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Dianne Feinstein’s ‘significant medical expenses’ before her death point to harsh reality for everyone

San Francisco Chronicle – Long Term Care planning article

Kellie Hwang

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.”

Reach Kellie Hwang: kellie.hwang@sfchronicle.com; Twitter: @KellieHwang

Written By Kellie Hwang

https://www.sfchronicle.com/health/article/home-health-care-cost-18388134.php

 

 

 

CHOICES FOR CALPERS POLICYHOLDERS

On March 10th, a superior court approved the proposed second-class action settlement which has now gone out to CalPERS policyholders to accept or reject by June 6th and with a final court approval hearing scheduled for July 26th.

The settlement amount has dropped to $800 million from $ 2.7 billion in the first proposed settlement.  This may be to bolster the finances of the CalPERS long-term care program in order to protect remaining policyholders.  However, this program has had a history of failure, and keeping a CalPERS policy may be problematic.

The CalPERS policy is a group long-term care insurance policy, and as such, is not subject to regulation by the California Department of Insurance and is financed solely by CalPERS.  Unfortunately, CalPERS investments have turned sour, and for that and other reasons, the program has been grossly underfunded.

The basic offer of the new settlement involves two choices: (1) refund of 80 % of premiums paid, and (2) keeping policies and getting $ 1,000 and a moratorium on rate increases through October, 2024.

Alternatively, policyholders can reject both choices by completely excluding themselves from the class action lawsuit and still maintain their policies.  There is also a process to object to the settlement.

If more than 1% of policyholders exclude themselves from the suit, then the settlement permits CalPERS to walk away from the deal.  CalPERS walked away from the first proposed settlement which failed to garner sufficient approval from policyholders.

With a settlement, as opposed to a trial, CalPERS representatives have not been compelled to speak publicly about what occurred and why.  As well, with this settlement, CalPERS denies all culpability and responsibility for causing harm or violating contracts.

Policyholders that accept either of the settlement offers will also give up all claims against CalPERS arising from or related to the 85% premium increase.  Whether such a release of claims would apply to CalPERS’ most recent 90% rate increase is unclear.

For those who decide to obtain the refund of 80% of premium paid, we may be able to provide another solution which would protect you against the costs of long-term care.  You could convert that cash refund into a plan which could take the cash you receive and multiply it several times to cover long-term care expenses in the future.  To do this, you would have to be less than 85 years old and in fairly reasonable health.  To find out whether you  would qualify, please either give us a call at 800 303-1527 or contact us at info@cltcinsurance.com.

NEW MANDATORY TAX FOR LONG-TERM CARE BENEFITS

A new, mandatory tax which would provide minimal long-term care benefits for California’s citizens has now been recommended by the California Task Force for Long Term Care.

Here’s the brief background.  The California Task Force for Long-Term Care was established “to explore the feasibility of developing and implementing a culturally competent statewide insurance program for long-term care services and supports.”  The Task force has a committee of fifteen members, consisting mostly of California Department of Insurance employees and representatives of caregiving organizations.

The Task Force has met many times over the past year and has submitted its recommendations to the Legislature and the Governor.  It has tried to improve the imperfections of the recently enacted Cares Act from the State of Washington.  The Cares Act will be funded beginning in July through a mandatory payroll tax of .58 %.  It will give workers a lifetime benefit of $ 36,500, adjusted annually by Washington’s Consumer Price Index.  Other states, including the large ones of New York and Pennsylvania, are also considering adapting the Washington Cares Act.

The concept here is to provide a small long-term care benefit and to encourage citizens to buy wrap-around private long-term care insurance.  This would protect citizens and save the state many millions of future Medi-Cal dollars.

In my view, this is a noble effort to provide a public program to solve the pressing and growing long-term care conundrum.  The Committee meetings showed how pervasive and threatening long-term care costs are and are growing.  But the more one examines the details of a public program, the more complex the issues.

The California Task Force has decided to provide the Legislature with five recommended designs, not just one, which are widely different from each other, both in cost and in benefit structure.  It has hired the actuarial firm of Oliver Wyman to provide the cost analysis no later than December 31, 2023.

The Committee favored the most expensive designs, which could increase payroll or income taxes by as much as 20 % over the huge 9.83 % that many Californians currently pay.  It hoped to get employers to pay up to half the cost, which is unlikely in my opinion.  In the end, there is going to have to be a more realistic cost proposal for the Legislature to consider.

Washington State had a very limited period for citizens to buy private long-term care insurance and by doing so, opt-out of the program.  One seventh of the eligible citizens did so.  The Task Force is recommending a similar program in California.  Individuals who own eligible private insurance before the program effective date would be permitted to opt-out of the program.

If this recommendation becomes law, as was the case in Washington, there will be a stampede in California in 2023 to buy private long-term care insurance, and by doing so, probably avoid the tax.

As long-term care insurance specialists, we are gearing up to keep abreast of developments and provide expert advice.  For many, the time to act is now.

By Louis H. Brownstone

 

LTCi Awareness Month approaches, as need for care is likely for many

LTCi Awareness Month approaches, as need for care is likely for many

November is Long-Term Care Insurance Awareness Month.

The need for LTCi to pay for long-term care is becoming more critical every day. While the U.S. Department of Health and Human Services estimates that 70% of people turning 65 today will require long-term care at some point, only 17% of respondents to the Insurance Barometer Study conducted by Life Happens and LIMRA say they have individual LTC coverage.

During November, which is Long-Term Care Insurance Awareness Month, financial professionals will share the message with their clients and prospects that getting LTCi can help cover the cost of care when that care is needed the most.

Helping clients and prospects obtain LTCi

So what can agents and advisors do to motivate their clients and prospects to acquire the LTCi they need during LTCi Awareness Month – and long after the campaign is over?
There are the easy-to-motivate prospects and clients, explained Matt Dean, vice president, MarketPlace Group, LTCI Partners, LLC. These prospects have lived through a care event and understand the consequences and how insurance benefits lessen the financial and emotional strain on everyone. Then there are the harder-to-motivate prospects – everyone else.

“The biggest mistake I see in attempts to motivate these clients is the use of statistics,” Dean said. “Dump the statistics. We would have endless interest if statistics worked. Motivating through probability doesn’t work. Motivating through ‘impact’ works.

“It doesn’t matter the probability if the consequence is big enough,” he said, adding, “It’s why we buy life insurance, even though an untimely death is unlikely. Help them consider the impact a care event has on the people they have invited into their life. This meaningful conversation helps people internalize both the financial and emotional consequences that a care event has on everyone around them.”

Dean offered a suggestion on how agents can start the conversation:

“This topic, left ignored, can disrupt all that you envision for yourself and for your loved ones: your access to quality care in a setting you prefer, the future income for a spouse, and any legacy plans for children or charity. You see, this isn’t just about you. It’s about your spouse, your children, and others impacted by your need for care. The good news is we can review your income and assets and determine if insurance can play a role in minimizing the significant disruption caused by the need for care.”

Ultimately this leads to a meaningful and engaged discussion with the prospect who is now more inclined to act, he added. This is much better than a client who was told, “70% chance you’ll need care.”

Overcoming objections

Even after motivating prospects to act, advisors are sometimes met with objections from them, such as the price of the LTCi policy is too high. Ideally, value and affordability were established with the prospect before he was presented with a quote, said Dean, but despite the advisors’ best efforts, price may be an objection.

The keys to overcoming this objection aren’t through statements of fact and statistics, but through meaningful dialogue about the consequences of needing care, said Dean. He added: “I don’t like to ask clients, “So what are you willing to pay?” If you don’t see the value in something, what price are you willing to pay for it? Price is an issue in the absence of value; therefore, focus on building value and not on chasing an ever-lower quote.”

The conversation with the prospect should sound something like this, advised Dean: “Insurance costs reflect risk, and these premiums reflect the significant financial consequences to you and your family of needing care. Let’s talk about those consequences and then look at the many ways we can balance meaningful benefits that fit your budget.”

The “use it or lose it” objection some prospects have to buying LTCi is another one that is best dealt with pre-emptively, Dean added. The advisor’s conversation prior to the quote should measure costs by the consequences that a care event will have on them and their family.

He said that he tells clients: “I am not suggesting you will need this, and we all hope we never will. As we discussed, the impact of needing care is significant to you and your loved ones, and if it does happen, do you agree that the stakes are high enough and worthy of a plan to minimize that impact?”

 

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at amseka@INNfeedback.com

How to think through the risk of big expenses for long-term care

Opinion: How to think through the risk of big expenses for long-term care

No retirement income plan is complete without a plan for potential long-term care expenses

No retirement income plan is complete without a proper consideration of how to plan most effectively for potential long-term care expenses. However, this matter is often overlooked or avoided.

Many are unwilling to confront the questions and possibilities related to losing their own independence. Psychologically, no one likes thinking about the possibility of being unable to effectively handle the basic activities of daily living. It is a natural response to think this is something that only happens to other people.

The cost of long-term care (LTC) represents perhaps the most severe spending shock that can impact retirees. About half of retirees may be able to make it through retirement without facing even $1 of long-term-care expenses. But at the extreme, long-term-care costs can exceed $1 million. An expensive LTC situation involving years spent in a nursing home could derail an otherwise well-built retirement plan.

A lack of planning can create strains as long-term care expenses deplete household assets, bankrupt a surviving spouse, or add burdens for other family members who may end up making large sacrifices to provide care.

The default long-term-care plan will be to self-fund expenses until assets are depleted and to then transition into Medicaid. But there are other possibilities, including either a traditional long-term-care insurance (LTCI) policy or a hybrid policy combining long-term care with life insurance or annuities.

To better understand the options for long-term-care planning, the overall LTC cost can be defined as:

LTC Cost = LTC Expenses + LTCI Premiums – LTCI Benefits

This equation highlights that the overall cost of funding long-term care comprises the actual expenses for care plus any premiums paid for long-term-care insurance, less any insurance benefits received. For this formula, one may consider Medicaid payments as a type of insurance benefit that reduces out-of-pocket expenses. It is the net out-of-pocket expenses that matter.

Remember, Medicaid helps the poor and comes with its own restrictions and rules. Medicare, the source of health insurance for most people 65 and older, does not pay for long-term care.

Numerous considerations are involved in deciding between self-funding and using insurance. These include age, health, ability to receive help from family or friends without overburdening them, wealth levels and how they may relate to Medicaid qualifications, legacy objectives, risk tolerance related to the financial impact of unknown long-term-care costs, and the costs and benefits of different types of insurance.

This is a lot to consider, and it may be worth discussing these matters with a financial professional and possibly even including other family members in the discussion.

Developing a written plan and sharing it with family members can help to avoid misunderstandings about providing and paying for care. You should also ensure family members know about any funds set aside or any insurance policies designed to support care in case you are incapacitated when care needs arise. You may also want to discuss with your family about ensuring that any insurance premiums get paid to avoid unintentionally lapsing on a policy if cognitive decline begins to set in.

RETIREMENT RESEARCHER MEDIA

How much of a funding reserve is needed for long-term care depends on the types of scenarios you want to be financially equipped to handle in the future: When might a long-term care event happen, how long might it last, what will the out-of-pocket expenses for care be, how much might other budgeted spending drop if long-term care is needed, what is the inflation rate for long-term care as well as the overall price level, and what discount rate will be used to convert future expenses back into the reserve amounts needed today?

Again, these are matters that a financial professional can help you work through.

A silver lining that will help with budgeting for long-term care is that some of the money could come from other expenses falling away when one moves into an institution for care. If you are spending $90,000 on nursing home care, some other expenses in your budget would decline or be covered through the costs of care.

For couples there is the possibility that one spouse requires extended long-term care in an institution, while the other remains at home with a similar overall budget. But if you are projecting prolonged long-term care events for both spouses, at some point there may not be a family home and much of the existing budget could be redirected to long-term care. By redeploying some of the existing budget that way, the need for additional reserves may be less than expected.

Nonetheless, for those who want to plan for the possibility of handling multiple years of living in a nursing home, it may still be necessary to set aside several hundred thousand dollars as reserves to meet this contingency.

Wade D. Pfau is the program director of the Retirement Income Certified Professional program at The American College of Financial Services in King of Prussia, Penn. He is also a principal at RetirementResearcher.com. This is adapted from his book “Retirement Planning Guidebook: Navigating the Important Decisions for Retirement Success”.

Retaining a Positive Attitude

This country is in a dour mood in my opinion.  We’ve become a nation of complainers.  This is especially true when we talk about politics.  Starting fights over alleged issues seems to work better for politicians than asking voters to credit them for their achievement. There are so many things we should be grateful for, but we’ve gotten into a bad rut.

If one looks on the negative side of life, there are plenty of problematic issues.  Here’s my top ten, by no means a complete list:

  • President Trump tried to retain power and threatened our democracy;
  • Republicans vs. Democrats is splitting the country in and out of Congress;
  • Putin is a major threat to our world order;
  • Russia’s Ukraine invasion could continue for many months;
  • We are not doing enough to control climate change;
  • Inflation is eating into our standard of living;
  • Our race relations are still terrible;
  • Income inequality is huge and increasing;
  • COVID may be with us permanently;
  • Thousands of Americans are needlessly shot and killed.

There’s a great deal to worry about.  Newspapers, magazines and social media highlight these issues and keep them before our minds.  Technology has made us closer to the world’s problems than we have ever been, and we can witness horrific events.

But before these issues cause you sleepless nights, you should look at the issues that you can feel really good about.  Here’s my top ten, by no means a complete list:

  • We live in the U.S., the greatest country in the world;
  • We have freedom of speech and can advocate for our views;
  • We can do with our lives as we choose;
  • We have the richest and most robust economy in the world;
  • Two great oceans insolate us from wars;
  • Our climate is generally temperate;
  • Our country practices the rule of law;
  • We have freedom of religion;
  • We can eradicate almost all disease and increase our life expectancy.

If you’re feeling burdened by the world’s problems, depress your concerns and lift yourself up with things that make you feel good.  Listen to a beautiful symphony or a terrific rock concert.  Enjoy the beauty of the outdoors and get some healthy exercise.  Get with your family and friends and relax in their company.  Plan to travel to a place which will stimulate you and make you feel good.  Receive uplift from your religion and keep in front of mind all the advantages that God has given you.  Then go out and share your joy with others.

The bottom line is that the issues we can feel really good about dwarf the problematic issues.  We’re lucky as hell, and our mood should be upbeat and positive, not dour.

Louis Brownstone

How to think through the risk of big expenses for long-term care

“No retirement income plan is complete without a plan for potential long-term care expenses” published by MarketWatch 10-27-2021 By Wade D. Pfau

No retirement income plan is complete without a proper consideration of how to plan most effectively for potential long-term care expenses. However, this matter is often overlooked or avoided.

Many are unwilling to confront the questions and possibilities related to losing their own independence. Psychologically, no one likes thinking about the possibility of being unable to effectively handle the basic activities of daily living. It is a natural response to think this is something that only happens to other people.

The cost of long-term care (LTC) represents perhaps the most severe spending shock that can impact retirees. About half of retirees may be able to make it through retirement without facing even $1 of long-term-care expenses. But at the extreme, long-term-care costs can exceed $1 million. An expensive LTC situation involving years spent in a nursing home could derail an otherwise well-built retirement plan.

A lack of planning can create strains as long-term care expenses deplete household assets, bankrupt a surviving spouse, or add burdens for other family members who may end up making large sacrifices to provide care.

The default long-term-care plan will be to self-fund expenses until assets are depleted and to then transition into Medicaid. But there are other possibilities, including either a traditional long-term-care insurance (LTCI) policy or a hybrid policy combining long-term care with life insurance or annuities.

To better understand the options for long-term-care planning, the overall LTC cost can be defined as:

LTC Cost = LTC Expenses + LTCI Premiums – LTCI Benefits

This equation highlights that the overall cost of funding long-term care comprises the actual expenses for care plus any premiums paid for long-term-care insurance, less any insurance benefits received. For this formula, one may consider Medicaid payments as a type of insurance benefit that reduces out-of-pocket expenses. It is the net out-of-pocket expenses that matter.

Remember, Medicaid helps the poor and comes with its own restrictions and rules. Medicare, the source of health insurance for most people 65 and older, does not pay for long-term care.

Numerous considerations are involved in deciding between self-funding and using insurance. These include age, health, ability to receive help from family or friends without overburdening them, wealth levels and how they may relate to Medicaid qualifications, legacy objectives, risk tolerance related to the financial impact of unknown long-term-care costs, and the costs and benefits of different types of insurance.

This is a lot to consider, and it may be worth discussing these matters with a financial professional and possibly even including other family members in the discussion.

Developing a written plan and sharing it with family members can help to avoid misunderstandings about providing and paying for care. You should also ensure family members know about any funds set aside or any insurance policies designed to support care in case you are incapacitated when care needs arise. You may also want to discuss with your family about ensuring that any insurance premiums get paid to avoid unintentionally lapsing on a policy if cognitive decline begins to set in.

RETIREMENT RESEARCHER MEDIA

How much of a funding reserve is needed for long-term care depends on the types of scenarios you want to be financially equipped to handle in the future: When might a long-term care event happen, how long might it last, what will the out-of-pocket expenses for care be, how much might other budgeted spending drop if long-term care is needed, what is the inflation rate for long-term care as well as the overall price level, and what discount rate will be used to convert future expenses back into the reserve amounts needed today?

Again, these are matters that a financial professional can help you work through.

A silver lining that will help with budgeting for long-term care is that some of the money could come from other expenses falling away when one moves into an institution for care. If you are spending $90,000 on nursing home care, some other expenses in your budget would decline or be covered through the costs of care.

For couples there is the possibility that one spouse requires extended long-term care in an institution, while the other remains at home with a similar overall budget. But if you are projecting prolonged long-term care events for both spouses, at some point there may not be a family home and much of the existing budget could be redirected to long-term care. By redeploying some of the existing budget that way, the need for additional reserves may be less than expected.

Nonetheless, for those who want to plan for the possibility of handling multiple years of living in a nursing home, it may still be necessary to set aside several hundred thousand dollars as reserves to meet this contingency.

Wade D. Pfau is the program director of the Retirement Income Certified Professional program at The American College of Financial Services in King of Prussia, Penn. He is also a principal at RetirementResearcher.com. This is adapted from his book “Retirement Planning Guidebook: Navigating the Important Decisions for Retirement Success”.