In my last column, I focused on the importance of planning against the cost of a nursing home stay that statistically will be in the cards for over 70 percent of us here in the United States.This week, I want to construct a framework that allows you to create a Nursing Home Avoidance policy. Obviously, the good Lord above is our best hope for staying healthy and out of a nursing home. But how can you plan ahead to make sure that, if you do get sick, you will not have to go to a nursing home?
If you ask 100 people where they would like to receive care if they’re ever in need of skilled nursing attention, I assume 99 of them would choose their own home. To make sure that happens, you need to take a series of simple steps to protect yourself. Most health care providers and industry professionals will tell you that Medicare, for the most part, will not pay for any extended home care. Therefore, people are forced to go into a nursing home because that is the only place Medicaid or MassHealth will pay. Seems crazy, as home care is typically far less costly than a nursing home. But those are the rules we have to play by.
Not only is it more appealing to be in your own home during a recovery period, it makes it far easier for the family to be an active and caring part of the healing process. One fact I found startling was that of the 1.6 million people living in nursing homes in the U.S. right now, 33 percent suffer from some form of depression (according to the American Health Care Association and the American Association of Homes and Services for the Aging). Our homes are where we feel the safest and happiest. We will recover faster and be less likely affected by depression or other emotional issues. Since we can’t control what might happen to us physically, it makes sense to control how we pay for the care we need and the place where we’ll receive it.
Home care services include skilled and intermediate care, custodial care and homemaking services, as well as occupational and physical therapies. Most long-term care insurance policies include home care provisions – typically the number one reason people choose to purchase such a tool. As I mentioned in my last column, I hope your policy turns out to be a big waste but if you ever need it, you’ll be so glad you took the steps in advance.
One question I often hear regarding long term care insurance is, “What is the appropriate age to make such a purchase?” Although statistics show that most people will need this later in life, 41 percent of people residing in nursing homes right now are under the age of 65 (Georgetown University-Long Term Care Financing Project, June 2007). The right age to acquire LTCI is before something happens. You can only get insurance before something happens. It’s unlikely you can get a more comprehensive fire insurance policy while standing on your lawn watching your house burn.
People need to consider three factors before purchasing an LTCI policy. The first is their assets. Do I need a $150,000 automobile insurance policy if I drive a Yugo? No. You would only be creating a policy to cover the assets you intend to protect. If you don’t have a home, income or any type of investments, then the step off the curb onto Medicaid isn’t too much off a drop. Medicaid allows you to keep $2,000, but will make you spend all of your money before stepping in to foot the bill. Next, is your current health. Insurance companies will only issue you a policy if you are healthy. Seems obvious, but the only time I get a call from someone asking about purchasing LTCI is when they’ve heard something unfortunate from their doctor. Usually, that means it is too late. Health restrictions are getting tighter and tighter and if you battle weight issues, blood pressure problems or any type of arthritis, now is the time to look into this. The longer you wait, the less chance you have to get approved.
The last item to consider is your age. Simply put, the younger you are the less it costs. That rate will ideally be what you pay for the majority of the time you have the policy, assuming you select a company with a good track record of success. It also allows you more creative ways to pay for the premium, with the use of employee benefits or paid-up plans designed to take care of the whole balance in a 10-year period.
The easiest way to know if you are a candidate for LTCI is to imagine how you would pay for care if you needed it right now. If that cost was $12,000 per month, how much of your personal assets and income could you afford to put towards that price tag. Maybe $4,000? Then you would need a policy that covered the remaining $8,000. If you can afford more out of pocket, then the policy can and should be for less. This is why the very rich consider themselves bad candidates for LTCI, because if they get sick, their own assets can be spent on their care without impacting their lifestyle. However, for the average middle-class American, a $12,000 bill could be the difference between wealth and poverty.
The point is to keep you out of a nursing home by allowing you to create a plan that, in the event of an accident or illness, would keep you in your own home for as long as possible. Ask your financial professional about different cost-saving methods that could best cover you but not leave you “insurance poor.” Advisors are being more and more vigilant in their recommendations on this type of planning, as it has become an unfortunate truth that the children of people who have lost everything to a nursing home are taking legal action against the financial planner who failed to provide adequate protection. I always note in a client’s file if I suggest a long-term care health plan and the client rejects it. So, I can always go back to the kids and show them it was advised to their parents.
Long Term Care Insurance and planning is a difficult and annoying process. It costs money that we can always find reasons to use elsewhere and it can be the easiest thing to put off till a later date. But it may be one of the most important estate planning steps you ever take.
Chuck Nilosek is the host of Money Matters Radio on 96.9 Boston Talks, which airs Sundays at noon, and the owner of SHP Financial of Plymouth. Questions and comments can be directed to www.shpfinancial.com, 508-746-2400 or chuckn@shpne.com.
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