Handling Long-Term Care Needs Before They Arise
Some people are lucky to accumulate wealth because they are in the right place at the right time. Others are unfortunate and lose assets because they are in the wrong place at the wrong time. Doctors obviously don’t believe in relying on luck to build wealth. If they did, they wouldn’t spend so many years in training. Would it surprise you to learn that, after all that hard work to build careers in medicine, most Doctors ultimately leave their wealth accumulation and asset protection to chance?
We are not saying that Doctors don’t work hard after they get into practice. To the contrary, the opposite is true. Doctors work too hard when they need to be working smarter. This chapter explains how Doctors can efficiently protect themselves from long-term care risks, get a valuable tax deduction, and preserve their valuable retirement assets. This is a key to working less, as it allows a retiring Doctor to quit practice with a smaller, yet more effective, safety net!
Before we discuss long-term care insurance and how to most efficiently purchase the right policy for you, we need to first see how big a risk the expenses associated with long-term care really are.
Why Is Long-Term Care A Big Risk?
According to the AARP Research Report on Long-Term Care (Ari N. Houser, AARP Public Policy Institute, October 2007 (http://www.aarp.org/research/longtermcare/ternds/fs27ritc.html)), on average, two-thirds (69%) of people over age 65 today will need some long-term care. The average duration of need, over a lifetime, is about three years. Women live longer and have higher rates of disability than men, so older women are more likely to need care (79% v. 58%), and, on average, need care for longer (3.7 years v. 2.2 years).
In the U.S., the average stay in a nursing home is between two to three years. In some areas of the country, the cost of nursing home care or quality around-the-clock in-home care may be $200-$300 per day. This means that the average home healthcare stay costs between $150,000 and $320,000. Additionally, the U.S. Health Care Administration reports that costs are increasing 5.8% per year and are expected to more than triple in the next 20 years. At these projected rates, the costs may be between $500,000 and $1,000,000 by the time you or your spouse need long-term care. Are you sure that you, your parents, and your in-laws all have hundreds of thousands of dollars in “extra” funds within your retirement and estate plans to cover this highly plausible expense?
In some parts of California, the cost of living is well above the national average, and so the cost of long-term care is also substantially higher than the national average. Within the state, there can be vast differences between urban and rural areas, with the urban areas being more costly. According to a Genworth Cost of Care study released in April 2008, long-term care costs in California increased as much as 44% over the past five years. The increases are, in part, due to a shortage in the health care workforce to care for the growing number of elderly people.
Costs of in-home care are significantly higher and can amount to $150,000 to $320,000 per year. These costs will continue to increase at disproportionate rates because of the growing number of baby boomers in need of care over the next 30 years.
Long-Term Care Insurance (LTCI) covers health insurance costs for those people who cannot take care of themselves. These costs may include nursing home care, in-home care, and many other expenses. This chapter will explain why and how the most financially astute Doctors make long-term care planning a high priority in their planning. More specifically, this chapter will discuss the need for LTCI, why is often overlooked, why the government won’t help you, what types of coverage exist, and how they can help you.
The Need For Long-Term Care Insurance (LTCI)
There are two basic reasons why many Americans may need to obtain long-term care insurance. First, modern advancements in medicine, science, and technology have helped to increase the average life expectancy of people. Predictably, with this increased life expectancy, there is a greater chance that people may suffer a debilitating illness that will require them to seek significant long-term care. Even though medicine keeps people alive longer, there are still incurable diseases that don’t kill you, but will leave you requiring assistance. Neurological disorders like Alzheimer’s are perfect examples. An Alzheimer’s patient could need significant care for 15 or 20 years before dying. These advances in medicine can come with a hefty price tag for some people.
With the trends of increasing life expectancies, in conjunction with the increasing costs of medical expenses, long-term care will impact an increasing percentage of the population and can be very expensive. Doctors are aware of the increased life expectancies and rising medical costs, but need to be consciously aware that long-term care costs can easily wipe out retirement savings and eliminate any inheritance you would have otherwise left for children or grand-children (or would have received from your parents or in-laws). When armed with the right information, Doctors can make the decision to include LTCI in their comprehensive plans and work with their advisors to do so as cheaply and efficiently as possible.
In addition, having a plan for long-term care demonstrates a desire to have quality care in the event it is needed and represents a financial prioritization of that desire. Having a system in place will make it more likely that necessary care and assistance is provided earlier. Children of aging parents often delay getting help because they are concerned about how it will be afforded. According to the National Census Bureau (2006), the average national income is $48,201 and adult children may be ill-prepared to spend from their own income for supplemental care and reluctant to request spending from their parents’ funds to obtain the needed help.
An AARP Study, Valuing the More