With the U.S. population aging, clients increasingly want to understand the financial implications of long-term care but are often puzzled. The costs and funding options are confusing, as are the choices of living arrangements. This article is Part 1 of a two-part series that offers insights into the funding choices and various care options based on specific needs. It aims to help financial planners navigate the complexity and educate their clients about the available tools. It’s also relevant for those dealing with aging parents facing similar challenges.
Traditional or hybrid insurance?
Two funding options are available to cover the costs of long-term care.
Traditional long-term care
Traditional long-term care insurance provides benefits to policyholders once they cannot perform several activities of daily living (ADLs), such as bathing, dressing, transferring, toileting and eating. There is typically an elimination period (number of days before benefits commence) and daily, monthly or lifetime limits for the benefit amount. Long-term care insurance can cover in-home and assisted living/nursing home care.
This can be a great product, but the main caveat is that the policyholder has to continue making the monthly payments to keep the policy in force. In addition, the policy is subject to premium increases, which can sometimes double or triple over the life of the policy.
Probably the most significant disadvantage to this product is that policyholders who don’t use the benefits can’t receive a return on the premiums paid; nor can they leave the value of the unused portion to their beneficiaries. Although there have been some changes to how these policies are structured, there generally is little flexibility if the benefits are not used.
The other option that has recently increased in popularity is an annuity or a life insurance policy with a long-term care rider. Referred to as hybrid policies, they cover long-term-care services, but usually at a lower benefit level than traditional long-term care insurance. However, because a hybrid policy is structured as a life insurance policy, a death benefit is available for beneficiaries. In addition, policyholders who don’t use the benefits during their lifetime can receive a return on the premium.
From a cost perspective, the premiums on hybrid policies are higher than traditional long-term-care insurance. However, the benefit is that the premiums can be structured to be paid over a specific period, such as 10 years, or as a lump sum when the policy is written. Once the premiums are paid, the policyholder has no further obligation.
Although hybrid policies effectively leverage existing savings with an insurance product, they are not available in every state. For instance, my state, New York, is one of those omitted.
Aging in Place
Your clients have likely heard of all the different living arrangements for long-term care but may not know the details. Here’s some information about one of those options, aging in place.
Allowing people to comfortably stay in their homes and communities can be a good option when an individual or couple desires to remain in their home and has support from family, friends or the community. For this to work, the resident has to be able to make necessary home improvements to accommodate their evolving needs. They also have to be able to manage property upkeep and the associated costs.
The financing for home modifications can come from:
- Personal savings.
- Medicaid (state-run programs).
- Reverse mortgage.
- Long-term-care insurance.
- Hybrid life insurance (if available in that state).
- Federal, state and local
Depending on the level of care needed and whether a home is paid off, aging in place may offer numerous advantages compared to assisted living or a nursing home facility. Since the COVID-19 pandemic, aging in place has also gained significant popularity as a safer alternative for individuals looking to avoid the potential issues associated with communal living.
Helpful home improvements
Online resources provide valuable recommendations for making essential home modifications to cater to the needs of aging homeowners. Many improvements are cost-effective, such as installing guardrails, grab bars, non-skid mats or rugs, and adding a raised toilet seat and a shower seat. Larger-scale changes can entail building an outside ramp, expanding bathrooms, and reconfiguring main living areas for better accessibility, depending on the property and the occupant’s needs.
The National Association of Home Builders (NAHB) and AARP have jointly developed the Certified Aging-In-Place Specialist (CAPS) program, which trains individuals to assist seniors in safely aging in their homes through home repairs, renovations, and new construction.
When my father suffered a stroke, I had to reconfigure his house by moving the primary bedroom and bathroom from the second floor to the first. I transformed the dining room into a spacious bedroom and converted the pantry into a bathroom with a walk-in shower fitted with a shower seat.
Years later, when my father moved in with my aunt, who provided daily care, we enhanced her house to ensure his comfort and accommodate physical and occupational therapy. This required renovating an existing bedroom to create space for accessibility equipment like a rollator, wheelchair, and hospital bed. We also built a new bathroom with a roll-in shower and constructed an enclosed garage for easy vehicle access.
Funding home improvements
Funding for home renovations can vary depending on the extent of the improvements needed. Personal savings can often cover minor updates. For more extensive modifications, individuals can explore other financial resources such as grants, reverse mortgages, or tax credits provided by state and local governments.
For example, Howard County, Md., offers a property tax credit equal to 20% of eligible taxes for qualified individuals age 65 and over who have lived in the same dwelling for at least 30 years.
Lower-income homeowners may also qualify for grants from the Department of Housing and Development (HUD) to cover the costs of home modifications and repairs through the HUD’s Older Adults Home Modification Program (OAHMP).
As mentioned earlier, another financing option for home modifications is a home equity conversion mortgage (HECM), commonly known as a reverse mortgage. These mortgages enable homeowners aged 62 and older who wish to remain in their homes to receive a monthly payment from a lender based on a portion of their equity in their home. The loan is repaid when the homeowner no longer occupies the property, typically when they enter a nursing home or pass away. The remaining heirs must repay the loan if they wish to retain ownership.
Pursuing a reverse mortgage requires careful consideration of its pros and cons. Homeowners with loans insured by the Federal Housing Administration (FHA) are required to meet with a HUD-approved housing counselor.
According to Genworth’s 2021 Cost of Care Study, the national monthly cost for a home health care aide is $5,148, based on 44 hours per week. Involving family and friends in caregiving can partially reduce or eliminate this expense. Additionally, long-term care insurance and Medicaid may cover the cost of family and friends providing home health care.
While Medicaid is often associated with financial assistance for long-term care in nursing home facilities, it also offers beneficiaries care in their homes through the Home and Community-Based Services (HCBS). These services, operating under a waiver to Medicaid requirements, offer coordinated care management similar to what nursing homes or hospitals provide.
The waiver also allows additional services, including home maintenance and modifications, home-delivered meals, personal emergency response systems, and assistive technology.
To qualify for Medicaid, applicants must have countable assets below their state’s asset limit. Some assets, such as the primary residence in specific situations, are not counted. The American Council on Aging provides a helpful tool to determine the amount of assets that must be “spent down” to qualify for Medicaid.
Assistance for military veterans
The Department of Veteran Affairs provides long-term care services to all veterans, which includes adult day health care, home health care, respite care, and skilled home health care. The cost for the services may vary depending on several factors, including VA service-connected disability status and income.
Adult day services
Adult day services are offered by local organizations, providing individuals with comprehensive socialization programs, nutritional meals, and personal care services. This allows those at home to connect with others, reducing the isolation that can affect seniors. The cost of adult day services is approximately $1,690 per month on a national average, but pricing varies depending on the location.
PACE offers comprehensive care
Another option for Medicare and Medicaid beneficiaries is the PACE program (Programs of All-Inclusive Care for the Elderly). As its name alludes, it’s designed to provide comprehensive medical and social services to elderly individuals who are aging within their communities.
The PACE model of care was launched in the 1970s in the Chinatown community of San Francisco after local leaders saw a need for long-term care services for elderly immigrants. The idea was to create a community-based care system without requiring the residents to be confined to institutional facilities.
The PACE goal is to help seniors maintain independence while aging. Services provided through PACE include adult care, medical services, rehabilitation therapy, nursing care, nutritional counseling and family/caregiving support. Seniors with Medicare or Medicaid do not have to pay to participate in the program. But if individuals need to access the long-term-care portion of the PACE benefit, those receiving Medicare (but not Medicaid) are charged a monthly premium.
You can add tremendous value to your clients and their families by providing information and clearing up misinformation about long-term care. Even if your clients aren’t asking you about this topic, they likely have questions about it for themselves or their loved ones, or they will in the not-too-distant future. In my next article, I’ll discuss residential living options for long-term care.
Desiree Fisher, CFPâ, is the owner and founder of Coell’s Legacy, a concierge firm created to assist families before something unexpected happens. We are here to remove the anxiety and confusion from the estate and eldercare planning process. Contact me at our website, www.coellslegacy.com, or on LinkedIn.