This the second article in a two-part series regarding long-term care planning.
There are many reasons why some people do not plan for health care after retirement — they assume government-run programs like Medicare/Medicaid will cover medical costs, long-term care planning is too confusing, or they are in denial that they will need eldercare assistance.
The truth is, 77 million baby boomers are approaching retirement age and the government is not prepared to handle such a large financial burden if people do not plan.
"By 2030, 40 percent of the people [in America] will be over 60 [years old]," said Elizabeth Stein, independent agent, Long Term Care Financial Partners — a nationwide agent-owned brokerage firm.
"The government is getting involved because they know they cannot fund taking care of people through Medicaid," she said.
Currently, MetLife, a nationwide insurance provider, reports that 6.4 million people over the age of 65 in the United States need long-term care.
The average cost of long term care in the U.S. across all service categories — nursing homes, assisted living facilities, home care — was $72,240 for 2004, according to Genworth Financial, an insurance holding company.
Genworth also reported the 2004 daily average room rates for a private nursing home in Virginia cost $150.64, or an annual average cost of $54,984.
"Already long-term care costs are tremendous," said E. Janet Riddick, state department of aging, explaining Medicaid is currently paying for two-thirds of nursing home care in the country.
"If we keep increasing that trend," she said, "it will really be a tremendous burden on tax payers."
In an attempt to alleviate this burden and because planning for long-term care should begin when Americans are young and healthy — to ensure cheaper premiums and financial security later in life — the U.S. Department of Health and Human Services (USHHS) partnered with local area agencies on aging and state governors to educate Americans about early long-term care planning.
In Virginia through the "Own Your Future" campaign — a pilot program in five states including Virginia, Idaho, Arkansas, Nevada, New Jersey — Gov. Mark Warner (D) will send a letter to roughly 650,000 households with people 50 to 70 years old informing them to plan now for the impact of aging.
In addition, public service announcements will run on television and radio stations throughout the state through March.
DURING HIS JANUARY campaign kick-off speech, Warner reported an estimated one-in-four Virginians will be over the age of 60 by the year 2030 — emphasizing the need for baby boomers to plan now.
But, Stein and business partner Penny Gilbert, also an independent agent with Long-Tern Care Financial Partners, said the earlier individuals establish a long-term care plan, the better equipped they will be as they enter retirement years.
Riddick added early planning also means the government will be better equipped to aid those who really need financial assistance.
"Medicaid is absolutely necessary for so many people to be able to pay for their long-term care," said Stein, explaining long-term care implies nursing home care for those who need it except in rare circumstances where other care could be necessary.
"The government is telling people who can protect themselves in another way — either through long term care planning or other finances — to take a look at those so Medicaid will be reserved for those who do not have another choice," she said.
Because many Americans are confused about Medicare and Medicaid assistance, Riddick explained Medicare was created to provide basic health services for elderly or people with disabilities, generally 18 years or older.
In addition, Medicare will only cover short-term medical insurance for those who are 65 years and older, through such instances as a 100-day stay in a nursing home or hospital.
Medicaid was developed to assist low-income individuals or those with disabilities who do not have finances for medical care.
"MAKING A PLAN for when you're sick or debilitated is not pleasant, but we need to do it," said Gilbert. "You need to plan at a young age."
Because denial and procrastination are two of the largest reasons people do not plan, Stein and Gilbert have offered tips and incentives for people to consider planning long-term.
One reason people do not plan is because they have college-aged, or close to college-age, children and are planning instead for increasing tuition costs.
Stein and Gilbert said in this case, parents should open a small policy, "to cover the majority of risks they could face today."
By prioritizing finances while still placing a small amount of money in a long-term care plan, once a child or children are out of school, parents could then open another small plan to lay over the original plan and continue to build money.
In addition, because premiums vary, it is important to learn what makes a plan more or less expensive.
"By altering coverage you can alter the premium," said Gilbert, explaining if someone were older and in declining health, they would inevitably pay more money a day over a short period of time to gather enough to cover declining health costs.
Gilbert reiterated it is important to sign up for a plan in younger, healthier years because age and health are the two main drivers of cost, along with the level of benefit coverage wanted, cost of care and whether or not someone assumes they will be healthy later in life or face illnesses like dementia or Alzheimer's.
"In our opinion, we both believe that some insurance is better than no insurance," said Gilbert. "If you have nothing you are immediately in crisis management mode."
Riddick agreed people need to overcome fears of death because when it comes to care, it is best to be prepared.
"People in our society, we don't like to focus on growing old or dying, but we're really trying to stress to folks to plan ahead for older years," she said. "If someone is 10-15 years before retirement, that's a bit on the late side [to begin planning] but it's better late than never."
Although confusing, Stein and Gilbert said the most important thing to do when trying to find a provider is research various plans, talk to different agents and ask questions.
In addition, the two said to investigate whether the plan offers a monthly or daily benefit.
Because day-to-day costs of medicine and treatment differ, daily benefit plans require a person pay out of their pocket and then be reimbursed by the company.
Through a monthly benefit plan, Gilbert explained after it is decided care is necessary, a check is mailed each month to cover potential costs — determined years earlier when the plan is established.
STEIN AND GILBERT said they knew of one monthly benefit example where an elderly woman, although she missed her husband, waited eagerly for the long-term care check because she knew once it came his expensive nursing home and medical costs were covered.
In addition to establishing monthly or daily benefits, the two said every plan should offer inflation, or benefit increase rider, protection.
Because $6,000 today will not equal $6,000 in 20 years, Gilbert said inflation protection is imperative.
Also recommended is a shared plan for married or long-term committed couples, a return policy if funds are not used, a cash monthly plan and only working with companies that have been in the industry for at least 10 years, have received an A- or A+ financial rating for "poor" and "best" categories respectively, and have not raised premiums on existing policy holders.
"If someone chooses to plan 10 to 15 years before retirement and are fortunate enough not to draw upon it right away," said Riddick, "then 20 to 30 years would be a long enough period for them to accumulate a reasonable amount of wealth security."
But she added, life is unpredictable and that is not the best planning method.
"It's becoming more and more true," Riddick said about the need for extended planning. "People are living longer and longer and the average person will have the need for long-term care for a longer time."
ORIGINALLY PHYSICAL therapists for a combined 50 years before becoming long-term care planners, Stein and Gilbert said they encountered more cases of elderly patients who had not planned for old age than those who had.
"As a physical therapist one of my last patients was a woman who had had a stroke at 46 years old," said Stein, explaining the stroke left her incapable of caring for herself so her husband and two teenage daughters were given the task.
"Thirteen years later she came in because her husband was leaving her and she had to live on her own, she wanted to be functional," she said, explaining that it was physically impossible for her to take care of herself. "She had no caregiver, no money to pay for a place to live or for someone to take care of her."
Stein said if that woman had set up a long-term care plan, the money she could had saved would have kicked in to better her living situation.
Another common circumstance, and one both women said they are facing in their families, is the onset of Alzheimer's disease or dementia and the lack of planning.
Stein said when her father was presented with the option to plan for long-term care, he thought is was a "waste of money."
Now at 79 years old and diagnosed with Alzheimer's, his 78-year-old wife has had to take care of him for three and a half years in their home.
"It's not a good situation," she said. "We see more of those [situations] than that of people who have planned."
Because people can determine where their senior years are spent — either a nursing home or with in-home assistance — Stein and Gilbert said they hope more Americans will take the initiative to plan.
"People need to be responsible for themselves," said Stein. "Don't look to the government to take care of [you]."