All Things Financial Planning Blog

Thinking Out Loud About Long Term Care

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A recent study released by Mutual of Omaha quotes the following statistics regarding Long Term …

  1. 75% of people over age 65 eventually need long term care
  2.  The average nursing home stay is 3 years
  3. 50% of people entering a care situation are penniless within one year
  4. 1 in 5 households provide long term care to someone over age 18
  5. The average cost of nursing home care is $80,650

With respect to those that purchased long term care policies the study found that …

  1. 55.1% of long term care policies were purchased by those between the ages of 55 to 64
  2. 88.3% of purchase decisions were motivated by planning for retirement or retiring

Some of the motivating factors the study found that led to the purchase decision were …

  1. Protect assets
  2. Avoid burdening family
  3. Ensure they receive care in a quality facility
  4. Ensure that they have options for care
  5. To Maintain personal dignity and independence
  6. Peace of mind …

IN reading through some of the study’s findings I hope that our blog readers might be able to gain some perspective for their own thinking on financially protecting themselves from a potential long term care need.

When thinking about where we might find coverage for that potential long term care need (expense), we should be reminded that Medicare does not provide for Long Term Care. Medicare pays only for medically necessary skilled nursing facility or home health care however you must meet certain conditions for Medicare to pay for these types of services. Generally, Medicare pays the full cost of care for NF services for up to 20 days per benefit period and partial costs for the remainder of 100 days when the client meets Medicare requirements.

TYPES OF POLICIES TO COVER LONG TERM CARE EXPENSES
Policies (insurance plans) that do cover long term care expenses come in all colors and flavors. There are:

  •  tax-qualified plans,
  • non-tax-qualified,
  • partnership plans, and
  • non-partnership plans.

There are also traditional life insurance and annuity policies being issued now from insurance companies that have Long Term Care riders. Additionally, existing life insurance may be used as a means of funding a long term care need. Choices and options for long term care coverage are plentiful and there are significant cost and benefit tradeoffs to any alternatives you may compare so do your homework so that you can make the optimum decision for you and your family.

TYPES OF CARE OR LEVELS OF CARE DEFINED FOR LONG TERM CARE
There are varying types of care depending on what kind of care you need, where you get the care, and where you live. There are policies that pay benefits out of a ‘pool’ of funds that pay you until that ‘pool of funds’ runs out of money irrespective of the years of benefit you had purchased.

TYPES OF BENEFIT PROVISIONS REGARDING PAYMENT FOR LONG TERM CARE EXPENSES
There are policies that start paying you (the elimination period) based on days you actually had ‘service care provided’ versus the calendar days that you are eligible for policy benefits (activities of daily living limited). This could potentially extend the elimination period way beyond the stated days of elimination you thought you had to wait for so you might want to consider the calendar day policy. There are reimbursement plans that pay the long term care expense, up to the daily limit, when the service is given. Conversely an indemnity plan pays the daily benefit whether or not a long term care expense is incurred that day or not. So you will pay more for an indemnity plan than the reimbursement plan. But some folks, maybe with faulty thinking, like the feature as a sort of ‘premium repayment’ benefit. I have to say, you always need to run the numbers but usually the old adage – ‘there’s no free lunch’ applies and in most cases I find it to be an expensive lunch!

CONCLUDING COMMENTS …
So needless to say there is a lot to consider regarding the long term care need and how to pay for it should it arise. A good reference site to begin educating yourself on Long Term Care can be found at the Medicare.gov website. Another government site is the Department of Health and Human Services National Clearinghouse for LTC information.

Individual long term care policy design is very versatile but you need to know what you are getting and what you are giving up in benefits and costs when tailoring a policy purchase for your family. Remember, too, that the long term care decision isn’t just about us, it is about those around us and the loved ones that care for us and making things as easy as possible for them should a long term care event arise.

David Bergmann, CFP®, EA, CLU, ChFC
Managing Principal
The David Bergmann Group
Marina Del Ray, CA

Author: David Bergmann, CFP®

ACADEMIA David has been an instructor in UCLA’s CFP Board Accredited Personal Financial Planning Certificate Program since 1995 and he is a member of the Program’s Academic Review Committee. David has taught both the Financial Analysis and Employee Benefits/Retirement Plan courses and regularly teaches the Federal Income Taxation in PFP class. He is also the instructor for the Ethics course and oversees the internship program. PROFESSIONAL CONTRIBUTIONS David has served as an editorial reviewer for the Journal of Financial Planning since the magazines inception. He has been a reviewer for the FPA’s Financial Planning Perspectives publications and other various National publications. David served from 1988 through 1990 as President of the Los Angeles Society of the Institute of Certified Financial Planners (ICFP). He also served on the National Board of the ICFP from 1988 through 1993 having chaired The Education, The Communications, The Regional Directors and The Case Law Oversight Committees as well as serving a year on the Executive Committee. David has been a mentor and since 2006 has been a Dean in the nationally recognized FPA’s Residency Program. PROFESSIONAL ACTIVITIES The David R. Bergmann Group is a comprehensive services firm supporting the work the firm does in, and with the process of, comprehensive Life Financial Planning. In our life financial planning process we focus on the client’s life goals and individual passions in the context of what brings joy, purpose, fulfillment and sense of valued legacy and then we structure their financial affairs and personal resources to enable, inspire and empower them to live their impassioned and fulfilled life. David was twice named as one of the Top 100 Financial Advisors in the country by Mutual Fund Magazine. He has appeared on CBS Nightly News and in many National print publications, including the Wall Street Journal, Investor’s Business Daily, Business Week, and others.

One thought on “Thinking Out Loud About Long Term Care

  1. Mr. Bergmann,
    You did a thorough, excellent review of long term care. I was looking over the website and came across it as an outsider. I am a LTC Specialist at Lockton Dunning Benefits in Dallas. I also noticed in another piece, your closing comment about large small businesses getting their plan into action for the healthcare reform timelines coming up (‘pay or play’ and exchanges). We are figuring that out for our clients and friends feverishly now. May I call you for advice about your organization of planners? Best regards, Amy Rickman, Dallas

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