This material has been developed by and is presented by The Sandwich Generation (r)
PLANNING› for› THAT› Day
by Carol Abaya, M.A.
There are dozens of sayings about money, and often more truth is said about this in jest.› Needless to say, the more money one has, the more lifestyle and care options there are.
Studies are showing that Americans are so busy with day-to-day tasks and family and job responsibilities that the vast majority do not sit down to plan for a long retirement and their own future elder care needs, much less try to deal with parentsŪ situations before a crisis.
Those who have done no planning for their self or their parents can take comfort in the fact that theyŪre not alone.› But this doesnŪt mean long-term planning can or should be placed on the back burner.
A report by Phoenix, Duff & Phelps, an investment management firm, notes that the middle-aged segment of our society (those who make up the traditional sandwich generation) žare facing the life stage phenomenon known as ŽThe Big SqueezeŪ ů the simultaneous financial pressures of flattening income, childrenŪs college tuition, elderly parent care and retirement planning.Ó
The report also describes the middle-aged and the baby-boomers as being time impoverished.› Dual-income families working harder and longer have little time to plan and/or keep abreast of the investment marketplace to make informed decisions.
The group surveyed by Phoenix is comprised of the typical sandwich generationer.› Answers indicate:
Another study done for John Hancock Mutual Life Insurance Company and The National Council on Aging focuses on long-term care needs and planning.
Eighty-eight percent of those surveyed regard providing long term care for the elderly and disabled as a big problem in the U.S. today.› At the same time, 56% said they have done no planning (31%) for their own long-term care needs or very little (25%).
While 59% of those surveyed have family members or friends who have needed long-term care, 44% have given little or no thought to the likelihood that they or their spouse would someday need long-term care.› And 55% said they have thought about it (but have done nothing).
The John Hancock survey also indicates that:
So, with all these numbers in mind, as well as the new Medicaid law which makes it a crime to transfer assets to be able to qualify for Medicaid, it is critical to evaluate options.
Procrastinate› &› Come Up Empty
The cost of elder health and daily care has skyrocketed in recent years, and no end is in sight.› As more live longer, well into their 80s and 90s, the question of who will pay for elder care and how MUST be addressed.
Today 7.3 million Americans require long term care services.› Of this, 5.6 million are in their own home and 1.7 in nursing homes.› In the next 30 years, the number of elders needing LTC is expected to double.
Skilled nursing home care costs average $4,500 to $6,000 a month today, depending on the state and the medical condition of the patient.› Home care can be just as expensive if a licensed agency is used.› Privately hired home care costs about half.› But even $25,000 to $35,000 a year for live-in help can quickly use up financial resources.
Long-term care insurance (LTCI) is one way to obtain appropriate care and to protect assets for heirs.› It provides more choices as to care and lifestyle as one ages.› No other insurance achieves this.› However, it is not for everyone.› But as more alternative kinds of care become žcoveredÓ and financial resources may be limited, it should be evaluated.
As one ages, long-term care (LTC) risks are greater, especially if a person is 75+.› In these situations, LTCI may offer greater value to offset the higher premium payments than if the person were considerably younger and paying over a longer period of time.›› LTCI may also offer better value than life insurance with living needs benefits or most other investments.› Purchasing LTCI as part of a financial planning program should be viewed as a žrisk managementÓ decision as opposed to an investment one.
Why should everyone look at LTCI to pay for possible future catastrophic illnesses and/or incapacity?
LTCI is very often an economical way to cover long term care risks and cost exposure.
Many financial planning experts say that› for those under 55, retirement savings deserve higher priority than long term care insurance.› After that there is an increased risk of serious health setbacks, so the timing to purchase LTCI is more appropriate, they say.› Others disagree, saying younger people need to think about family health history, stress levels for potential heart attacks or accident.
The main reason to purchase LTCI is the expectation that premium costs will be much lower than the cost of LTC services.› LTCI also may pay for care over a longer time period than an individual might otherwise afford.
Under the Kassenbaum/Kennedy Health Bill (HIPAA 1996),› LTCI is now regulated and› standardized according to federal guidelines.› As a result, the consumer is better protected.› However, unlike some other kinds of insurance, LTCI is not› guaranteed by any state or the federal government.› Also, the variables in options and in choices are wide.› So, a careful evaluation of both options and projected needs is a must.
Elements› To›› Evaluate:› Look For
Most people do not think twice about insuring their houses or obtaining hospitalization insurance, and most states require auto accident and liability insurance.
Most however, regardless of age, do not look at long term care (LTC) needs, probably because:
The problem with this thinking is that:
As with any insurance that has a variety of options of benefits, it is important to balance possible needs, other resources that will be available to pay for care, and cost and affordability.› The evaluation needs to cover current health conditions, family health history, home space (whether there is a room for a live-in caregiver) and other available income.› Important elements to consider during the evaluation process include:
Also there are now a few policies which allow the family to hire a certified home health aide privately, without using a licensed agency.› This can reduce care costs substantially.
Medicare may pay all or part of the cost of the first 100 days in a nursing home.› So, a 90 or 100 day waiting period may be appropriate, provided there is other money available to pay the difference from what Medicare pays.
›žMedical necessityÓ used to be› the key for triggering› long term care benefits.› A doctorŪs recommendation for such care was usually sufficient.› However, under the current law, there are two triggers:
Services/care that do not qualify for benefits payment are called Instrumental Activities of Daily Living (IADLs).› These are cooking, shopping, housekeeping, laundry, managing finances, medications.
Also, a preference to have live-in help or a companion to do the IADLs does not trigger benefits.
The Kassenbaum/Kennedy Bill impacts triggers and provides some new caveats.
Paul Bunkin, President of Paul S. Bunkin Insurance Inc., and others are concerned about the lack of clarity› in the new law and the fact that it may be harder to collect benefits on LTCI policies than before.› žWhile medical necessity was eliminated for home care,Ó he says, žthe word ŽsubstantialŪ is now used to describe a trigger in relation to qualifying by the ADL (activities of daily living) criteria and ŽsevereŪ was put in front of cognitive impairments.› These are subjective kinds of words.Ó
Bunkin also points out that a need will have to last at least 90 days in order to collect from the LTCI policy.› The patient must get a medical certification that the loss will last at least 90 days in order to collect.›› žAs a result, short term needs may not be covered.› Home recuperation after a hospital stay even if help is needed with ADLs will not be covered unless a medical certification is received.Ó
Bunkin and others say that this may place a heavy responsibility on physicians because often a normal recuperation period for a particular illness or accident is less than 90 days, yet substantial help is needed with ADLs.
Thus LTCI needs to be looked at from a catastrophic point of view rather than a crutch during short term illnesses.
Each personŪs health and financial situation is different.› So there are no hard and fast rules as to what is appropriate.
Sound advice in reference to žDonŪtsÓ comes from Alfred C. Clapp, Jr., President of Financial Strategies and Services Corporation.
This material is copyrighted by Carol Abaya Associates and cannot be reproduced in any manner, print, or electronically.