Develop a plan to pay for long-term care: insurance and other alternatives

Nearly three-quarters — 70 percent — of people who turn 65 will need long-term care during their lifetime, according to a report from the Urban Institute and the Department of Health and Human Services. The question of how to pay for this care worries many families.

Stacey Hachenberg, 58, and her partner Sharon Fleming, 53, have been caring for their parents for several years. Hachenberg’s father died in April after staying in an assisted living facility for two years. While she coordinated his care, the cost was covered by her savings, pension and veterans benefits.

“It took about a year to get those benefits,” Hachenberg said, even with the facility’s help navigating the Veterans Affairs application process.

“If we hadn’t had a little bit of money in my father’s savings, we would have been in trouble,” she said.

Understanding what benefits you receive or may be eligible for is a critical part of planning for long-term care, financial advisors say. Determining where you want to receive long-term care, who your caregiver will be and how you will pay for care should be part of the planning process, said certified financial planner Marguerita Cheng, CEO and founder of Blue Ocean Global Wealth. in Gaithersburg, Maryland.

“Long-term care insurance can be helpful because it allows you to transfer some of the risk,” said Cheng, a member of CNBC’s Financial Advisory Council.

Long-term care insurance generally covers care if you have a chronic illness, dementia, or severe cognitive decline, or if you cannot perform at least two of six “activities of daily living” without assistance. : bathing, managing incontinence, dressing, eating, getting on or off the toilet or getting in or out of a bed or chair.

Fleming said his mother, Toni Arfa, suffered from Alzheimer’s disease and is now in an assisted living facility that costs about $8,000 a month. “She doesn’t need trained nurses. She just needs to be safe,” Fleming said.

Arfa is not eligible for veterans benefits and never had long-term care insurance, so his savings cover the cost, Fleming said. She thinks her mother can pay for about two more years of care before she runs out of money.

“So my brother and I will have to help her, or she will have to go to another facility,” she said.

Most Americans end up paying for long-term care by depleting their savings and other assets, experts say. Medicaid will fund long-term care, but it only applies to people with few assets and limited income.

Fleming and Hachenberg are now considering purchasing long-term care insurance themselves. They don’t want to become a burden on their adult children, they said, but it’s difficult to afford the high cost of insurance. “It’s like having a car payment, without the car,” Fleming said.

Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center who also works on long-term care issues for the Urban Institute’s retirement policy program, said the problem is that many companies have mispriced these insurance policies years ago and lost money on them – so long-term care coverage is not as generous now and rates are higher.

Insurers are “very afraid of what they call tail risk, which is people who need care for a very long period of time,” Gleckman said. “It’s really expensive for them.”

It is also costly for consumers.

Premiums for a healthy 55-year-old woman can range from $1,500 to $7,000 a year, depending on benefits, according to the American Association for Long-Term Care Insurance. If healthy at that age, the average cost is about $3,700 per year for a benefit that increases by 3% per year and would result in a benefit of about $400,000 at age 85.

Premiums are generally lower for men because they live shorter lives and are less likely to receive benefits. For both men and women, as they age, the cost of premiums increases and it becomes more difficult to qualify.

For comparison, a 60-year-old woman would pay $4,400 in annual premiums for a benefit that increases 3 percent per year and would take home about $345,500 at age 85, according to AALTCI figures.

“We are both very aware that long-term care insurance would be a very wise investment at this time. Not just for us, but for our children,” Hachenberg said.

Fleming’s daughter, Alexa, is a financial advisor and helps them consider their options.

“It’s important to be comfortable with the facility you’re moving into, to feel safe, accepted and supported,” said Alexa Fleming. “If you don’t have the funds to do that, it’s not going to be a great end-of-life experience for you.”

Cheng said there are two important considerations to make when shopping for long-term care insurance:

1. Does the contract cover home care?
2. Is there “inflation protection”, i.e. does the per diem increase as the cost of living increases?

“You want to make sure you’re not skimping on home care or inflation, even if that means you have to get a lower benefit” to cover the cost of care, Cheng said.

According to LIMRA, a life insurance industry research group, only 3 to 4 percent of Americans have long-term care insurance. Many companies stopped selling stand-alone long-term care insurance policies as risk increased and many consumers saw price increases on older, inflation-adjusted insurance policies.

“It’s a classic market failure,” Gleckman said. “People don’t want to buy it and insurance companies don’t want to sell it.”

Hybrid policies, such as life insurance or annuities with long-term care benefits, are alternatives to traditional, stand-alone long-term care insurance.

You can also increase your savings in a tax-advantaged health savings account or high-yield savings account to pay for your care over time.

“Don’t think that traditional long-term care policies, if they give you a bad taste, (are) the only option,” Cheng said. “It’s really important to take a measured and tailored approach, whatever you do.”

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