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Long-term Care: Should You Bother? Douglas Carlsen, DDS

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by Douglas Carlsen, DDS

Dr. Bill and his wife, Carrie, always said their lives were blessed. Bill created a beautiful practice in the Pacific Northwest with both a long-term staff and loyal patients. In 2000, Bill retired at age 62. He and Carrie frequently hiked, fished and golfed. Bill worked part-time as a volunteer for the Forest Service while Carrie worked at a local hospital. They both dabbled in watercolors with the local art colony.

The couple was told they had more than enough money to enjoy an easy retirement. Bill retired right at the peak of the tech and stock market boom, and immediately turned to more conservative investments. Again, he felt blessed. Bill and Carrie had a great PPO medical plan through Carrie's job at the hospital, a financial portfolio that was safe from risk and a solid estate plan.

In 2002, Carrie began to have mild forgetfulness, having a little trouble with names and remembering recent activities. She and Bill attributed this to age-related memory change. Over the next year, the symptoms worsened to include forgetting how to accomplish simple tasks like brushing her hair and teeth. Carrie had Alzheimer's disease and needed full-time care.

At first, Bill was optimistic, knowing that Carrie would be afforded the best possible care. Her health plan did pay well for doctor visits and medications.

Soon, the dark side of retirement appeared.

Bill had thought about, but never purchased a long-term care policy. This lack of action eventually proved costly. Bill's health policy, like most, provided partial benefits for 90 days of skilled nursing care and 20 days of mental health inpatient care per year. However, by 2003, Carrie needed full-time skilled nursing care. Carrie's nursing home costs rose to well over $70,000 by 2005, even with assistance from their health insurance policy. These changes meant severe curtailing of personal expenses.

Many of us worry about another market decline like in 2008. What most of us don't realize is that a more ominous potential disaster lurks ahead. It is the coming crisis of longer lives and nursing home fees that could devour a lifetime's savings in less than 10 years.

Traditionally, Americans cared for the elderly at home. This still occurs, but at a significantly reduced rate than even 30 years ago. Advances in longevity and disease control have created a more sophisticated system that obviates the possibility in most cases that the elderly can be assisted and housed without professional care. This burden on our health-care system, our finances and our domestic lifestyle will only increase as we advance in age.

Table 1 shows some frightening statistics about care in the U.S. Genworth Financial also has a 2011 update with similar figures to MetLife's, yet with state-by-state rates.²



Using a rate of $230 per day for nursing home care, three years of care would cost $251,850, and 10 years would cost $839,500. No wonder Dr. Bill has a financial problem.

What is the government's role? Medicare pays for a limited number of days of skilled nursing care after hospitalization. It does not offer long-term custodial care. And there is no Medicare supplemental policy to cover custodial care. State Medicaid plans do cover custodial care for the impoverished, but only after most assets are gone, and in facilities where you would least want to be.

Traditional health-care plans don't offer long-term care policies.



Long-Term Care Insurance
When to buy: Analyze at age 60 or before, as many patients need care before age 65.

Levels of care: A policy should cover non-skilled, skilled and custodial care, either in your home, an assisted-living facility, adult day care center or nursing home. Make sure you have the home care option, even if it costs more.

Elimination period: 90 days is normal.

Benefit amount: At least $250 per day, $7,500 per month or $90,000 per year. As noted, rates are rising quite quickly – boomers born in 1950 will have $270,000 per year in nursing home fees at age 89 (see Table 2).

Length of benefit: The average benefit payment is for 2.4 years, yet Alzheimer's patients often require assistance for more than a decade. Policies offer varying lengths, yet I would recommend five years minimum.

Inflation protection: Get compound inflation protection, not simple inflation protection. Rates are rising rapidly, like any medical insurance. Consider a "guaranteed purchase option" also. This allows the later purchase of more insurance without a medical exam.

Spousal discounts: Domestic partners might qualify in some states. Ask about "survivor waiver of premium." This waives premiums for a surviving spouse if premiums have been paid for more than 10 years.

Care coordinators: Make sure this is offered in your policy. These professionals are a must in many instances, especially with family members living a distance away. The cost should be included in the benefits.

International coverage: If you plan to retire outside the U.S., definitely purchase this coverage.

Non-forfeiture benefit: If the insurance company raises premiums and you cannot afford to continue paying, you still might retain some benefit from the policy.

Cost: For the best information and a meaningful quote, go to the AARP Web site. Genworth Financial offers good plans at AARP and you can receive a quote without talking to an agent by visiting: longtermcare.genworth.com/SimpleEngine/private/ loginAARP.do.

A quote at Genworth for a 60-year-old with all the bells and whistles mentioned above for $250/day coverage is approximately $4,000 per person per year, $8,000 per couple. A 50-year-old couple can expect premiums of about 65 percent of a 60 year-old. A 70-year-old couple can expect rates about 65 percent higher than age 50, or about $13,000 per year.

Insurer: You will want to purchase coverage from a large company that has shown stability for the long term. Genworth Financial, through AARP, is the only company I recommend in 2011.

Self-funding
The average retired dental couple I talk to lives on an income of around $140,000 per year. If one needs nursing care that costs $85,000 per year, the other person can normally live on $107,240 (76.6 percent of $140,000).³ The couple's income need thus jumps to $192,240 ($85,000 + $107,240). If five years of care is needed, the extra living amount for two is $52,240 times five, or $261,200. For two people for five years, the need is $522,400.

The average doctor I encounter needs around $2 million for retirement, not including their home or long-term care insurance. Therefore, to self-insure, couples might need an extra half million dollars or more.

Combined Life and Long-term Care Policies
According to Terry Savage, financial columnist for the Chicago Sun-Times, "These policies are funded by a large, single- premium deposit into a life insurance policy. Typically the money comes from savings that you don't plan to use in your lifetime, but would otherwise leave to your heirs. If only some of the death benefit is used for care, the balance goes to your heirs.

"Buying one of these combo policies gives you leverage to get more long-term care coverage than simply self-insuring by keeping the money in savings."³

I'm normally not a fan of any life insurance policy that isn't term life. This is an appropriate exception.

OneAmerica, Lincoln National and Genworth all have good policies to investigate.

Final Thoughts
During the heyday of our professional lives, we concentrate our finances on homes, autos, travel, clothing, college for children and savings. In retirement, health issues not only occupy a large slice of time, but can also eat up most of our budgets. There isn't a happy ending for Dr. Bill, only the knowledge that his children now will help out both Carrie and Bill financially.

Terry Savage provides a meaningful discussion of long term care in her new book, The Savage Truth on Money, found at any bookseller.

References
  1. Market Survey of Long-Term Care Costs, MetLife, October 2010
  2. http://www.genworth.com/content/products/long_term_care/long_term_care/cost_of_care.html
  3. Terry Savage, "Combined life, long-term care policies," Chicago Sun-Times, downloaded Feb. 5, 2011 at www.suntimes.com/business/savage/3445374-452/care-insurance-policies-moneyterm. html
Author’s Bio
Douglas Carlsen, DDS, owner of Golich Carlsen, retired at age 53 from private practice and clinical lecturing at UCLA School of Dentistry. He writes and lectures nationally on financial topics from the point of view of one that was able to retire early on his own terms. Carlsen consults with dentists, CPAs and planners on business systems, personal finance and retirement scenarios. Visit his Web site: www.golichcarlsen.com; call 760-535-1621 or e-mail at drcarlsen@gmail.com.
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