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Options to Afford Long-Term Care

According to findings, the US Department of Health and Human Services (HHS) estimates that approximately seventy percent of retirees in America will need long-term care (LTC), with median annual costs for these services ranging from $53,768 to $105,850 in 2020, according to research from Genworth. HHS also reports that those who receive Medicaid-financed nursing home care will spend more time in residence than those who self-finance their care or have private long-term care insurance. These long-term care services and supports (LTSS) are becoming more critical as retirees live longer lives and worry about outspending their assets.

The Dilemma of Affording for Long-term Care

Paying for long-term care planning remains a significant challenge for most older Americans and preparing for service payments can be tricky. LTC insurance may cover a portion of services or all of them, and premiums depend on a person’s age, gender, health, location, and other criteria. The American Association of Long-Term Care Insurance lists 2021 average premiums for initial benefits of $165,000 (with a 1 to 5 percent annual growth rate) for a healthy fifty-five-year-old male to be between $1,375 to $3,685 per year. For the same coverage type, a healthy fifty-five-year-old woman can expect to pay between $2,150 to $6,400. Premium hikes tend to be costly because metrics used years ago in the insurance industry were faulty and did not accurately project the real LTSS costs.

What is Hybrid Long-term Care Coverage?

A different payment option is hybrid long-term care coverage. These policies are part annuity or life insurance and part long-term care coverage. You may purchase a policy upfront eliminating any future risk of premium increases, and your heirs may receive a death benefit if you do not need long-term care. This option is an arbitrage approach hoping that you will not require LTSS and that your heirs may benefit. Hybrid policy price comparisons are more difficult to ascertain than a standalone long-term care coverage policy.

How to Utilize a Health Savings Account to Pay for Long-term Care

A third option is for those retirees with sizable health savings accounts to use pre-tax funds to cover long-term care expenses or premiums. Currently, those itemizing deductions can write off long-term care expenses above 7.5 percent of their adjusted gross income on their taxes. Finally, those low-income retirees with assets below a certain threshold may qualify for Medicaid LTSS. Applicants must pass a five-year “look back” period to assure they did not gift or spend down assets to qualify. If you think you may qualify, take this Medicaid eligibility test.

Typically, family members play an important caregiver role in their loved ones who need help regarding activities of daily living. This statement is particularly true in the earlier stages of requiring care, where someone may need help with just one activity of daily living. In-home assistance, community programs, and residential facilities can help your loved one stay as active as possible, accomplishing everyday tasks. The family-style approach constitutes most living arrangements for those who receive long-term care.

HHS

Many available resources help older adults continue to reside in-home and participate in their communities. The stay-at-home option in the earlier stages of a significant long-term need, or if projected care requirements may be a matter of two to three months, may be the most viable and cost-effective solution. Pivoting to in-home service provision is the most likely scenario for most American retirees. Nursing home residential space is expensive, and Medicaid can only supply so much aid. While most LTSS stays remain paid care and have relatively short durations, the lifetime risk for expensive out-of-pocket costs runs high.

Unfortunately, receiving paid LTSS care is not equally distributed among the US population. Generally, people with limited education and less financial resources are the most likely to experience severe LTSS needs. Over a lifetime, however, the more well-educated population with different socioeconomic advantages tend to live longer and can outlive their assets. Family is an integral part of the solution for long-term care while the federal government responds to the growing need to make this care more available and affordable. For your best outcome, be proactive in your planning. Most Americans will need LTSS, but few will have taken steps to plan for it. Please contact our Ruston, LA office by calling us at (318) 255-1760 or schedule an appointment to discuss how we can help with your long-term care needs.

 

Understanding the Coming Collapse of Long-term Care Insurance

Routine estimates predict that about 50 percent of older adults will require long-term care at some stage of their lives. If you are an adult 65 or more, the percentage moves up to 70 percent. However, the demand for long-term care far outnumbers an affordable or even existing supply. For years the private sector long-term care insurers have been fleeing the marketplace. Americans who currently carry long-term care insurance are a small fraction, about 7 percent, adults over 50 years of age. There is a private sector inability to meet Americans’ overwhelming long-term care needs at an affordable price. The US healthcare system’s long-term care options are rapidly faltering as it is impossibly expensive, inefficient, and a poor performer for both seniors and industry.

Long-term care provides a broad array of supports and services to elderly patients and the disabled in daily life activities. These activities include bathing, toileting, dressing, transferring, and eating. Long-term care is also support for patients who have Alzheimer’s, dementia, diabetes, and other chronic conditions. Providers of long-term care operate in nursing homes, assisted living facilities, and private homes. Fewer than one in thirty Americans own a long-term care (LTC) insurance policy, and only about seven percent are adults are over the age of 50. Despite the aging US population, the raw figure of 7.5 million LTC insured has barely moved since 2008. According to prospect.org, these statistics come as no surprise as LTC insurance premiums keep increasing while average policy benefits decrease, as shown below.

When long-term care became part of the health care insurance industry in the 1970s, there was a wild mispricing error due to poor actuaries, which severely underestimated the cost of such plans. Subsequently, some insurers have abandoned the market altogether. In the year 2000, there were 100 policy providers; there are fewer than a dozen today, and it is harder than ever to become qualified. Insurers strain to deny policy applications to as many people as possible.

The American Association for Long-Term Care Insurance (AALTCI) finds that between 44 to 51.5 percent of applicants aged 70 or more are declined coverage. Nearly one-third of adults between 60 and 65 are refused. Even those in their 50s experience a 21 percent rate of application refusal. Rejection is prevalent because any combination of two or more chronic conditions is a basis for near-automatic disqualification. Certain diseases are also grounds for denial, such as AIDS, diabetes requiring insulin shots, stroke history, and multiple sclerosis, to name a few.

Despite large premium increases and increasingly difficult qualifications, long-term care claim losses still exceed expectations and have since 2008. Under current market conditions, insurers find it impossible to structure a profitable long-term care program. Moreover, many insurance coverages for the senior living industry are experiencing increases in their rates and premiums. Some insurance brokers report that even accounts with a clean loss history are experiencing premium increases at a minimum of 12 to 15 percent. Additionally, in the next year to two years, assisted facilities’ insurance costs could double or triple. Average policy benefit payouts will find it difficult to address the future long-term care needs. Carriers are consolidating to remain profitable, but this is shrinking senior living market coverage. Facilities have fewer options, and remaining insurance carriers increase premiums as they continue to restrict coverages and limits. The situation is bad news for seniors and near seniors, as rising business costs are generally passed on to the consumer.

Elements of sticker shock, denial of need, and wishful thinking keep most Americans from purchasing a long-term care plan even though they will most likely need one in their later years. Meanwhile, private long-term care insurance is in jeopardy as a result of industry non-profitability. Even with critical needs, without government intervention, there is a looming collapse of the long-term care insurance market.

If you are concerned about how you or a loved one will pay for long-term care, we can help. Contact us to set up a time to discuss planning opportunities that may be available to help lessen the financial burden of long-term care.  Please contact our Ruston, LA office by calling us at (318) 255-1760 or schedule an appointment to discuss how we can help with your long-term care needs.