Recently in long term care Category

May 25, 2009

What Does A Good Long-Term Care Policy Look Like?

In the last few years, many insurance companies have improved their long-term care policies. But, as with any consumer product, some are better than others. Here's a list of things to keep in mind when you're looking into long-term care insurance:

  • Consider policies from good-sized, reputable companies rated AAA by Standard & Poor's or Moody's, or A+ by Best Insurance Reports. Many small companies that issue long-term care policies are poorly funded and at risk of cashing in their chips before you do, so make sure you've picked a solid insurer.
  • Be sure that the daily benefit the policy pays enough to provide decent care when combined with your Social Security and other income. For many people, this will cost at least $120-$150 per day. Also, look for a policy where the benefit amount increases with inflation. Given fast-rising costs in this area, many experts consider a 5% annual inflation escalator to be on the low side.
  • Realize that many policies limit the length of coverage to about three years, unless you choose to pay outsized premiums for unlimited coverage. Be sure you know what you're buying. Unfortunately, lots of people buy policies that cover a relatively few number of years -- precisely the period they would do better to self-insure.
  • Try to make sure you know how much premiums will cost in future years before you buy your plan. Or, put another way, decide on one of the relatively few policies that will absolutely guarantee the amount of your yearly premium. Beware of policies that will only say rates will not change with age or health -- many companies simply raise rates for all policy holders, claiming that the increase is to cover higher than expected costs.
  • Understand that policies have widely varying non-coverage periods. For example, a more expensive policy may provide that you only need be in a nursing home for 20 days before coverage kicks in; a less expensive one may require 100 days or more before the policy pays benefits. For most people, the 100-day or longer period may be worth considering if the cost is sufficiently lower.
  • Carefully read fine print regarding home health care. For people with serious medical conditions requiring round-the-clock care, home-based care can be as expensive as a nursing home. Some policies that are advertised as providing home health care simply limit the amount of care provided to an unrealistically low level, and even how much services can cost, effectively guaranteeing that an inadequate level of care will be provided by people with limited skills.
  • Just being elderly and infirm isn't enough to qualify for long-term insurance benefits, which helps explain why the majority of people living in elder communities and assisted living facilities aren't eligible for any benefits. In short, make sure you understand what medical condition will trigger the payment of benefits. Most policies won't pay unless you meet one of two main criteria: Either you're unable to perform two (or -- with the poorer policies -- three) activities of daily living, such as eating, bathing, using the toilet, moving about, and maintaining continence; or you have serious mental or cognitive impairment, such as that caused by Alzheimer's, dementia, or other disease.
  • Check the periodic ratings published by Consumer Reports magazine, which take into consideration many important issues. Back issues of the magazine, along with a comprehensive subject matter index, are available at many public libraries.
May 21, 2009

Is Long-Term Care Insurance A Good Value?

Even though it's possible to significantly reduce the chances you'll eventually need long-term institutionalized care, as discussed in this previous entry, you can't eliminate the possibility. And given the high cost of an extended stay in a nursing facility, doesn't it follow that buying insurance makes sense?

For the poor and affluent the answer is clearly no, albeit for different reasons. But for middle- income people, depending on several factors -- most importantly whether they are single or coupled -- the answer may be yes.

First, let's consider people with low to lower-middle incomes and savings levels. Given that the premium for a care policy with even mid-level benefits can cost over $1,000 annually at age 55, and upwards of $2,000 at 65, people in this group simply can't afford it.

In my view, it's better to spend the money affording a decent life now, relying on Medicaid to cover care costs later should they turn out to be necessary.

The affluent should usually say no to long-term care insurance for a different reason. Given that the majority of seniors will never enter a nursing home and of those who do, only 25% will stay more than a year, simply paying the cost out of pocket is likely to end up being less than 30 years of premiums which, of course,could otherwise be invested.

And even if an affluent person spends two or three years in a nursing facility, it won't be a financial disaster, since Social Security and other income will cover part of the cost, and receipts from the sale of the person's house or condo will easily cover the rest.

But long-term care insurance can make more sense for middle-income Americans with moderate savings, especially single people. The fact of being single is important since it raises the odds of needing long-term care. That's because, with a couple, when the first spouse begins to need help, the other often provides it at home.

And single or married, middle-income Americans with savings in the $200,000 to $400,000 range may want to purchase long-term care insurance for economic reasons. On the one hand, provided you're willing to scrimp a little. And on the other, should one or both members of a couple be unlucky enough to be in the small group who needs institutionalized care for many years, the money will be there to provide it.

In my next post, I'll discuss what kind of policy, assuming you are interested in looking into the purchase of long-term care insurance.
April 24, 2009

Budget-Busting Long-Term Care: Is It Inevitable?

The high cost of long-term health care will drag down the quality of life for nearly two-thirds of today's retirees, predicts the Center for Retirement Research at Babson College, as reported by David Pitt in the recent AP story "Retirees ill prepared for the long-term costs".

The article, like many of its type, then goes on to present a mix of horror stories about at-risk seniors unable to afford the care they'll inevitably need, along with scary statistics about how expensive it is to purchase long-term care insurance.

Too bad there isn't a word about the many low-cost steps people can take to greatly decrease the likelihood that they'll need long-term care in the first place. For example, many of us fear that diseases of the brain like Alzheimer's will sentence us to spend our last years in a nursing home. Actually, it is far more likely that we will be institutionalized because of broken bones -- most commonly, hip fractures. Most of these injuries are the result of bone loss or osteoporosis.

Twenty-five million Americans, 80% of them women, suffer from osteoporosis. This horribly debilitating disease results in well over a million annual skeletal fractures of which as many as a third are hip fractures. The good news is that osteoporosis -- and the height loss, pain and high risk of bone fracture it causes -- can largely be prevented. The keys are to get enough vitamin D and calcium daily and to engage in regular weight-bearing exercise.

Type 2 diabetes is a second huge and highly preventable condition that in all its unhappy manifestations, such as increased risk of heart attack and stroke, results in millions of people needing long-term care. And as you probably know, sedentary, obese people are at much higher risk of developing Type 2 diabetes in mid- or later-life than are adults who maintain a healthy weight, exercise daily, and eat sensibly.

Finally, as anyone who has ever spent time in a care facility knows, depression is yet another reason why older people can no longer function independently. And while depression can affect anyone, health professionals have known for years that people who exercise regularly and vigorously are less likely to be depressed than are those who are sedentary. At least part of the explanation seems to be that exercise, like Prozac and other anti-depressant drugs, releases the brain chemical serotonin, a natural mood elevator.

So think about it: If frequent exercise and a good diet can greatly reduce the need for long-term care by at least 50%, doesn't it make far more sense to head for the gym than it does to turn on the T.V. and listen to yet another news item about how you're likely to spend years in a poverty-level nursing home?

Still, you might be thinking, "What about buying long-term care insurance?" I'll discuss that one in my next post.
March 20, 2009

Post-Retirement Income (Part 2): Finding Your Figure

Okay, as discussed in Part 1 of this series, if the 80% rule is nonsense, how can you arrive at a reliable dollar figure for the amount of current income you'll need to replace after retirement?

Start with what you know rather than guesstimates about the future, which, like most fantasies, are unlikely to have much of a relationship to reality anyway. Ask yourself: How is my financial health today? If you're currently living within your income and possibly saving a little to boot, you have a good start for estimating how much income you'll need to maintain a similar lifestyle after retirement.

Now it's time to subtract the current expenses that will diminish or disappear later. In Part 1 of this exercise, I pointed out that for many people who no longer need to pay a mortgage or bear the costs of raising children, they'll enjoy the largest post-retirement savings, together often netting at least 40% -- and often more.

And, unless you're a shopaholic for whom more free time necessarily means more spending, there are a whole host of other possible savings. The most obvious are related to the job you no longer need to perform -- for many people, the top of the list is the cost of commuting, followed by work-related clothing and food. For example, a woman who drives 20 miles to work, maintains a wardrobe of business-appropriate clothes, and buys lunch and coffee now and then can easily save five thousand dollars per year simply by staying home!

Many other potential post-retirement savings fit into what I call the "time is money" category. The equation is simple: The more free time you have, the easier it is to maintain an equivalent lifestyle at a lower cost. For example, instead of patronizing the pricey but convenient corner store, you'll have plenty of time for a once-weekly trip to Costco. And when it comes to taking a vacation, you'll now be able to travel at off-peak times, taking advantage of significant savings in transportation and lodging.

But what about the so-called retirement experts who, to quote the Associated Press reporter Dave Carpenter in his recent article "Retirement: Test Your Financial Planning IQ", say that "people tend to spend more money when they have more time." Perhaps, if we remember that these are the same retirement experts, for the most part, who recommended buying mutual funds when the DOW was over 13,000, we can put their "you can never save enough" advice into perspective.

Finally, don't forget the savings you'll achieve by taking advantage of senior discounts. For example, an excellent public golf course near me lets seniors play as much as they want on weekdays for $80 per month. And the local rapid transit systems discount senior fares by up to 70%. And then, of course, there are America's national parks which offer free admission to those over 60.

But what about medical costs and other things that may be more costly after you retire? Medicare will cover most of these costs, but especially if you have or develop a chronic illness, you'll be out of pocket some cash, either by paying for a medi-gap insurance policy or directly for uncovered fees and drugs. If you are reasonably healthy and do the kinds of things necessary to stay that way, you might sensibly guess that adding back a few thousand dollars per year makes sense. And, for anyone who feels the need to be more precise, I recommend Social Security, Medicare & Government Pensions, by Joseph Matthews (Nolo), which will provide the tools you need to make a far more accurate estimate.

In Part 3 of this series, I'll discuss the final big piece of your retirement spending conundrum: how your spending patterns will change as you age.
November 24, 2008

Grandparents in the Backyard

With the free fall of the stock market and the erosion of house prices, it's hardly a secret that many thousands of older Americans have taken a big financial haircut -- some so big that in many cases the option of living for many years in a pricey assisted living facility is no longer possible.

But for reasons of health, loneliness, or finances many older Americans cannot practically live on their own. Enter the Amish concept of the Groosdaads Haus, often a small bungalow built next to the big family house to which older Amish family members move at the start of what non-Amish might call their retirement years. But since the Amish stay active around the farm and in helping their grandkids until extreme old age, it must be understood that for them, "retirement" is a relative term.

For many non-Amish families facing a severe economic crisis, I believe the Amish system of living close to one another, but at the same time maintaining a substantial degree of privacy, offers many hopeful lessons. Not only does this allow families to share expenses but also to be well-positioned to help each other in myriad ways, small and not-so-small.

Marilyn Gardner of the Christian Science Monitor quotes Tim Spatola, a recent widower, as having preferred to move in with his daughter, son-in-law and their six children as opposed to going to an expensive retirement community. But from both his and his son-in-law's points of view, the key to the arrangement's success was that Mr. Spatola paid to add an addition to the house so as to preserve the younger generations' independence and privacy.

Unfortunately, most contemporary American houses are not designed so that older folks can easily move close, but not in, as the Amish do. But since I believe that maintaining privacy and independence are huge keys to successful, long-term intergenerational arrangements, I suggest that like Mr. Spatola and the Amish, it makes sense for families to first build on (or remodel) or, if necessary, move to a house with an existing in-law unit, and only then welcome Grandpa and Grandma. Adding a room or two with a separate entrance, converting a garage, and yes, in some cases, even building a cottage in the backyard can keep many families happily and affordably together.