. Individuals who did not save adequately for their retirement may not be able to afford the premiums of an adequate policy. Perhaps some LTC coverage is better than none but an inadequate policy may not do enough to protect the insured.
Many state authorities feel individuals that do not have many assets to protect should not pay for long-term care insurance. Others, wanting to minimize the state’s Medicaid budget, feel middle income people especially need long-term care coverage. Seldom are there any hard guidelines, although many states have implemented what they call “suitability” standards to help agents determine whether or not they should place a policy in the household. If there is danger that the applicant could only pay the premium on the policy for a few years before funds run out, it is probably best not to take a policy application. There is no point issuing a policy that will lapse in a few years because the money needed for the premiums has run out. That is precisely why many states want the agent to determine where the premium funds will originate from (yearly income, assets, or gifts from family members for example).
Consumers know they will die some day so they buy life insurance, but they cannot always believe they will end up in a nursing home (“my children will take care of me”). In fact, most people absolutely do not want to receive nursing home care; all the past bad press has made some actually fear going into a nursing home. Some individuals make their children promise they will never admit them to a nursing home because of this fear. Unfortunately, the children may attempt to keep this promise even when common sense later tells them the best place for the parent is in a nursing home. Children may feel it is a sign of their inadequacy to admit an ailing parent to a nursing home. Thankfully this attitude is changing as society recognizes the roll these institutions play in making the last years physically comfortable years, free from bed sores (a common ailment in home care patients), pain, and emotional disconnection.
For the first time we are seeing our federal and state governments promoting long-term care insurance. Why? Their Medicaid budgets cannot continue paying for the current quantity of long-term care costs. This involves more than nursing home care; care at home, in assisted living facilities and some types of community care will be paid for by Medicaid funds (which is really a different way of saying taxpayer’s dollars). They know these costs will greatly increase as the baby boom generation moves through retirement. As a result of this realization, Partnership long-term care plans are spreading across our nation as the individual states make the necessary legislative changes that will allow their state’s agents to sell these policies. Any long-term care policy will pay for long-term care costs, but only a Partnership LTC policy will also protect the individual’s acquired assets. Partnership plans protect only assets – never income.
An agent promoting long-term care coverage must know how to communicate the need for such coverage to their potential clients. Simply saying “you may someday require this care” is seldom good enough. Frankly, not every person should buy long-term care insurance. Certainly, those with assets to protect should consider buying a policy, but if the individual has too little income or assets to warrant the cost of LTC premiums, they may be wiser not to buy the coverage. The first step is always to look at the individual’s personal circumstances before making a buying decision. Each person must ask themselves this question: “What is my personal situation?”
The following questions should be answered prior to buying a long-term care policy:
It is always more exciting to buy a new car or a big screen television than a long-term care policy. We can wash our new car in the driveway, so the neighbors see it, or invite our buddies over to watch the game on the television. Few people will want to see our long-term care policy. Buying insurance just won’t make us feel the same way a new television will. Despite this fact, many of us need to buy the policy anyway.
Even if an individual has sufficient funds to purchase a policy, he or she may question whether they actually need to do so, especially if their current health is good. It is true that those who purchase a long-term care policy may not actually need to access benefits for as long as twenty years. A 60-year-old who buys a long-term care policy may not need the benefits it offers until they are 75 to 80 years old or more.
Let’s say a policy covering long-term care costs $5,000 per year for a policy that will pay benefits for five years. Over 20 years the insured would have paid out $100,000 in premiums. Obviously, that is a lot of money. However, considering it cost an average of $70,000 to $100,000 per year for care in a nursing home, it may still be a wise purchase. Medical care is rising faster than most other items we use every day so we can assume long-term care will be far more expensive in twenty years than it is today. Costs continue to rise, so it is likely that what costs $100,000 per year today will be costlier in ten years. Even if the insured saved the amount of the premiums rather than spending it elsewhere, he or she would not have enough to fund their long-term care admission. Most policies will not cost $5,000 per year if purchased at age 60 (the younger the applicant the lower the premium will be), but we used a high figure to cover any cost variances among the states.
Some people will remain healthy to their final day of life, but most will face declining health as they age. Some family history may give an idea of possible future medical problems, but scientists claim each of us could remain healthy into our eighties if we lived healthier lives. That means not smoking, not drinking alcohol excessively, eating a healthy diet (maintaining a healthy weight) and exercising regularly. Even if we live a healthy lifestyle, however, family health history is important. Such things as osteoporosis, arthritis and heart problems could place us in a nursing home for an extended period. Some types of health history suggest we are more likely to die suddenly rather than needing care for a long period of time.
Unfortunately, too many people react as Janet did – they do nothing. Even if the person decides they do not need to buy a long-term care policy it is important to act. That is, it is important to determine a plan of action if a long-term illness or injury occurs or if simple frailty takes over. Knowing what to do in case of this event is the first step. The second step is voicing the plan to those who would become in charge, usually one’s children. A child that is fully apprised of their parent’s choices will be far less stressed than a child who must make decisions on their parent’s behalf without knowing their preferences. If a long-term care policy is purchased all the policyholder’s children should be presented with a copy of the contract. By giving a copy to each child it allows all of them to be involved and may prevent one child from taking on the full responsibility. It may also mean that at least one of the children will know where to find the policy copy when benefits are needed.
An individual who chooses to do nothing about the possibility of a future long-term care requirement is relying on family members to make their decisions for them. They may also be relying upon their state of residence to make decisions on their behalf. According to Washington state’s brochure, Long-Term Care Options, about 70% of people over the age of 65 will need at least some type of long-term care services during their lifetime. Over 40% will need care in a nursing home for some period of time. There are some situations that increase the risk of needing long-term care, including age, marital status, gender, lifestyle and health history.
The older the age the more likely long-term care will be required, even if due to simple frailty associated with aging. At some point, we just aren’t as healthy as we were at younger ages. This is not news; we all know we can do less at age 40 than we could at age 20. By age 70 we cannot do what we could at age 40. We are probably still very healthy at age 40 but we also recognize the changes that time brings. By age 70 we are sure to have some health issues, even if only mild ones. Time brings change. We will become old; we may become frail as well.
Single people are more likely to be admitted to a long-term care facility than are married people. That is probably because those with a spouse have someone to care for them at home. That is a major reason why nursing home patients are primarily women; their husbands have died leaving them alone. Women tend to live longer than men; women also usually marry older men. As a result, we have more older single women than we do older single men.
It is no surprise that those with poor lifestyles are more likely to need long-term care services. People who exercise, watch their weight, do not smoke, and eat healthy will be less likely to need long-term care services simply because they are healthier individuals. Even healthy people will continue to age, however.
Many people assumed in the past that Medicare would pay their nursing home bills but most people now realize that is not the case. Medicare is designed to pay for hospital and doctor charges, not nursing homes or other long-term care facilities.
If an individual ends up applying to Medicaid for payment of long-term care services they must be prepared to hand over their assets. Medicaid will first require that all assets be “spent down.” This requirement is understandable; taxpayers should not be forced to pay the bills of anyone who has personal assets. Following the patient’s death, most states have estate recovery programs that require any estate assets pay back the costs paid by the state for long-term care services. The exception will be those who purchased and used a Partnership long-term care policy. The amount of benefits available in the policy will be exempted from state estate recovery programs. Estate recovery applies to assets owned by the patient or assets he or she had an interest in at the time of death. Generally, the states will not begin recovery efforts during the life of the surviving spouse, or while a surviving child is under age 21, blind or disabled. Hardship provisions may exist to protect dependent heirs as well.
No one likes paying insurance premiums, but we have to make buying decisions while our health is good enough to qualify based on underwriting requirements. This means considering such coverage prior to the existence of health issues that might disqualify an individual from receiving a long-term care policy. The initial cost is not set in stone; insurers may raise premium costs on long-term care policies as time goes by. Therefore, buyers must have sufficient assets or income to continue paying premiums for an extended period of time – perhaps even twenty years or more depending upon issue age.
No consumer should allow an agent to scare them into purchasing any type of policy, but the consumer should be aware of the potential cost involved if he or she does not own a long-term care insurance policy. It is important for the agent to communicate in layman’s terms what the policy will and will not pay for. What the contract will not cover is just as important to know as what will be paid for. Additionally, it is important, if an application is taken, to record all medical history. Agents should never imply that health history is not important on the application – it is! A third party to receive notices of an impending policy lapse is also important. As individuals age it is common to become forgetful. If the insured is ill it becomes especially important to pay insurance premiums. Choosing an individual who will understand the importance of the policy should be named to receive what is called a “third-party notification.” If the policy is in danger of lapsing due to nonpayment of premiums this assigned individual can step forward and make sure the premium is paid.
Our children have busy lives. Most of our daughters now have jobs outside of their homes. Our children no longer live next door or in the same community. As individuals age they are more likely to be on their own versus living within a child’s home, as once was common. Not everyone needs a long-term care policy, but everyone should understand how they work so an informed decision can be made.
Paying Out-of-Pocket
Some people have enough assets and income to cover their long-term care expenses without purchasing a long-term care policy. Usually these individuals planned ahead and may even have an employer sponsored pension plan. Men are more likely to have work-related income in retirement; women often did not have a specific career, working instead at various jobs that existed around their children’s lives and their husband’s careers.
A report titled Gender and Economic Security in Retirement by Sunwha Lee and Lois Shaw highlight the situation retired women find themselves in. The report examines the major sources of income for older Americans. The highlights of the report show:
As we know, America is a graying nation. By the year 2030, when the youngest members of the baby boom generation turn 65, 20 percent of our population will be at least 65 years old. In 2000, 65-plus ages represented 13% of the population. As our 65-plus segment increases more of the nation’s resources will be gobbled up by programs such as Medicaid as we attempt to care for or provide services for this age group. Most of the tax-based resources will go to women since they are the individuals most likely to need help. They may receive numerous types of help, including Medicaid, food stamps, subsidized housing, and area services provided by the communities.
As we have noted, there are significant differences between those who live with another person (typically a spouse) and those who live alone. Two incomes obviously make a difference even if the two incomes are comprised of Social Security benefits. Single men tend to live with a woman whereas single women often continue to live alone. Men do seem to remarry more often than women as well. Over three-quarters of men in their 50s through early 70s are married and over two-thirds of men 75 years or older are married. Only two-thirds of women aged 50-64 are married and just over half of women aged 65-74 are married. Only one-third of women aged 75 or older are married. Of course, much of this difference reflects the fact that men die earlier than women, leaving their spouses single. The longevity of men and women are coming closer together however. Even so, women still live longer than men.
While the differences between men and women are true for all racial and ethnic groups, there is one difference. Unmarried white men and women are more likely to live alone while unmarried minorities are more likely to live with other family members. Elderly minorities may even live with non-related individuals. It is impossible to make any firm statement regarding this difference since no research has been done to determine why this difference exists. Some researchers have suggested minorities may be more willing to pool their resources, which involves living with others. Women in general may need to consider pooling their resources, living together.
By age 65 both men and women rely heavily on Social Security income, even though it was always meant to subsidize what retirees provided for themselves. Unfortunately, too few retirees sufficiently plan for their retirements and they certainly have not planned for long-term medical needs. The majority of both men and women do not have an employer sponsored pension, yet they did little to create their own.
Every time some group or the government does a survey the majority of people still working say they will have enough money in retirement. Even when the lack of financial planning is pointed out to them, they still believe they will be okay. Financial planner and author, Suze Orman has said that after years of face-to-face consultations with women she has finally realized that women routinely hand over control of their financial futures to others (husbands and employers) when they would never give them control over other aspects of their lives. Of course, men also fail to plan ahead adequately but they are less likely to let another control their finances as women routinely do.
Women now make up almost half of America’s total workforce. Women’s income has improved over the last three decades (by 63%) but they are still poorly prepared for retirement and long-term medical requirements. In a Prudential poll, nearly 80 percent of women said they will have only Social Security in retirement because they had not planned ahead for retirement. This is not just a woman’s issue though. Men are just as likely to ignore their responsibility to adequately plan for a financially secure retirement. In the past men could rely on their employers to put aside retirement funds relieving them of this responsibility. That is no longer true.
As employers have realized that they cannot afford to support retirees who are now living many years longer than previously anticipated, all individuals must step up and make plans for the last years of their life; plans that include long-term care needs. For women, however, it has been traditional to let the men in their lives handle their money. Only in recent years have women had money of their own in the quantities that now exist through employment and other avenues. Today both men and women must plan for the final years of their life; they must have enough assets and non-earned income to pay for thirty or more years in retirement. An individual that retires at age 62, for example, may easily live to be 92 or more. Without even considering inflation that means retirement will require over a million dollars (based on $3,000 per month living expenses for thirty years). Since $3,000 per month income will not cover the cost of a nursing home, either a policy must be purchased, or assets must exist to cover this expense separately.
Ultimately, deciding for or against buying a long-term care insurance policy comes down to analyzing the risk involved. Will you end up needing care for a long period of time? Do you have enough assets or monthly income to cover the cost if that happens?
Most of us will not be able to financially fund the average three year stay in a nursing home. Most people will deplete all of their personal assets and then rely on Medicaid to pay their long-term care bills.
Analyzing the Risk
The word risk is used in multiple ways, depending upon the context of its application. In this case we are referring to the risk of needing long-term care services. Risk is used to imply uncertainty. For example, we are not certain we will need to enter a nursing home during retirement. We are not certain our children will be able to care for us if we require personal care, such as dressing, bathing, or help with meal preparation and eating.
Some risk authorities refer to objective risk and subjective risk. Objective risk may also be called statistical risk. Objective or statistical risk is defined as the relative variation of actual from probable or expected loss. Subjective risk is defined as a psychological uncertainty that stems from the individuals mental attitude or state of mind. Subjective risk may affect a decision when the decision-maker is interpreting objective risk (will I need a nursing home?). One person may believe the level of risk is high while another believes it is low. The different interpretations depend on the person’s attitudes and their degree of applicable knowledge. The role of the insurance agent is to supply enough information for the individual to come to a decision based on facts rather than emotions.
Objective risk is concerned with the range of variability of economic losses about some long-run average loss in a group large enough to significantly analyze a statistical outcome. This is what insurance companies do to determine what their probable losses will be with any given insurance contract.
When a person believes they have a risk of entering a nursing home or requiring some other type of long-term medical service, he or she is more likely to also believe they need protection, such as that provided by some type of insurance policy. Since we do not all believe we might need long-term care services, everyone does not buy this type of policy.
Many studies have been conducted to learn more about the factors that influence subjective risk. The change in individual decisions regarding risk resulting from group discussions is the subject of a large body of psychological studies. This should not be surprising considering the number of insurance companies that have a stake in this knowledge. Many industries consider this type of study important since it demonstrates how attitudes towards risk are formed and changed. These studies benefit more than insurance companies; industries that wish to minimize accidents use them to encourage workers to be safe on the job. The studies have shown that individuals recognize or at least assume there is more risk involved following group discussions. The studies have shown that age and gender influence risk attitudes, with women being more conservative than men and older people being more conservative than younger people. In other words, women and older individuals are more likely to believe such things as long-term illness pose a risk and should be covered by an insurance policy. The studies also demonstrate a tendency for people to over-estimate low risk and under-estimate high risk. In other words, we are an optimistic group of people who believe it will happen to the other guy, not us.
These studies have always been good news for the states that sell lottery tickets and the casinos that wish to attract gamblers. They show that the one in a million odds of winning will be disregarded by those who want to win the big pot of money. For example, if you tell your potential client that he has a one in six chance of entering a nursing home, he will then tell you he doesn’t need a nursing home policy since the odds are in his favor. Tell the same man he has a one in six chance of winning the state lottery (which is certainly not a true statistic) he will leave you in his dust as he runs to buy a bucket full of tickets. He does not want to enter a nursing home so he under-estimates his risk of entering a long-term care facility, but he does wish to become a millionaire so he over-estimates his chances of winning the big pot.
Objective risk varies according to the ratio of probable variation of actual from probable loss. Insurers use what is called the “law of large numbers” to assess their potential risk when issuing insurance policies. It is a basic law of mathematics that states as the number of exposure units increase, the more certain it is that actual loss experience will equal probable loss experience. The risk diminishes as the number of exposure units increases.
Insurers underwrite to avoid what is called “adverse selection.” There is a tendency for people to wait until their health deteriorates before they look for a long-term care policy. Insurers want to make a profit and wish to weed out undue risk for the company; that’s why they underwrite applications for coverage. Adverse selection is sometimes referred to as anti-selection. Insurers require a mix of policyholders; some will eventually require benefits but others will never collect benefits. The art of underwriting is to achieve this mix of policyholders.
Most Americans probably want to have healthcare to pay for their hospitalizations and doctor visits. There is no hesitation to go to the doctor if we feel sick or think we have broken a bone. However, when it comes to going to a nursing home we are reluctant. Stays in a nursing home facility are not considered the same as a hospital stay. It is likely that this has to do with accepting the final stages of our lives. We believe we may not come out of a nursing home while we expect to recover from a hospitalization. This attitude has hurt the long-term care insurance industry. It is possible that the newer assisted living facilities may help to change this attitude but for now agents selling long-term care policies must continue to educate their clients regarding the risk they face and the possibility of depleting a lifetime of acquired assets.
In Conclusion
It is interesting to look at who is most likely to purchase a long-term care policy. The Government Accountability Office (GAO) studied who will likely buy long-term care insurance when they were studying the viability of Partnership long-term care insurance plans. Their report expressed doubt that Partnership policies would relieve Medicaid of its long-term care payment burden, which was a major goal in the introduction of Partnership long-term care policies. The GAO felt that those who buy Partnership plans would have purchased a traditional nursing home policy anyway since their data indicated that buyers of long-term care insurance were financial thinkers. These individuals were accustomed to looking at risk and evaluating the best avenue for minimizing it. According to the GAO report, about 80 percent of surveyed Partnership policyholders stated they would have purchased traditional policies if the new Partnership plans had not been available. The other 20 percent had planned to self-finance, but the appearance of Partnership policies changed their minds in favor of buying these asset-protecting contracts. In other words, although they felt they had the ability to pay their own long-term care costs, they saw the financial value of buying a Partnership long-term care policy. There is not yet enough statistical data to determine whether these individuals could actually have self-financed (we don’t know if their assumptions that they could do so were correct). It is possible they would have used Medicaid funding because they under-estimated their risk of needing such care and what the care would have cost to acquire.
Some people have disputed some of GAO’s conclusions since the organization gathered their information from:
Some industry professionals have questioned whether surveying current policyholders gives a true picture of the actual benefits and shortcomings of Partnership legislation. A goal of lawmakers is to encourage policy purchase by those who would not otherwise have bought one, so surveying those who would have done so either way may not provide true results. Many people believe more would have been accomplished through extensive consumer education. Although there are funds for that purpose, insurance agents continue to be the major educator of Americans on the risks imposed by long-term care requirements.
It is going to take many years to accumulate accurate statistical information on Partnership and traditional long-term care sales, but the GAO felt establishment of the Partnership LTC program would not reduce Medicaid expenses to any real extent. The GAO felt the Partnership program would merely divert funds from traditional long-term care policy sales to Partnership policy sales. If this proves to be true it will be bad news for state Medicaid budgets. The states have perhaps the largest stake in the success of the new Partnership plans. States that participate and pass legislation allowing assets to be exempted from estate recovery processes to the extent of benefits purchased in Partnership long-term care plans are hoping this will reduce their Medicaid expenditures. If the result is merely a change from buying traditional to buying Partnership plans the state could actually end up losing rather than gaining ground.
No state was required to participate in the Partnership long-term care program. However, statistics that came from the states that did participate was likely used by the other states to determine if they wished to create a Partnership program or continue without one. Regulation of the insurance industry, including companies marketing long-term care insurance, is currently a state function, although some feel the federal government may eventually take over this job.
Whether or not Partnership plans increase the number of Americans that purchase insurance coverage for their long-term care medical needs will not be known for a number of years. We do already know that those who buy Partnership policies tend to be younger than the buyers of traditional long-term care policies, although no one knows why this occurs. We may never know if increased policy sales are the result of government consumer education programs or the result of diligent agents who market long-term care products effectively. We do know that every taxpayer also has a stake in the sale of insurance products that pay benefits for long-term care needs. It is our tax dollars that currently pay the majority of care for the elderly in institutionalized care programs, such as assisted living facilities and especially nursing homes. We also know that there may not be enough beds available in care facilities when the bulk of the baby boom generation hits the age of greatest need (in their eighties and nineties).
Since supply and demand determine cost, we can anticipate prices to rise dramatically over the next fifteen to twenty years (if nothing is done to increase availability). While it is illegal to give less care or inferior care to an individual on the basis of who pays the bills it seems reasonable that facilities will favor admission of those who can cover their own costs over those who must depend upon Medicaid. It is possible that future state legislation will require facilities to allot a certain percentage of their space to Medicaid patients, even though it is likely to mean reduced payments to the facility. If such legislation does not occur and there is a steady supply of applicants why would facilities want to admit those who will depend upon Medicaid for payment?
At this time there are many unanswered questions regarding the Partnership plans, but there are answers to some issues. We know a large percentage of aging people will need to use facilities of some kind; we know that most people have not adequately saved for this expense and will become impoverished within a year or two of beginning the care, whether for medical conditions or simply due to the frailty that comes with aging. We know that our children and grandchildren will be forced to pay the bills for those who did not plan responsibly through the taxes they pay. As more and more of our taxes care for the elderly, others will receive less Medicaid funding. Those most likely to suffer cutbacks in government help are poor children and single parents. In effect, the young will feel the effects of the elderly who were not responsible enough to either fund their final years through adequate saving and those who failed to purchase insurance to cover these costs.
There are no easy answers. Those already on retirement’s doorstep no longer have time to correct their financial errors. Some retirees thought they did adequately plan but failed to realize the impact long-term care needs would have on their financial well-being. As a society we have a social responsibility to our elderly, but we also have a responsibility to our young. Who do we help when there are limited tax dollars to disperse?
United Insurance Educators, Inc.
PO Box 1030
Eatonville, Washington 98328-8638
Websites:
www.uiece.com
Email: mail@uiece.com