Eldercare & the Economics of Aging
Long-term-care planning ­ a must or bust for boomers
By ALFRED C. CLAPP

It’s 2027 and you’re reaching your golden years. You’re not alone. According to the U.S. Census Bureau, as a baby boomer you’ll be keeping company with more than 69 million people above the age of 65 ­ that’s a 75 percent increase over the same population today.

What’s not so well known, but more disconcerting, is that starting now and over the next two decades, while the number of seniors continues to spike, the number of caregivers will remain flat. The resulting caregiver shortage will continue to drive skyrocketing long-term-care costs as the law of supply and demand takes effect and the compound inflation rate grows annually by 5 percent.

Consequently, if you consider that today it costs $100,000 a year for long-term-care custodial services, that expense will double to $200,000 in just 15 years, and by 2037 it will reach $400,000. The reality is, more than 40 percent of seniors, especially at older ages, will likely require costly long-term care for an average of about two and a half years. The cost in 30 years: about $1 million.

Unless you are among the well-to-do, these figures are unsettling, particularly when you consider that Medicare does not typically cover most long-term-care custodial services. Additionally, after the 2006 Federal Deficit Reduction Act, Medicaid has tightened up its standards relative to an individual’s state of impoverishment and eligibility for Medicaid-paid nursing home care.

Today, the Medicare, Medicaid and Social Security entitlement programs are projected to increase to almost 50 percent of the federal government budget. As such, seniors should not expect federal or state governments to finance much higher budgets for these programs ­ let alone increase funds for long-term care. Most individuals will have to personally finance their long-term care services.

The number of private or licensed caregivers at home, assisted-living facilities or nursing homes are not projected to grow. Even the younger family population in next generations who might care for parents is declining. Cluster care, that is care for more than one elder, and elder-monitoring devices will only partly reduce caregiver demands. Increased longevity will also increase care risks and costs and result in a greater need for aging services. From seniors, it begs the question, how long can I afford to live?

While long-term-care insurance is not a panacea, individuals should develop a long-term-care strategy along with their financial and legal plans as an important part of their overall retirement and estate planning. As an essential part of financial retirement plans, long-term-care planning and long-term care insurance should be considered to understand and to develop better care choices.

With about 40 percent of seniors who will require care services, it is important to recognize that long-term-care insurance policies vary much more than is often understood. Consider the following criteria when selecting a policy:

- Look for a company that is highly rated and fully committed to long-term-care insurance policy owners. Insurance prices are approved by a state’s Insurance Department. Reference A.M. Best, Moody’s and Standard and Poor’s for credible ratings information.

- With the caregiver shortage, it’s important to opt for a policy that allows you to hire at home not only a licensed home agency caregiver, but also a private caregiver. Most long-term-care insurance policies reimburse caregivers at home.

- Purchase coverage for between three and five years with a 5 percent compound uncapped inflation rider even at older ages. Purchasing a simple consumer price index, or cost of living adjustment option are poorer financial planning choices.

- Purchase long-term-care insurance at about age 50, preferably not much older than 60, as the premium cost increases with age. Approximatley every three years new policies will most likely be offered at somewhat higher prices and new differentiating features that may add some, but not always great, value.

- Cash benefit policies are the most flexible. Benefits can be shared among couples and used in an unlicensed assisted-living facility and are portable internationally. Understandably the few cash benefit policies offered are more expensive than reimbursement coverage.

Don’t just look at one company. For a complete picture, you need to look at multiple policies to understand the differences between them. Compare regular policies with the New York State Partnership for Long Term Care policies to understand the differences in coverage flexibility.

Normally, premiums are paid for the remainder of a life until an individual is on claim or dies. Long-term-care insurance costs should be about 5 percent or less than 10 percent of after-tax income.

Don’t wait until it’s time to retire to think about your long-term-care strategy.

Alfred C. Clapp is president of Financial Strategies and Services Corp., an independent financial adviser. Reach him at aclapp@fssltc.com.

 

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