San Francisco Chronicle – Long Term Care planning article
Sep. 28, 2023 Updated: Oct. 1, 2023 4:23 p.m.
Sen. Dianne Feinstein returns to Capitol Hill in Washington, D.C., after her hospitalization from shingles on May 11. The dispute involving the estate of her late husband illustrates the harsh reality of the costs of in-home health care, experts say.
In the weeks before Sen. Dianne Feinstein’s death, her health struggles after a bout with shingles and extended absence from the Senate highlighted an issue that has implications for many Americans.
A key argument by Feinstein in the dispute over the vast estate of her late husband — including a multimillion-dollar Stinson Beach home — was that she needed the money to pay for “significant medical expenses.”
That claim by Feinstein, a high-ranking politician whose late husband was a billionaire and who is independently extremely wealthy, illustrated the harsh reality of the costs of in-home care, experts say.
According to court filings, the California Democrat’s health issues necessitated more than $160,000 in medical expenses, much likely due to the high costs of home health care and any assistance with daily living after Feinstein’s March hospitalization from shingles.
In-home care generally encompasses medical or assistive care for individuals who need additional support to live at home. The Centers for Disease Control and Prevention estimates 4.9 million people received or ended home health care in 2017.
Feinstein was insured through Medicare and a marketplace policy enabled by the Affordable Care Act, but neither covers many of the costs of long-term home care. In fact, most public and private health and disability insurance policies offer little or no long-term in-home care benefits.
But while most people plan for their retirement, many don’t think about long-term home care expenses until they or a loved one ends up needing it.
“I think a lot of people live precariously, and a lot of people manage in ways that are not ideal,” said Katherine Possin, a professor at the UCSF Memory and Aging Center.
And they may be in for a rude awakening.
An Associated Press-NORC Center for Public Affairs Research survey found that 49% of people 40 and older expect to depend on Medicare to pay for their long-term care needs, even though such services typically are not covered. The survey also found that 69% of Americans have done little to no planning for their long-term needs, and only 16% are confident they will be financially prepared to pay for such care.
Add to that one more sobering statistic: “The federal government predicts 70% of people over the age of 65 will at some time in their life need long-term care,” said Bonnie Burns, a consultant with California Health Advocates — and the majority of them will start out needing that care at home.
Compounding the problem is the size of the aging Baby Boom population: The number of Americans 65 and older reached 55.8 million in 2020, growing nearly five times faster than the total population over 1920 to 2020, according to the 2020 census.
Most long-term care at home is provided informally at home by unpaid family members and friends, according to the National Institute on Aging. Professional paid caregivers are hired through home health care agencies and include nurses, home health care aides and therapists.
While long-term care can also include nursing homes, assisted living facilities or adult day care centers — each of which is a complex topic in its own right — Feinstein’s in-home care situation prompted this deeper dive, with health care and financial experts explaining how to avoid being blindsided.
How common is the need for in-home care?
An older person may have suffered an injury, is recovering after an operation, or is managing an acute or chronic condition. Staying at home can offer elderly people independence and increased comfort.
Most home-based services include personal care such as bathing and dressing, as well as taking medication and supervision to ensure safety. Effective in-home care can save money, improve health outcomes and reduce the need for hospitalization, experts say.
While the need varies based on a person’s situation, and will change over time, data shows 3.7 years of long-term care is required for women, and 2.2 years for men, according to the Administration for Community Living.
One-third of the population may never need the support, and 20% will need it for longer than five years. About 65% of people use in-home care for an average of two years.
How much does it cost?
The cost is dependent on a number of factors including individual needs, medical conditions, where you live and the level of care you’re seeking.
In the ultra-pricey Bay Area, in-home care is going to cost more compared with other metro areas, experts said.
“Premiums are going to be higher, and the rate to get a caregiver is going to be higher,” said Anne Rosenthal, a certified care manager in the Bay Area. “The cost of living here is going to be higher, wages are higher.”
For example, according to a long-term care calculator from life insurance company Genworth, the estimated 2023 costs for a home health aide in San Francisco is $7,585 a month for 44 hours a week, and $91,025 annually. For homemaker services such as meal preparation, grocery shopping, laundry and cleaning, it’s an estimated $7,282 monthly and $87,384 annually for 44 hours a week. Genworth follows industry guidance of 44 hours as the estimated hours per week for professional in-home caregivers.
There are several calculators available to estimate long-term care costs, including one from AARP and another from the American Institute of Certified Public Accountants.
How is in-home care usually paid for?
Long-term care insurance is one option, with 7.5 million Americans reporting some form of coverage as of 2020. While it can help protect your nest egg, it is costly.
According to the American Association for Long-Term Care Insurance, a 55-year-old man could expect to pay an annual premium of $2,200 for $165,000 in benefits in 2022 that grow 3% yearly. That premium would be $3,700 for a 55-year-old woman, as women have longer life expectancies than men. The annual premium goes up as you age: For a 65-year-old, the same benefits would be $3,135 and $5,265, respectively.
“Insurance brokers get large commissions just for selling a policy, and many will offer low-cost policies that are not as useful as a policy offering more benefits,” said Brooke Salvini, a financial adviser and planner based in San Luis Obispo. “Premiums increase each year, sometimes as much as 40%.”
When shopping, she advised getting “the most comprehensive policy you can afford” with an inflationary rider, which offers protection against the increasing costs of long-term care services due to inflation.
A newer product is combination policies that offer both life insurance and long-term care. Generally you have the option to pay one lump-sum premium or a few large annual premiums, and your beneficiary receives a benefit upon your death if you don’t max out your long-term care benefits. The average single premium payment was $75,900-$77,000 in 2022.
Low-income individuals may qualify for public support programs such as Medi-Cal (California’s Medicaid program) that have income or asset eligibility requirements. Some people in particularly difficult circumstances may try to transfer or sell assets in order to qualify for programs, but Salvini said for most people it’s not a go-to strategy she would suggest, and she has not performed this type of planning for her clients.
Burns, the California Health Advocates consultant, said unpaid in-home care frequently falls on women, particularly daughters who often have to care for their own children and also work full-time jobs.
“My mission in life is to find a way to finance this type of care,” she said.
Washington state offers the WA Cares Fund, the only long-term care benefit program of its kind in the U.S., covering all full-time, part-time and temporary workers in the state. Starting in July 1, 2023, workers began contributing a portion (0.58%) of their paychecks automatically.
California has initiated a task force to “make recommendations to the state Legislature for a similar program,” Burns said — but she added that it would be difficult to craft in a way that meets the need for future care and would also be a tough political sell.
For some in the Bay Area, receiving care in their current setting may not prove economically feasible, according to Rosenthal, the certified care manager. They might need to consider options like moving to a less expensive area, or to a community setting or other shared housing arrangement, Rosenthal said.
How can I save for this expense?
Experts say you should start planning for in-home care expenses in your 30s to 40s.
“Saving early is better and easier,” Salvini said. “You can save a smaller amount each year and let time work the magic of compound growth.”
Salvini said potential health care costs are generally part of an overall retirement savings plan, and a U-shaped spending pattern — with peak expenditures at the beginning and end of the retirement period — will result in a solid financial plan.
“The early years of retirement spending is high for activities that were delayed, and put off during the busy work years,” she wrote in an email. “In the middle retirement years, spending may be less because big budget bucket list desires have been fulfilled. Then the later elder years of retirement can have medical expenses.”
Another way to save is by utilizing your health savings account if you’re covered by a high-deductible plan.
“HSAs are triple tax advantaged — a deduction at the time of contribution, tax free growth, and tax-free withdrawal when used for medical expenses,” Salvini said. “One often overlooked ‘super power’ of an HSA is no requirement to match expenses and withdrawals in the same year.”
She advises clients to save the maximum amount allowed in their HSA, and “let their account grow tax free as long as possible.” Pay for current medical expenses from other savings, and “save all medical receipts to document a future lump sum withdrawal from the HSA.”
Your HSA should allow investment of most or all amounts in the account, Salvini added.
If an HSA isn’t an option or the contribution limit is too low, Salvini said a company retirement plan, such as a 401(k), or a traditional or Roth IRA is a good choice.
“The decision to contribute after tax into a Roth or pre-tax into a traditional (IRA) is very much an individual family decision based on income level and tax brackets,” she said. “The most important strategy is simply to be saving as much as you can, as early as you can.”
These topics can be too difficult or unpleasant for many people, Salvini acknowledged, pointing to a survey from senior living referral service Caring.com that found 67% of Americans don’t have an estate plan. In their case, hiring a financial adviser might be a good decision, she said.
“A good adviser will start the conversation with clients on this difficult topic and set aside a budget in the financial plan for the likelihood of future long-term care costs, whether that means respite support for family caregivers or full service assisted living,” she said.
Owning a long-term care insurance policy will also reduce the amount that must be saved for possible long-term care expenses.
While certain conditions will necessitate professional care, some older individuals are “thinking out of the box” when it comes to getting help with tasks and services, Rosenthal said.
Communities known as elder villages are staffed by multigenerational volunteers who help older people age in place, such as the San Francisco Village, a membership organization. Ashby Village in Berkeley is a reciprocal community that helps connect older people to each other and to resources and services.
Sarah Dulaney, a clinical nurse specialist at the UCSF Memory and Aging Center, said while these communities don’t replace caregivers, they can help build a social network and widen resources. Older people can also receive help with certain tasks such as being driven to appointments, or help finding a new doctor or someone to clean their home.
“The Baby Boomer generation is thinking about how to age in place, and people may be realizing that their kids live across the country or out of the country, and they have their own kids and jobs,” Dulaney said. “These are grassroots healthy aging communities.
“But if you already have dementia and need help,” she added, “this is probably not a place to get it.”
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Written By Kellie Hwang