Asset Based Long-Term Care

Asset Based Long-Term Care

Americans over the age of 65 are disproportionately covered against the rising cost of long-term care expenses despite having access to certain resources that could mitigate these expenses. In fact, the cost of needing long-term care represents one of the largest financial risks to one’s retirement and is one of the fastest contributors to retirees depleting their nest eggs. Although these costs are projected to continue to rise over time, Americans can leverage an existing asset to fund a long-term care insurance policy in order to alleviate the costs of needing assistance in their personal residence, an assisted living facility, or in a nursing home. Asset based long-term care is a unique life insurance policy that enables an investor to receive necessary medical care without depleting, or bankrupting, their retirement funds. 

Asset-based long-term care is a unique life insurance policy that provides coverage for services and supports should the recipient require necessary care in their later years. The value of this type of asset has the potential to  double or triple in value to provide that monthly benefit. If the investor does not use the policy, their premium can be returned in full. In the event of the policyholder’s death, however, those benefits are converted into a tax-free benefit for their heirs or beneficiaries. Depending on the policy, the funds within the asset based long-term care contract may remain liquid in the event of an emergency that requires the investor to take their money back. While some Americans believe that the process of acquiring a long-term care insurance plan is laborious, applicants actually face less stringent requirements than traditional long-term care plans. These kinds of leveraging opportunities open the door for individuals with preexisting conditions to receive the necessary care that they need, which is especially important because individuals with preexisting conditions have an increased risk of succumbing to the needs of long-term care services. 

Irrespective of whether an individual has preexisting conditions or not, simply not being covered for these expenses leaves Americans at a greater risk of financial damage. According to the Kaiser Family Foundation, a non-profit organization that focuses on domestic and global health issues, Americans 85 and older who are uninsured face the risk of paying twice as much out of pocket for long-term care coverage compared to younger retirees below the age of 75. Women also tend to pay more out of pocket for long-term care services as compared to their retired male counterparts. 

An essay submitted in 2011 to the Journal of Economic Perspectives identified that nearly one-third of long-term care expenses throughout the United States are paid for out of pocket, while another 60% of recipients receive some coverage through Medicaid. This represents a large portion of the senior population that is either uninsured or underinsured which presents a huge strain on their retirement while depleting their nest egg. Furthermore, the level of care also plays a huge factor in how quickly the investors’ nest egg is reduced. A study conducted by the Center for Retirement Research at Boston College found that although roughly 70% or more Americans will need long-term care services and support at some point in retirement, and these Americans will face varying degrees of severity. 

Contingent on the number of daily life activities, or activities of daily living (ADL) that a retiree has difficulty completing on their own, the Center for Retirement Research determined that there are different levels of intensity for those who need assistance. Among Medicare beneficiaries who pay out of pocket for long-term care services, the researchers indicated that the cost of LTCSS increases linearly as more ADLs are identified; therefore, the data suggests that an individual could potentially pay more out of pocket to cover their LTCSS if they suffer from several severe ADLs. The findings from the Center for Retirement Research were corroborated by data from the Kaiser Family Foundation from 2016 that shows the average out of pocket expense for Medicare recipients. Individuals that had three or more ADLs paid nearly 350% more out of pocket on average than someone with two or fewer ADLs. 

With the price of inflation steadily on the rise, combined with the continued increase of costs associated with long-term care services, it is safe for retirees to deduce that these expenses will become more complicated for uninsured and underinsured individuals who are forced to pay out of pocket as time goes on. This particularly affects women who tend to live longer than men while also being the primary source of care in many households impacted by ADL deficiencies. When their spouse passes away, uninsured women are left at a significant disadvantage having to exhaust the remainder of their retirement nest eggs to afford long-term care services and support (LTCSS). 

Although programs like Medicaid may provide some help for individuals who require long-term care services and support, they’re assistance is limited and only will cover consumers for a certain period of time. For example, Medicaid will only assist with long-term care if the recipient does not exceed a certain income threshold and if the recipient is married, the income of the non-applicant spouse will not be calculated into the income requirements to qualify for Medicaid. While Medicaid will help cover long-term care expenses, this public program should be viewed as a last resort. In order to qualify for Medicaid, the recipients must “spend-down” their assets if they exceed Medicaid’s income limits. 

The problem with Medicaid is that individuals needing long-term care services and support through Medicaid sometimes require certain recipients to impoverish themselves through the spend-down process just to qualify for coverage. Although consumers have options to decide what they want to do with their assets and long-term care coverage, putting money aside and leveraging into an asset-based long-term care policy guarantees that an investor will protect their nest egg from market risk while ensuring that their health is taken care of in retirement with the ability to receive long-term care services and support in the comfort of their own home, an assisted living facility, or even a nursing home. 

As a result, policymakers have long debated how to provide necessary medical care to seniors throughout the country, which has led to several proposals to address coverage gaps. One such piece of legislation titled the “Well-Being Insurance for Seniors at Home” (WISH) Act, encouraged the development of a 0.3% payroll tax that would help provide more benefits to seniors. The bill’s sponsor, New York State Democrat Representative Tom Souzzi addressed the need for this legislation. “We have a storm coming, with the number of disabled elders expected to double in the coming years,” stated Souzzi. “Fewer family caregivers are available for these aging Americans.” Fortunately, Americans have a few options to protect themselves, such as investing in asset based long-term care insurance to protect their health and their nest egg during their golden years.