Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker dealer, member of FINRA, SIPC, Investment Advisor Representative, Cambridge Investment Research Advisors Incorporated. A registered investment advisor, Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.
Amy Cavanaugh:
Good morning, and welcome to Financial Focus here on KROS. This is Amy Cavanaugh. I’ll be the host for the program this morning on this last Wednesday of the year that we will be having the Financial Focus program with Christmas next week and two weeks from today is New Year’s. So not only is this the last program of the year, it’s the last program of the decade, so time marches on. Today, I want to talk a bit about long-term care, the cost associated with long-term care, and some ways that we can fund our longterm care needs. As you know, at NelsonCorp we spend a lot of time working with clients to save for retirement or other things, whether that’s education or other financial goals but most of our clients, the goal is retirement savings to ensure a adequate income in retirement.
Amy Cavanaugh:
So now we get to retirement and we have a nice nest egg that we’ve saved and we want to protect it from depletion in the event of a long-term care stay or need. So the way I see it, we have three choices with respect to paying for long-term care. The three choices are being poor, being rich, or being insured. So it’s well known that the median age in the US society is climbing, thanks to medical advances and increased attention to nutrition and exercise. The mortality rate is declining and the average life span is longer than it used to be. This means that the age mix is gradually shifting upward. In fact, the number of the population that’s age 65 and older back in 2005 was 36.8 million and by 2030, the number of people age 65 and older is projected to be 71.5 million, so nearly doubled. Back in ’05 the 65 plus age population was about 12% of the population, while by 2030 it’s projected to be 20% of the population.
Amy Cavanaugh:
So the aging of America is of course causing considerable public concern. The longer people live, the greater the chance that they will become ill, suffer an injury, become mentally impaired or any combination of these and that can mean doctors and hospital care, but illness, injury and medical impairment can also result in the need for long-term care. So what exactly is meant by long-term care? Well, long-term care involves a number of services to help people with chronic conditions to compensate for limitations in their abilities to function independently. Those limitations can range from the strength to do housework or to prolonged physical illness, disability or maybe even a cognitive disorder such as Alzheimer’s disease. As a result, long-term care services may only consist as someone coming to clean your house or do the laundry, or it may require care by skilled medical personnel on a 24 hour a day basis in a nursing home and then all points in between those, a little bit of help at home or complete custodial care.
Amy Cavanaugh:
The New England Journal Of Medicine estimates that 43% of people who reach age 65 will require some kind of longterm care. The US Department of Commerce reports that 8.8 million Americans over 65 receive long-term care of some kind. Of those 8.8 million Americans, 1.3 are getting their care in nursing homes while the other 7.5 are getting some kind of home or community care. So if nursing home care is required, the average stay … I’m sorry, the average length in the nursing home stay is 456 days. Now this is somewhat deceptive, because over 50% of all nursing home patients stay for three months or less. This trend tends to pull less, average. Many people stay much longer than those 456 days. In fact, over 25% of patients stay for over a year. So we have a 43% chance that we will require care after age 65 and 25% of those who go into nursing homes stay for over a year. So those are statistics that get your attention.
Amy Cavanaugh:
How are we going to provide that care? Well, traditional family care tends to take a large portion of that, almost one fourth of American households, about 22 million families altogether, are providing informal unpaid care for an elderly relative or friend. The average caregiver provides 18 hours of assistance each week, while more than 4 million households provide at least 40 hours of assistance. Families that are involved in elder care spend about 2 billion of their own money on care that they give. Other choices of care, other than relying on family, would include independent living facilities, continued care retirement communities is another choice. Residential care facilities, those are often called assisted living. We have fraternal or religious homes, home health care, adult daycare and of course, nursing homes.
Amy Cavanaugh:
So let’s talk about the cost. Long-term care, no matter how or where it’s provided, can be expensive. Many people believe that all are part of long-term care services are paid for by Medicare. Well, except for in certain specialized situations that is not true. Medicare pays very little of long-term care, about 2% overall. When it does pay, it’s usually in the form of skilled care after a hospitalization stay of at least three days, I go to a skilled care facility and Medicare will pay for a certain number of days, but overall Medicare doesn’t generally pay for long-term care. Medicare supplement insurance will not pay for long-term care services either, except possibly very limited home health care, some assistance there. Medicaid, which is different than Medicare. Medicaid, which is a government welfare program for poor people, will pay for nursing home care and sometimes adult daycare, but only if the patient is almost penniless. These facts should be a bit alarming for people as they try to consider the possibility that someday they might need long-term care of some kind. The government is not likely to pay for long-term care unless less the individual can qualify for Medicare.
Amy Cavanaugh:
So nursing home costs probably receive the most attention when it comes to long-term care, even though more people receive long-term care at home than anywhere else. Nonetheless, there is a good chance that a person age 65 or older will spend some time in a nursing home, remember that number is 43%. According to a Genworth study, the national medium average cost of a year’s stay, a year’s stay in nursing home in 2017 was $85,000 for a semi-private room and more than $97,000 for a private room. Again, that is a annual cost. Nursing home costs can devastate the elderly. Over 80% of the elderly’s out of pocket medical care expenses go towards paying the cost of nursing home care.
Amy Cavanaugh:
In 2017, the average cost was $85,000 for a semi-private room. Consider the fact that the average medium household income for elderly Medicare beneficiaries is about $25,000. So if I’m on Medicare, my average income is about $25,000 and my average total wealth is about $110,000. So you can see how rapidly an elderly person could become impoverished by even a relatively brief stay in nursing home when the cost is $85,000 or maybe even more than that per year.
Amy Cavanaugh:
So let’s talk a bit about Medicaid. Each state establishes own limit on the income and the financial resource that a Medicaid recipient may have and still qualify for Medicaid. So now I don’t have enough money to pay on my own and so can I qualify for Medicaid? Well, that depends on the state and if the person has more than what they deem is allowed, they must spend down or exhaust their own income and resources, their savings, to the limit before Medicare becomes available. Some property and income may be kept and the spouse of a Medicare recipient is protected from total impoverishment, but they will have financial sacrifices and hardships if they’re trying to qualify for Medicare.
Amy Cavanaugh:
Medicare will pay for nursing home care even for long durations provide its requirements are continuously met, but patients must become impoverished in order to qualify. There’s several disadvantages to the process of Medicaid. First of all, many people are reluctant to ask for government aid. Secondly, impoverishment means depriving children or grandchildren of planned inheritances. Thirdly, choice of nursing home may be limited because not every nursing home accepts Medicaid patients.
Amy Cavanaugh:
What about if I can pay for my own long-term care? Well, it’s entirely possible that a person may be able to pay his own long-term care using savings, social security, pension and investments. This might be especially true if the person were singled or widowed. But even if a married couple will, the couple’s resources may be able to cover the long-term care, set you nursing home care and allow the spouse to live comfortably may not be possible. Again, our resources have to go to the spouse in the nursing home. Maybe the spouse at home will have to have some hardships or financial sacrifices. So again, I just want to reiterate that I see three choices. We can be being rich, paying our own way, being poor, going on Medicaid, or we could be insured.
Amy Cavanaugh:
So a quick review, the need for long-term care clearly exists. The need is going to intensify as time goes by and the government has not, and apparently will not, address the need fully. So there’s two methods of addressing long-term care that have been developed by the insurance industry. Long-term care policies, and living our accelerated benefits on life policies or annuity contracts. So how do I get a long-term care insurance policy? When should I consider purchasing it? Well, if I’m between the ages of 50 and 64 that’s the optimal time and the max issue age is usually 79 to 84 years of age, but of course because it’s an insurance policy, there will be underwriting and you’ll need to be insurable. More and more insurancers are issuing long-term care policies that use multiple rating structure as part of their underwriting process.
Amy Cavanaugh:
There’s a standard class, which is a normal risk for long-term care. Then there’s a sub-standard class, which would include those with serious ailments such as diabetes, heart or lung disease, or rheumatoid arthritis. Those individuals are more likely to require long-term care and therefore pay a higher premium, usually 50% more, and there may be a preferred class, which because of their good health, no smoking and good family history, maybe will get 5% discount. So as you can see, there’s a need, there’s ways to address it.
Amy Cavanaugh:
If you have further questions, please give me a call at NelsonCorp 242-9042, this is Amy Cavanaugh. you can also find us on our website at NelsonCorp.com and our email is found there if you want to give me a email. I would like to just wish everyone very Happy holidays, Merry Christmas and a safe and healthy happy New Year.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative, securities offered through Cambridge Investment Research Incorporated. A broker dealer member of FINRA, SIPC, Investment Advisor Representative, Cambridge Investment Research Advisors Incorporated. A registered investment advisor, Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice … visit our website at www.nelsoncorp.com.