Five years after my beautiful mother (shown in photo) needed long-term care for the illness that ultimately took her life, I began my career as a financial advisor and started offering long-term care (LTC) insurance to my clients. Over the years I have found that those who purchase LTC insurance often had a loved one (as I had) in their families who needed care. They did not want to ask their children to provide care for them in their old age. They wanted to stay in their homes and retain control and dignity in their lives, no matter what happened.
What is long-term care?
From a clinical perspective, long term care is defined in terms of the impairment in an individual’s functional capacity, that is, the extent to which the individual is unable to address his or her own personal care needs alone.
An individual’s functional capacity is measured according to a list of necessary personal care tasks. The most basic tasks are referred to as the Activities of Daily Lliving, or ADL. Persons who are unable to perform the activities of daily living without assistance are defined as needing long-term care services.
The tasks in the list of activities of daily living (ADLs) include: eating, bathing, dressing, continence, toileting; and transferring (e.g., moving oneself from one location to another, such as getting up from a chair and going into the kitchen). (Reference: WebCE, Inc.: 8-hour Long-Term Care Mandatory Training for California Agents. 2013)
Why is it necessary to protect yourself against the need for LTC services?
In the greater San Francisco Bay Area, where I live, it costs a couple living in the city of Santa Clara, more than $500,000 today to self-insure for three years of long-term care coverage. In 20 years, the cost to self-insure could rise to over $1,200,000 for an average couple, based on a 4.2% annual inflation rate. (Reference: John Hancock cost of care calculator, which indicates, for our example: $242 average daily cost for semi-private room * 365 days * 3 years * 2 people = $529,980)
This would wipe out the retirement savings of most Americans and is the reason why this is such a large issue. We are living longer, which only increases the odds of this occurring.
According to the Department of Health and Human Services, “almost 70% of people turning age 65 will need long-term care at some point in their lives.” (Reference: Department of Health & Human Services: http://longtermcare.gov/)
Additional issues include: (1) an elderly spouse may not have the strength to care for the other spouse. A caregiver needs to be able to lift the person who needs care in order to clothe and to bathe that person; (2) in cases of a cognitive impairment constant supervision may be required; (3) children may not live close by or be able to provide care; (4) if one spouse needs LTC services it can drain the resources of the couple leaving little for the surviving spouse to live on.
Doesn’t the US Government provide care for people?
Yes, they do, but they also require you to spend down your assets before they will accept you into their program.
The rules for Medicaid can be complicated. For more information go to LongTermCare.gov. (Reference: http://longtermcare.gov/medicare-medicaid-more/medicaid/)
In California, the spouse at home may keep up to $109,560 in resources (property and other assets) while the institutionalized spouse may keep $2,000 in assets. (Reference: California Department of Health Care Services: http://www.dhcs.ca.gov/services/ltc/Pages/CPLTCAMedi_CalInformation.aspx#mcalirl)
How can you protect yourself and your spouse?
Planning for long term care is critical. Knowing your options on how to finance protection is also necessary. This will be the focus of my next article.
Next Steps
Learn all you can on this topic, and speak to a trusted advisor who can help you navigate options appropriate for your individual needs.
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Mark Walsh, CFP®, CLU®, CPA, PMP, is the owner of Walsh Financial Consulting (www.WalshFC.com), a registered investment adviser (Cal Ins. Lic: # OF59176 ) and writes from Oakland, CA. He may be reached at (510) 250.2539 or mark@walshfc.com.