If you’ve listened to Rajiv Nagaich from AgingOptions for any length of time, you’ve heard him say that the biggest financial risk seniors will face as we age is the uncovered cost of long-term health care. It’s a major expense that looms out there in the future for most of us, like a dark cloud on the distant horizon, yet many aging Americans simply choose to avoid the subject altogether.
But this is one of those times where ignorance is definitely not bliss. Moreover, as this recent article from CNBC tells us, there are ways to cover the cost of long-term care, provided that you plan ahead. The article does contain some actionable ideas – and we’ve added a few of our own at the end – but perhaps the most important thing an article like this can do is get people thinking about their health care future. You may want to share this article with parents or other aging loved ones who might be hesitant to discuss a very important but somewhat discomforting topic.
The article was written by CNBC reporter Deborah Nason.
People Want to Age In Place – but How?
Writing in her CNBC article, Nason cites some familiar statistics to make her point. “Some 70 percent of people want to age at home,” she writes, “yet only 10 percent have long-term care insurance, a recent HCG Secure/Arctos Foundation study found.” As if that lack of planning weren’t bad enough, Nason adds, “Furthermore, about half of respondents had no idea how much in-home care would cost.” This sounds like major denial to us.
The article cites the most recent data from Genworth which reports that “the median annual cost of a home health aide is nationally estimated at $61,776. With that cost continually escalating, the question must be asked: how are folks going to fund this?
Various Options in the Insurance Marketplace
Nason spoke with Massachusetts-based financial planner Chris Chen. “The need for help at home is much more common than you think,” he told Nason, “but people don’t plan for it.” For those with long-term care insurance, especially newer policies, home care is generally covered for qualifying beneficiaries. As for the rest, they’re largely on their own.
“People with long-term care insurance will usually have home health care covered under the same eligibility conditions as for long-term care facilities,” CNBC reports. This typically involves a patient’s inability to perform two of six so-called activities of daily living. (These are bathing, eating, toileting, dressing, continence, and transferring – moving, say, from a bed to a wheelchair.) Data from the Administration for Community Living says this situation typically lasts an average of two years.
Chen told Nason he recommends a segmented approach to his clients. “Basically, I try to segment the risk into a short-term need and a long-term need, and to fund them separately,” he said. “Where possible, I encourage people to buy LTC insurance for a short period of coverage, maybe a year. Then I encourage them to buy a hybrid life insurance to cover for longer periods.” He helps clients plan to devote some of their assets as needed to cover the differences in cost.
Middle Class Families Left Out of the Equation
As the article makes clear, middle-class families are caught in a particular bind when it comes to long-term care: they have too many assets to qualify for government aid such as Medicaid, but not enough to cover the costs on their own. Reporter Nason spoke to Tom Beauregard, founder of insurance company HCG Secure, who said there’s “a need for innovation in this space to cover middle-income families to age at home.”
As Beauregard observes, “For most people, it’s a blind spot — they [mistakenly] think home care will be covered by their [employee] insurance or Medicare,” he said. “And most of them can’t afford long-term care insurance.” In response, his firm recently launched a service called Home Care Secure, which CNBC describes as “an indemnity plan that pays cash on a weekly basis…to help with finding and scheduling in-home health aides, telehealth visits, etcetera.” (Unlike hybrid insurance products, an indemnity plan doesn’t retain cash value.)
Seniors Find Creative Ways to Fund Aging in Place
According to CNBC, there are many creative ways to fund part of the cost of home care as a way to make aging in place a reality. Taylor Kovar, a Texas-based wealth manager, told CNBC’s Nason that he has seen clients try several funding methods, including:
- Offering room and board in exchange for in-home assistance – an especially effective option if you live in a college town;
- Cost-sharing and splitting hours of caregivers and other helpers with a neighbor or relative;
- Investigating to see whether you might be entitled to any corporate retiree benefits, since some plans may help with costs of in-home care (note that this should include any benefits a senior might be entitled to from previous law enforcement or other public service employment);
- As Nason writes, “Researching local nonprofits that can help pay for in-home health care, going through state aging and disability resource centers, and sites such as the U.S. Administration on Aging’s Eldercare Locator.”
Veterans in particular may be able to access benefits. Scott Vance, a financial planner in North Carolina, specializes in working with military members and veterans. Vance told Nason that “the Department of Veterans Affairs offers eligible veterans many means-tested home care services, such as light housekeeping, laundering, meal prep, grocery shopping, transportation appointments and — in severe cases — bathing, toileting, eating, [and] dressing. In addition, so-called Aid and Attendance benefits provide monthly payments for qualified veterans and survivors.”
Rajiv’s Advice: Plan Ahead and Consider All Options
All the experts Nason spoke with for her CNBC article agree that advance planning is key. Home health care can certainly make a huge difference for people determined to age in place by keeping seniors healthier, helping with meals and medications, and avoiding all the health crises that can befall a frail person living alone. But covering the cost requires strategy.
“The sooner you start laying the groundwork for home care, the better,” says Rajiv. “One tool that CNBC doesn’t mention is the safe harbor trust, which allows one spouse to set aside assets when they die which can help provide care for the surviving spouse or partner. It’s a great way for one spouse to provide for another, and it can make the difference between getting the care your spouse needs and not getting it.” This is especially true if one goal is to qualify the surviving spouse for Medicaid benefits.
Another option which CNBC doesn’t mention is the home equity conversion mortgage, better known as a reverse mortgage, allowing qualified seniors to tap their home equity tax free and still remain in their home. “A reverse mortgage is definitely not for everybody,” Rajiv cautions, “but it could be an excellent solution for you. Give us a call at AgingOptions and let us explore some of these ideas with you.”
My Life, My Plan, My Way: Get Started on the Path to Retirement Success
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(originally reported at www.cnbc.com)