By Stephen High
Long-term care for chronic illness or frailty may be the single greatest financial risk that most older Americans face. The aging of America’s enormous baby boom generation makes certain that the challenge of long-term care will become bigger and far more expensive over time. Long-term care may be on its way to overtaking Social Security and Medicare as our country’s most challenging social issue.
Let’s review several facts. The mature population is growing larger. It is estimated that the over-65 population will nearly double from about 39 million people in 2009 to about 72 million in 2030, representing about 19 percent of the population. (US Department of Health and Human Services, 2010) Currently, 55 percent of the population over 85 is receiving long-term care. About 70 percent of individuals over 65 will require at least some type of long-term care services during their lifetime. Over 40 percent will need care in a nursing home for some period of time. (National Clearinghouse for Long-Term Care Information).
While older people are more likely to need long-term care, the need can come at any age. According to the U.S. Government Accountability Office, about 40 percent of the 13 million people receiving long-term care services are between the ages of 18 and 64. It is estimated that 60 percent of the total population will need long-term care in their lifetime. (Statistical Abstract of the United States, 2005).
According to the MetLife Mature Market Institute, the 2009 average daily rate for a private room in a nursing home was $219 or $79,935 annually. Based on the average length of stay in a nursing home of 2.8 years (Genworth Financial Cost of Care Survey, 2009), a patient requiring care today would need $223, 818 for an average stay. Contrast this with the median household income of $48,201 in the U.S. (Genworth Financial).
Home healthcare can be even more expensive. The average cost of a home healthcare aide in the U.S. was $21 an hour in 2009 (National Clearinghouse for Long-Term Care Information). At a cost of $504 per day, 24-hour care would cost $183,960 per year.
" . . . about 40 percent of the 13 million people receiving long-term care services are between the ages of 18 and 64."
The total amount spent on long-term care in the United States in 2005 was $206.6 billion. Which does not include the care provided by family or friends on an unpaid basis. (U.S. Department of Health and Human Services) It is estimated that government programs pay only about 16 percent of long-term care costs. Yet, according to a 2006 national survey by Public Opinion Strategies, 65 percent of Americans admit to having made no long-term care plans for themselves or their spouse. Why? It is human nature not to worry about an event until it happens. This lack of planning will always have an adverse effect on the person’s family. It usually results in great sacrifice or financial cost on the part of the spouse or children. For those with no immediate family, long-term care can be a burden to extended family members.
What should you do to develop a long-term care plan for yourself and your spouse? The first step is to start planning early. Do not put it off. The need for long-term care is not limited to the elderly. You need to gain some level of knowledge and understanding of what the issues are. This understanding will help you prevent crisis planning, save money, save valuable time, and open the door to other options. Long-term care services are complicated and expensive. Using professional care advisors is the most cost effective and efficient way to plan for yourself or a loved one. Professional care advisors include professional care managers, long-term care and financial planning specialists, elder care attorneys, elder mediators, and CPAs.
There are several levels of long-term care, including adult care, home care, retirement housing, assisted living, and nursing homes. Services for these levels of care range from providing help around the house with meals, housekeeping, and shopping to 24-hour nursing care. Alternatives for paying for long-term care typically include one or more of the following: personal assets, long-term care insurance, Medicare, Medicaid, IRAs, reverse mortgages, and life insurance arrangements. A person who is not financially independent might consider changing their portfolio’s asset allocation, reducing spending, or increasing savings. With proper planning and the money it provides, most people would remain in their homes to receive long-term care and would never have to go to an institution or hospital.
People planning for long-term care must make their wishes known to family or other involved caregivers. They must choose a care advocate, provide funding, and they should have their legal documents already in place. No plan is complete without a formal meeting and a written care agreement that is understood, agreed upon, and retained by everyone involved. Everyone involved is also given instructions and checklists to follow when the time for care comes.
By following these recommendations, you can avoid many of the crises that families without good planning are forced to endure.
Kraft Asset Management, LLC, headquartered in Nashville, TN, provides prudent investment planning and wealth management services.
