The 9 Steps to Financial Freedom (16 page)

Well, what about Medicaid, then? Doesn’t Medicaid pay for nursing homes? An agency of last resort, Medicaid currently takes over, at any age, when you’re financially destitute. It’s welfare. Medicaid is a federal agency but run in each state by the state. Currently it’s true that 40 percent of the people in nursing homes are paid for by Uncle Sam—but Medicaid is not the answer.

For one thing, “financially destitute” is a tricky concept. If you are reading this book, you’re reading it so that you won’t be financially destitute, and I’ll tell you what I tell everyone I advise: If your plan is to divest yourself of your assets should a nursing home become inevitable, please turn to another financial adviser. Historically, many people have made themselves poor on paper to qualify for Medicaid by transferring assets and trying to make it look as if their money has disappeared. This is a demeaning process and can be devastating to the spouse, if there is one, who remains at home. The spouse who needs long-term care is then sent to a Medicaid-approved nursing home, which is not necessarily a place where you want to spend your last days. These are often overburdened facilities, and quite simply, our government can no longer afford to fund them. The government is also urging us all to consider LTC insurance—for peace of mind, to assure quality care, for the freedom to choose, and for asset protection.

If the government is trying to get out of the long-term nursing home business right now, you can be sure they will be out of
it entirely by the time the baby boomers reach nursing home age. The good news in all this is that the government is also making it cheaper and more advantageous for us all to sign up for the care we might one day need.

Anna and Art haven’t had to use their long-term-care insurance yet, but their story ended up more happily than most such stories. They at least are protected, if the day comes when they need protection.

There is nothing we can do when unexpected illness hits, but we can take the steps today to make sure that our loved ones’ “tomorrows” are financially protected. This is not a topic that anyone, including me, likes talking about, but as we get older, and our parents or children get older, we’re going to have to deal with it whether we want to or not. In the baby boom generation most of us have more parents than we have children—and those parents are getting older. It is important to really think about what would happen if something did happen to you or someone you love. Do your parents or other family members assume without your talking about it that you would take care of them? If so, would you still be able to take care of yourself and your family? What are the costs of a home in your area or in your parents’ area? If you’re single, married, living with someone, a parent: Who would take care of you? And would taking care of you make it hard for that person to take care of himself or herself?

In my opinion the best age to purchase an LTC policy is no later than fifty-nine, although it can still be a bargain at any price if you’re older. Regardless of your age, if you carry an LTC policy and do have to go into a nursing home one day, or need care in
your home, you will almost certainly pay less for all your payments combined than you would for one year in that nursing home. And many people live in nursing homes much longer than in the past. The average length of stay is 2.4 years, and even longer if you have Alzheimer’s. And one out of three people who reach age sixty-five will spend some time in a nursing home over the course of his or her lifetime. More important, LTC policies now can cover at-home care as well as nursing home costs.

Long-term-care premiums are based on how old you are when you purchase the policy as well as the level of coverage you choose. For example, how long you are willing to pay for your long-term-care needs before the policy begins to make payouts—what is known as the elimination period—will impact your premium rate. Other variables include whether your policy includes an inflation adjustment and the overall payout you will be entitled to. In 2011 it was not uncommon for a policy purchased before age sixty-two to carry an annual premium of

$1,500 to $2,000.

That is indeed a lot of money. But in 2011 the average daily cost at a nursing home was $213 and if you were to need full-time care in your own home the
daily
cost could be double that amount. Even assisted living facilities have a steep cost; an average of $3,261 per month in 2010. Just imagine what those expenses might be when you are older and ready to need such care. So I ask you to think long and hard about purchasing long-term-care insurance. It can be incredibly valuable insurance that will give you, and your loved ones, peace of mind.

You can learn more about long-term-care insurance at
www.long-termcareinsurance.gov
and the website of the American Association for Long-Term Care Insurance,
www.aaltci.org
. Consumer advocate Phyllis Shelton, one of the nation’s leading LTC insurance experts, can be reached at
www.GotLTCi.org
.

In the past, some people walked into my office wanting to buy an LTC policy, but we found, when we looked at their financial big picture, that it wasn’t right for them because they couldn’t really afford it over the long haul. This insurance is meant to keep you from going into the poorhouse in case of a long-term stay, not to put you into the poorhouse just to pay for it. If you sign up at fifty-nine, you have to be able to afford it—both now and in the years after you retire. It will do you no good to buy a policy at fifty-nine, retire at sixty-four, and find, at seventy-four, that you can no longer afford the premiums. You would have been better off not purchasing the insurance in the first place but investing the money instead. I also recommend that you only purchase a policy today that you could still afford if the premium increased 40 percent or more. The sad fact is that many LTC insurance providers have been given approval to increase premiums by that much, or more.

How do you know if you can afford it? By taking a good hard look at your future financial picture. Make some calculations to see what would happen to your ability to pay for this insurance when you retire and no longer have a paycheck coming in. Ask yourself what would happen after retirement if your partner died: Would you lose a Social Security check? Would his or her pension stop or be reduced? Could you afford it if the rates went up? The insurance agents you’re talking to should be concerned about these same questions, and run as fast as you can from anyone who begins to pressure you. If you can afford it, LTC insurance is great. If you can’t afford it
well into your retirement
, it won’t do you a bit of good.

If you can’t afford it, you can still be responsible to those you love. If you are worried about your aging parents, or when the time comes that you begin worrying about yourself, you can seek
out the advice of an attorney who specializes in elder care. If your parents live far away, see an elder care attorney near where they live, not where you live, because the assistance available varies widely from state to state and even can vary from region to region within the same state. In any case, an elder care attorney will go over all the options available to you—and these keep changing—given your particular situation.

When you buy your LTC insurance, you don’t plan on using it for many years from then, if ever. It is imperative that the company you buy it from will still be there if ever you need it. Let’s say you bought your policy at age fifty-nine, when you were perfectly healthy. Fine. Then let’s say the company you bought it from decides it doesn’t want to be in the LTC business anymore when you turn sixty and have been diagnosed with some terrible disease.

What does this mean for you? Do you get your money back? No, of course not, they’ll tell you. Why should you get your money back? We were covering you for all those years, and if you had had to go into a nursing home, well, we would have been there for you. Your insurance may be picked up by another company but that’s not a chance any of us wants to take. So you must buy your policy from a company with a firm commitment to the LTC arena.

Thus the essential question is: Is the company going to be in the LTC business for the long haul? Here are the questions you must ask each company you are considering in order to find
out. These are good questions to ask when considering buying any policy, but essential in the case of long-term care.

Questions About the Company:

How long have you been selling LTC insurance?
The only acceptable answer is: Ten years, minimum. If the answer is one year, two years, or three, they are still experimenting.

How much LTC insurance do you currently have in force?
The only acceptable answer is hundreds of millions of dollars or more. With that much money in LTC care, they are already making a handsome profit—and not thinking of getting out of the business.

How many times have you had a rate increase for those who already own a policy?
The only acceptable answer is two times or fewer.

Note that the “already own a policy” clause is important. You are not looking for rate increases for people who have not yet purchased a policy. You are looking at rate increases for people who have already taken the plunge, bought the insurance, and are therefore vulnerable to the whims of the insurance company. You want a company that treats its current policyholders as respectfully as it treats all the prospective buyers it is trying to attract.

In how many states are you currently selling LTC insurance?
The only acceptable answer is: Every state. Because each state regulates its own insurance policies, and because it’s tedious and expensive for insurance companies to be licensed to sell every kind of insurance in every state, if the company is selling LTC insurance in only one state—yours—you can be sure they are still experimenting.