We’d all been waiting for the big day, but the chapel the ceremony took place in was very small—just a room with Christian symbols and a few chairs. Jo’s father was waiting for us in his hospital bed, grinning from ear to ear. Despite the feeding tube, he still managed to devour a few bites of our wedding cake. Parkinson’s is a powerful disease; it can take the sturdiest tree in the forest and wilt it like an aging rose.
Yes, Jo and I got married in a nursing home chapel. Little did we know that we would spend the better part of the first 18 years of our marriage dealing with nursing homes and assisted-living facilities for both sets of parents.
Constant care is expensive. Jo’s father didn’t have long-term care insurance, and in 1988 his care cost close to $3,000 per month. Fortunately, he and my mother-in-law had the money to pay for it.
It’s frightening to imagine a time when you can no longer bathe, dress, eat, transport yourself, or hold your bladder and bowels. In insurance-speak, those are called “activities of daily living” (ADLs). Mercifully, not everyone reaches that point. However, two out of three Americans over age 65 will need some form of long-term care during their lifetime. That might mean home health care or moving to an assisted-living facility or a nursing home. Regardless, it’s pricey.
Nationwide, the average cost of a single-occupancy room in a nursing home is $6,653 per month. Home care averages $3,432 per month; assisted living, 3,300; and adult day care (which sounds just awful), $1,322.
Years of paying those costs can spell financial ruin for an aging couple—the surviving spouse in particular. My aunt spent close to 10 years in a nursing home with Alzheimer’s disease before she passed away. Her long stint is not at all unusual. While most patients live an average of 4-8 years after an Alzheimer’s diagnosis, many live as long as 20.
Medicaid Is Not the Solution
While Medicaid will pick up the tab for lower-income people, the income and asset limits to qualify are quite stringent. While the rules vary from state to state, a helpful rule of thumb is that an individual must make less than 300% of the Supplemental Security Income limit, or $2,130 in 2013, and have less than $2,000 in countable assets to qualify. Although your home (up to a certain amount of equity) is not normally a countable asset, many if not most of our readers don’t fall in this camp.
After a recent chat on long-term care insurance with financial guru David Holland on his radio show, David told me anyone choosing to self-insure should have at least $2 million in liquid assets. Even then, it’s risky. One of my biggest fears is needing long-term care, having the ability to pay for it, depleting our assets, and leaving Jo flat broke.
So where does that leave people unlikely to qualify for Medicaid but unable or unwilling to self-insure? Long-term care insurance, of course.
Opt for the 180-Day Elimination Period
Buying any type of insurance means transferring some type of personal risk to an insurance carrier. Clearly defining the risk you want to transfer and then tailoring a policy to best accomplish that goal is critical to getting the best value.
David Holland generously shared some quotes to help illustrate this point. While there are countless long-term care options available today, we’re going to keep this example simple.
Mary Sample is age 65. She wants a policy paying $150 in daily coverage with some inflation protection.
|Benefit Selection||Quotation 1||Quotation 2||Quotation 3|
|Name||Mary Sample||Mary Sample||Mary Sample|
|Benefit Amount||$150* daily||$200* daily||$170* daily|
|Benefit Period||3 years||3 years||6 years|
|Elimination Period||30 days||180 days||180 days|
|Inflation Option||5% compounded||5% compounded||5% compounded|
|Home Care Benefit||$4,500||$6,000||$5,100|
|*Subject to inflation increase|
Many advisors would recommend the first policy with the 30-day elimination period, because you might not require care for long periods of time. The 180-day elimination period means you pay for an additional 150 days out of pocket before the insurance company kicks in. The additional cost is $22,500 (150 days x $150/day), and many argue it’s a poor investment because the probability of needing care for three years or longer is small.
On the other hand, the 180-day elimination period (quotes #2 and #3) gives you a lot more coverage for the same premium. In effect, #2 and #3 cost $22,500 more out of pocket in exchange for $54,750 or $208,050 in additional coverage.
The only way to turn the policy premium and additional out-of-pocket costs into a good investment is to require expensive, long-term care. Most of us would prefer to never have to collect a dime. Families with a member requiring years of expensive care would tell you it was one of the best investments they ever made. But insurance is not an investment; it’s a transfer of risk.
The Risk of Leaving Your Spouse Penniless
If a couple has enough assets to be ineligible for Medicaid coverage, a week or two in a nursing home is not the risk they should be transferring. That’s a big nuisance, not a catastrophe. The risk they should transfer is financial ruin for the surviving spouse—in other words, 90 or 180-plus days of care.
Paying insurance premiums for short waiting periods is like buying a $100 deductible on your car instead of a $500 deductible. If you have an accident, you have to make up that gap out of pocket. Your insurance dollars are better spent insuring against the catastrophe, not avoiding the deductible.
Today, Jo and I would opt for door #3. I have two policies: one with a 90-day waiting period and the other, 180 days. I would not recommend anything less than 90 days.
My primary concern is leaving Jo with enough assets to live comfortably for the rest of her life, which could easily be 20-plus years. Paying for 90 days of care would not undo that.
Family Is Not Always the Answer
Why have long-term care insurance? To make sure you have enough money for the best care right until the end without depleting all of your assets. Whether your final days are at home, in an assisted-living facility, or in a nursing home is secondary. If you can pay for the most appropriate care, that decision will be based on your health and comfort, not your wallet. Many advocates of long-term care insurance actually call it “avoid nursing home insurance” because it helps pay for in-home care.
Jo’s parents never thought about nursing home insurance. They could tell you every detail about their fire insurance, auto insurance, or crop insurance, but long-term care insurance was not part of their world. Without realizing it, they were committed to self-insuring.
When Jo’s mom died, she was in an assisted-living facility and able to do some of her ADLs, but not all. Which reminds me—assisting with three of the ADLs requires caregivers to do heavy lifting. Don’t make the mistake of thinking a family member, particularly an aging spouse, will be able to do the job even if he or she is willing.
We have a dear friend whose husband is nearing the end. She asked Jo to look at nursing homes with her since soon she’ll be unable to care for her husband without around-the-clock help, which can be more expensive than a nursing home. They have some tough financial and emotional decisions ahead. No one wants to feel they’ve let their spouse down at the end, but logically she knows he’ll receive better care than they can afford at home.
No, I Do Not Sell Insurance
There is a reason they call it “long-term care insurance” and not “short-term.” The exorbitant cost of health care over the long haul can wipe out a nest egg and leave a family penniless.
After publishing a recent missive on annuities, several subscribers wrote kind notes saying it was the first time they’d read something on the topic not written by annuity salesman. That’s because our mandate is education—education to help you retire rich and stay that way.
Money Forever gives you the tools to build, protect, and preserve your nest egg over the long haul. Without adequate planning, long-term care costs and a slew of other threats could wipe you out. Tumultuous markets aren’t the only menace.
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On the Lighter Side
This season marks the 100th anniversary of Wrigley Field. They’re celebrating a different decade with each home stand, and this week it’s the 1930s. In 1932 the Cubs and the New York Yankees were in the World Series. Of course, the Cubs lost.
Babe Ruth came to bat, and the pitcher got two quick strikes on him. The team and fans were giving him a hard time. He pointed his finger—some say at the pitcher, but legend has it he was pointing out to center field. The next pitch came whizzing in to the plate, and he hit a blast deep into the seats where he’d pointed. The mighty Babe had struck again and became even more famous for calling his shot.
What a treat it was last week when the Cubs invited his daughter, who’s in her late 90s and legally blind, to come lead the fans singing Take Me Out to the Ball Game. Listening to her was a real treat.
Over the last few weeks, young men and women all dressed up for prom enjoyed themselves at local restaurants. Now the graduation season is upon us. I wish all the graduates the best of luck as they pass this important milestone. It seemed like the blink of an eye before we were celebrating our 50th class reunion. My oldest grandson Justin is celebrating his 10th-year reunion this year.
For this week’s funnies, I thought I would pass along a cute cartoon.
Until next week…