PROBLEM
What happens if we lose our independence?
When Lilly's husband turned 65, she stumbled on an alarming government statistic. 70% of those 65 and older will need long term care services before passing away. And 20% will need them for longer than 5 years. Their default plan was to cross their fingers and hope for the best. Every time she tried to discuss it with him, he shut down, put the blinders on, and stated that he would "jump off the Golden Gate Bridge before getting to that point". But Lilly was not deterred. Her dad had withered with Alzheimer's. She had witnessed the physical and emotional destruction on her mom. Determined to plan ahead, Lilly sought out the facts about care and options to pay for it.
Long Term Care (LTC) is a wide range of services and support one may need to meet their personal needs. While it could include medical care, the overwhelming majority of all LTC is custodial, not skilled. This includes help with the Activities of Daily Living (bathing, dressing, toileting, transferring, incontinence, and eating), as well as supervision if one is cognitively impaired (such as with Alzheimer's, senility, and dementia). It can also include Instrumental Activities of Daily Living, such as housework, shopping, managing money, medication reminders, and caring for pets. LTC can be received at home or in a non-hospital facility (nursing home, assisted living, memory care, life care, etc.).
It's no surprise that as longevity increases, so too does the eventual risk of needing LTC. Women are at higher risk of needing care and needing it for longer than their male counterparts. While statistics point to the average many needing 2.2 years, the average woman needs 3.7 years. On top of that, women bear the unequal burden of being at-home caregivers to their loved ones, creating an additional layer of "caregiver stress", now recognized as a new Medicare classification.
For those with low income and few assets, Medi-Cal (Medicaid) is the safety net. Sure, it won't cover assisted living facilities in California, nor 24/7 home care, but it will allow for care at at skilled nursing facility that accepts Medi-Cal payments and the patient. Lilly wanted access to choice, including home care, so she checked in to what Medicare covered and disturbed, again, to find out that it was not designed to cover LTC expenses. Medicare (including supplements, HMOs, etc.), along with regular health insurance, only covers up to 100 days of skilled nursing care per benefit period in a skilled nursing facility or at home.
Most planners want to receive care at home and are surprised to find out that if they need 24/7 care from an agency it can be as expensive as a nursing home, if not more. It is not unusual to spend $10,000 - $25,000 a month for home care in the San Francisco Bay Area, although if one only needs minimal care it could be much less. Agencies typically charge $35 - $50 an hour for custodial (non-skilled) care. Independent caregivers often charge much less. Rates at Assisted Living Facilities vary widely depending on the facility, room size, type and amount of care services needed, and even meal plans, but on average will cost $5,000 - $15,000 a month. Skilled Nursing Facilities/Nursing Homes vary too, averaging from $10,000 - $20,000 a month. And, of course, these costs tend to increase annually.
Armed with the facts, Lilly educated her husband and together they realized they did not have "that kind of cash flow". They pondered the order in which they would liquidate their assets, as well as the additional costs in penalties and taxes to do so, and they discussed the importance of leaving assets for each other and for their daughter. They chose to tackle the daunting problem using insurance in order to safeguard their financial plan and retirement dreams, as well as to shelter each other to the best of their abilities.
