Ep 258: Long Term Care 101: A Mini Masterclass

Long term care is a misunderstood topic.

On this week's episode, we're going to talk about what it is, we're going to talk about what it isn't.

We're going to talk about some of the financial effects it might have on your life, we're going to talk about some of the effects it might have on your family's life.

And we are going to give you a mini masterclass on this really important subject that oftentimes is not looked at during the financial planning process.

So here we go.

Hope that you enjoy this episode.

Welcome to the weekly wealth podcast.

I am certified financial planner David Chudick.

I spend most of my days talking with business owners, the mass affluent and the high net worth about their money.

We talk about their financial dreams, we talk about their financial worries, and we talk about the decisions that they know they need to make.

That is what this show is about.

I wanted to make some changes to the form format of the show and moving forward, the first episode of every month, I want to talk about a risk management topic.

So as a financial advisor, most people think that my job is only to help you to invest your money and get the highest possible rates of return.

And yes, oftentimes I am working with my clients to choose their investments, choose their investment strategies.

And yes, that is for the purpose of having their account values increase.

Right.

But I'm holistic and I also want to talk about ways to protect your money, which is risk management.

So each month we're going to talk about a risk management topic and we're going to talk about how to protect your money.

Many people are really afraid of losing money in their investment portfolios.

And I get it.

I don't want to lose money in my investment portfolios either.

But there are other ways that money can leave our lives and, and that is where we can get into risk management.

So this month's risk management topic is going to be long term care.

Much of this information is going to come from materials provided by the Certification for Long Term Care Institute.

All right, so let's get started and let's talk about long term care.

Let's talk about what it is or what it isn't.

So extended care, we can't emphasize this enough.

The meat for long term care not only changes the life of the person needing care, but but the lives of all of the others who care about that person.

Loved ones will have no choice but to provide care if other plans, professional caregivers or financing is not already in place.

So what is long term care?

Long term Care, or sometimes it's called extended care, is a type of assistance a person needs as a result of a long term impairment.

Now sometimes we refer to this as extended care, not long term care, because the term long term care can carry many misconceptions and negative assumptions.

The need for extended care begins with an impairment.

When we become mentally or physically compromised, we'll need extended care.

Now there are two types of impairment.

So let's think about the first one.

This is acute impairment.

And this is from a sudden event that requires immediate medical attention.

So maybe you had a heart attack, maybe your family member had a stroke or a broken hip or an aneurysm.

For this treatment is provided in the form of a plan of care created by a physician and administrated by a skilled medical team.

So you may be in the hospital and you may need help from nurses and you may have some physical rehab and things like that.

And with acute impairment, full recovery is typically expected.

And there are types of care provided which can be inpatient, hospitalization, surgery or formal rehab services.

So again, acute is based on like something, for lack of a better term, that happened and caused a medical condition.

Now, chronic impairment, this is where a lot of people suffer.

So it's an ongoing physical or cognitive impairment due to maybe an accident, maybe an illness, or maybe just to frailty associated with aging.

Now, treatment comes in the form of physical help with the activities of daily living.

Those will, you'll hear them referred to as ADL's.

So the six activities of daily living are bathing.

And that's the ability to wash oneself and maintain personal hygiene.

Dressing.

The capability to select appropriate clothing and put it on independently, including managing fasteners like buttons and zippers.

Toileting, the ability to get to and from the toilet, use it correctly and perform necessary personal hygiene after transferring the ability to move from one position to another, such as getting in and out of bed or a chair without assistance.

Then there's continence.

That's the ability to control bladder and bowel functions as well as manage personal hygiene related to continence or incontinence if necessary.

And then of course, feeding the ability to feed oneself, which includes the physical act of eating and drinking.

Now there's another reason why you may need long term care, and that is for significant cognitive impairment.

So that could be from things like dementia, Alzheimer's disease, or just for lack of, lack of a better term, you're getting older and trouble understanding things.

So typically with chronic impairments, recovery is not anticipated.

So you may get a little Bit better.

But this is a scenario where you're more than likely going to need help with these conditions for the rest of your life.

And this would be what we refer to as custodial care.

So it's not necessarily skilled medical care.

It's not necessarily where you need a licensed nurse or licensed doctor, but you would need someone to help with the six activities of daily living.

So once we've determined that you either have significant cognitive impairment or that you need help with performing some of the activities of daily living, then we have some different options with regard to how that care will be provided and who might provide it.

Now, many older adults, their first preference or the most desirable option would be in home care.

So this is where care is delivered in the person's own home.

They obviously feel comfortable in their home.

And caregivers may assist with bathing, with meal preparation, making sure medications are taken, with light transportation.

With housekeeping.

This care can be provided by family members, it can be provided by friends.

It can also be provided by home health aides, visiting nurses, and personal care assistance.

So typically these are not tasks that require a medical license.

This is what we call custodial care.

Now, many long term care insurance policies, we'll talk about these later.

They prefer home care because it can actually be less expensive than facilities.

But now, depending on where you are and depending on what part of the country in home healthcare can cost 25 to 35 or maybe $50 per hour.

And many home care companies will have, let's say, a four hour minimum.

So they may send a wonderful caregiver to your home and maybe it's $30 an hour, but they'll send this person for at least four hours.

So that's $120, which on the surface is not a life changing amount of money.

But if they're having to come to your house five days a week, four days a week, seven days a week, or if they're having to come to your house for more than that, then yes, it can get very, very cost prohibitive.

So the first method of care is home health care.

And again, that can be provided by friends or family, or it can be provided by home health aides, home health care companies, et cetera.

Now we also have adult daycare, and this is a lesser known option, but it can be extremely helpful.

It provides supervised care during the day, but patients return home at night.

So it'll include meals, some activities, some social engagement.

And I do think that social engagement is very important.

One of the negatives about home health care is the patient can become isolated, they can feel alone because they're in their house, maybe by themselves for part of the day and maybe just with the company of a caregiver.

But in adult daycare they will be with other people who are in a similar position of life.

So there may be some light medical supervision, like again, making sure that medicines are taken when they're scheduled.

And this can be really, really helpful for maybe if the spouse is the caregiver and they need a break, or maybe the adult work during the day and simply don't have the option of being able to take off work to care for their parents.

So the big benefit of adult daycare is it gives family caregivers relief during working hours.

And sometimes this relief is called respite care.

So assisted living is another option for long term care.

And this is where many retirees eventually transition.

This is designed for people who are mostly independent, but they need some help.

These residents here, and some of these facilities are really, really nice.

Some of them aren't so nice, but they'll live typically in private apartments or small suites.

And as part of being a resident of the assisted living facility, they'll receive meals, they'll receive medication management, they'll receive maybe some housekeeping, some personal care.

And they will have the camaraderie of living in nice facility with other people who are in their same stage of life.

So assisted facilities can be super pleasant.

I actually have a friend that runs one of them and I visited it and it was really nice.

There was a fireplace and there were dining areas.

The apartments were really nice.

So it, you know, these are not nursing homes.

Like what you think about of a nursing home, that's almost like a hospital ward.

That's not what this is.

Now assisted living is not full medical care.

It's more like independent living plus support services.

In some facilities, you even as long as you can take care of your pet, you're allowed to have your pet with you.

Now assisted living facilities can be very costly.

So they can be 4,000, 7,000, 10,000 per month and that can be per person.

So if you have two spouses, that cost can double.

So as you can see, this is potentially a life changing financial scenario, right?

Every dollar that you're paying to an assisted living facility is a dollar that your children might not inherit.

And if it's important that your children and grandchildren inherit as much money as possible, maybe you want to find some insurance methods for paying for your assisted living.

Now we also have memory care units and these are a specialized type of assisted living.

Designed for individuals with Alzheimer's disease, dementia or cognitive impairment.

These facilities are built for safety and structure in secure environments.

The staff is trained for dementia and memory care and it includes structured daily routines and therapy activity.

Now because this requires more consistent care and a little bit more skill, the costs are typically higher due to the specialized staff.

So sometimes there's a gray area to someone.

Should someone belong in a memory care unit or a general unit.

And that's where you're going to rely on the, on the staff and on the general director of the assisted living facility.

Now, nursing, skilled nursing facilities, and these are nursing homes.

This is the higher level, highest level of care.

So this is where There may be 24 hour medical supervision, there may be licensed nurses on staff, there may be more complex medical needs handled.

And this is often necessary after stroke or with advanced dementia, maybe with major disabilities or serious illnesses.

Now these can be very expensive.

These can be 90 to 120,000 or more in many parts of the US and this is where Medicaid eventually becomes involved for many people once assets are depleted.

All right, so looking back, let's go back and let's talk about the different levels of care.

The first is in home care and that's informal care in some cases where family members or friends may be just checking in, maybe making sure that meals have been prepared, maybe making sure that the stove has been turned off, things like that.

This can cost, if it is by a professional service, 25, 35, $50 per hour.

And there is typically some sort of minimum, minimum amount of hours.

Then we have adult daycare.

That's where you're bringing your family member to a facility during the day.

They'll get meals, activities, social engagement, some medical supervision.

And the cost on adult daycare is typically not incredibly prohibitive.

And then we have assisted living.

People are mostly independent but need help.

So these, many of these are really nice facilities with nice apartments and suites and you're getting meals and medication management.

And then we move into memory care units where people have fairly significant cognitive impairment and need much more supervision.

And then skilled nursing facilities.

This is where there are more complex medical needs that are handled alright.

So those are the real basics of the different types of long term care facilities and treatments.

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So we've spent some time and we've talked about the different types of long term care and we've talked about some of the reasons why you or your loved ones might need long term care services.

And now let's talk about the elephant in the room.

Let's talk about how do we pay for these?

How do we pay for this care?

So the first one and most people believe that Medicaid will be the source of their payments for their care.

And yes, Medicaid is the largest payer of long term care in the United States.

But it is designed for people who have very limited assets and income.

Medicaid can cover skilled nursing facility care for people who qualify financially and medically.

It may also cover some home and community based services depending on the state.

Once approved, Medicaid will typically cover nursing home, room and board, medical services within the facility, and some personal care assistance.

In many nursing homes across the country, a large percentage of residents are on Medicaid.

Now here's what Medicaid does not do very well.

It does not provide broad coverage for assisted living, it doesn't give you full freedom of facility choices.

Many higher end or private facilities do not accept Medicaid patients and it generally requires strict financial eligibility.

So Medicaid will pay for long term care, but it's essentially the safety net after most of your assets are gone.

Now these change over time, so make sure that you're getting the most of updated amounts.

But there are some spend down provisions.

So to qualify for Medicaid long term care, most states require very limited assets.

This is often around $2,000 for an individual.

So you literally have to spend down your assets down to $2,000 before you might be able to qualify.

And yes, there is a look back period.

So typically before actually qualifying for Medicaid, they're going to look and see that you hadn't just given your money away recently so you can get down to those assets or moving money out of your out of your name.

So spending down means paying for nursing home care privately, paying medical bills, home modifications, paying off debt, purchasing certain exempt assets.

This gets complicated and there are attorneys that can help you to potentially qualify for Medicaid.

But just know that you need to get your assets down to about $2,000, which is very, very little.

Our next method of paying for your long term care is just by self insuring, and that's literally just paying for it ourselves.

And many higher net worth families end up taking this route.

And self insurance simply means you plan to pay for your care with your own assets if it becomes necessary.

Now this approach can work best for people who have significant investable assets and people who can absorb $100,000 or more without jeopardizing retirement or the inheritance levels that they would want for their children, grandchildren and charitable organizations to have.

And they want maximum flexibility in care choices so you'll have full control over care decisions.

There's no insurance premiums, no policy restrictions.

But here's the risk, right?

I mean long term care events can last 5, 10, 15 years or more.

The dementia care, the memory care can be extremely expensive.

And quite frankly, oftentimes when somebody has a memory care issue, they may not have significant physical issues that would decrease their life expectancy.

So they may live until they're 80, 90 or beyond.

And if your memory care expenses are high, that can erode your legacy plans or your estate goals.

What I always say about any type of insurance is let's make the decision purposefully, not by default.

So spending down and getting to those Medicaid levels of assets, which is roughly $2,000 per person, just does not seem like that's something that's likely to happen.

And if the idea of self insuring, which means that you are going to pay for your own long term care expenses doesn't really appeal to you, and typically this is someone who's kind of in the middle range.

Like if you have $100 million estate, then yeah, you can probably afford to pay for your own long term care expenses.

But if you're in that little bit less than a million to two or three or four million dollar estate, and if you have an extended long term care event, yes, that can deplete your estate significantly.

So if you're in that range, maybe those are the people that need to be considering transferring.

That's a big term for buying insurance, transferring that risk to an insurance company.

And we really have two options with that.

We have traditional standalone long term care insurance and then we have a hybrid policy that we'll talk about in just a moment.

But with the traditional standalone long term care insurance, you'll pay annual premiums and then the policy will pay benefits.

If you can't perform Two out of the six activities of daily living, Remember we talked about them early in the episode.

Or if you have significant cognitive impairment.

Now, your benefits will typically include like a daily or monthly benefit amount.

So maybe it'll give you a $200 per day benefit.

There'll be a benefit period, which you may have a benefit period for one year, three year, five years, et cetera.

And then you might choose to have inflation protection, which would mean that each year your benefit amount might go up by 5%.

So as an example, you might have a $6,000 per month benefit with a three year benefit period and an inflation rider.

Once you trigger, meaning that you need help with two out of the six activities of daily living, or you have significant cognitive impairment, after you've completed your elimination period, which is typically 30 days or 60 days, then your policy will pay out $6,000 per month and it'll do it for three years in this case.

And each year there will be an inflation rider that will increase that $6,000 a month slightly.

Those are the pros.

Let's look at some of the cons of this type of a policy.

Now, the premiums can increase over time, which means that each year your premiums can increase and over, you know, if they increase a little bit each year for 10 or 15 years, that can be a significant premium increase over time.

Some insurers exit the market because this can be a very unprofitable area of insurance.

And then other people have the fear of paying premiums and never using it.

So let's say at age, I don't know, 55, you get a long term care insurance policy and you pay for it for 15 years.

And then God forbid you get into a car accident and you pass away, well, you paid for 15 years for a policy that you never used.

Now let's remember that at its core, insurance is a contract where we as policyholders, we give an insurance company money or call it premium, and in exchange we get their promise to pay at a triggering event.

So with long term care insurance, obviously the triggering event would be when you need long term care.

So yes, there is a chance that you'll never use it.

And that's one of the risks of a traditional standard long term care policy.

Now another option are what they call hybrid long term care life insurance policies.

So these policies combine life insurance and long term benefits.

And the way that these typically work is you'll fund your life insurance policy.

And keep in mind, anytime we're talking about insurance, yes, you do typically need to qualify health Wise.

So it may be that your health is past the point where you can qualify for either a standalone or a hybrid long term care policy because there will be an application and there will be some health questions.

But you'll typically fund this either with monthly premiums or annual premiums, or even just a big lump sum.

You may have 50 or $100,000 that you're just going to transfer from one account to another.

And if you need long term care, the policy will allow you to accelerate the death benefit.

All right, so these are not like if policies.

The traditional long term care is if, if you need long term care, you will get the long term care benefit.

These life hybrid long term care policies, these are when policies because you are going to die at some point and you might need long term care.

If this interests you, email me davidarrottellofinancial.com we could look at something that is specific for you, but let's just use an example.

Let's say you get a $200,000 that has a long term care rider.

If you pass away.

Your beneficiaries will get the $200,000 if you don't pass away.

And if care is needed, the benefits would be paid out monthly and each dollar that's paid out for long term care would decrease the death benefit.

But you've still leveraged your premium into more dollars for your care.

So again, many people in their financial planning like their thoughts are the only way I could really lose money is if my IRA goes down a lot.

And yes, that's always a possibility in the investment world, but many people ignore risk management.

Now one of the questions that I ask my new clients are what are the two or three things that if they happened or maybe if they didn't happen, could cripple you financially?

And oftentimes with some of my people who are in their 55s and up, they say, yeah, well if we needed long term care, it would be tough because it would be hard for us to pay 100 or 200 or $300 a day.

We could not afford to replace our children's salaries.

So our children couldn't afford to take off work every day to take care of us and we couldn't afford to pay them.

So this might put us in a bind.

So you may consider some form of long term care insurance.

Again, davidarallelfinancial.com if you'd like to discuss your specifics.

But I'd like to leave you with a way to think about long term care.

So if you have a pool of money that you know you can use to pay for your career or if you choose to transfer that risk and purchase some sort of a long term care insurance policy.

Here's what that does for you and here's what that does for your family members or caregivers.

It gives them the permission to perform the types and amount of care that they want to, but not the other types of care.

So many people would much rather have help from a home care aide which with, let's say, going to the bathroom than they would with their adult children.

So having assets allocated towards long term care or having an insurance policy towards long term care simply gives the caregivers the option to choose how much and which care they will provide.

So I'll leave you with that.

Don't ignore this important part of financial planning.

Let me know if you have any questions.

And until next episode, I wish everybody a blessed week.

Thanks everybody.

The information contained herein included but not limited to research, market valuations, calculations, estimates and other materials obtained from Parallel Financial and other sources are believed to be reliable.

However, Parallel Financial does not warrant its accuracy or completeness.

These materials are provided for informational purposes only and should not be used for or construed as an offer to sell or a solicitation of of an offer to buy.

Insecurity.

Past performance is not indicative of any results and here is this week's bonus content.

If you're a business owner, talk to your accountant, talk to your financial advisor to see if tax deductibility of some of your long term care premiums might be possible.

All right everybody, have a great weekend.