Can You Afford Care in Your Ailing Years?
The stock market is booming, your 401(k) is getting fat, and the dream of a comfortable retirement is looking good. Close your eyes and see yourself playing tennis four days a week, going on exotic cruises, water-skiing on Lake Tahoe.
Odds are that you will be healthy enough to do all those things with enthusiasm, well into your 70s.
But here is a sobering note.
Unless you are blessed with an extraordinary genetic heritage, eat right, exercise vigorously and have good luck, things are likely to start weakening and breaking down when you hit age 75 and beyond. And even more sobering, unless your parents are so blessed, you may find yourself dealing with the worries of aging long before you get there yourself.
This sometimes comes as a great shock to the baby boomers, many raised in affluence and with the confident belief that their parents would always be self-sufficient.
Millions of boomers are grappling today with the emotional and financial pain of coping with parents with illnesses such as Alzheimer’s, which robs the mind while leaving the body intact.
That’s why the issue of financing health care in retirement is a multi-generation worry of vital interest to both the 40-something children and their parents.
The good news is that at age 65, all Americans automatically become part of a protected group, the only class of Americans guaranteed health insurance. They qualify for Medicare, the government program that provides free choice of any participating doctor or hospital. It offers more freedom to choose physicians than almost anyone who gets health insurance through their employer or who buys it on their own.
The bad news is that Medicare doesn’t cover prescription drugs, the biggest monthly medical expense for many seniors. In recent years, drug costs also have been the fastest-growing component of medical inflation. And Medicare won’t pay for custodial care in a nursing home--an expense that can climb as high as $50,000 a year.
Trading Some Freedom for More Security
But there are ways to prepare, and the lessons boomers learn with their parents should help in their own decision-making in years to come.
Some decisions require a trade-off between freedom and security. To get the security of prescription drugs, for example, some Medicare beneficiaries may join health maintenance organizations. The trade-off is they give up the broader freedom to choose a doctor under traditional Medicare for the restricted lists of doctors offered by the HMO.
Or they can opt to buy supplemental insurance policies, known as Medigap, to cover their drug needs.
The choices for the generations involve ethical issues as well as financial. Should you deplete your sweet gray-haired mother’s life savings to pay for medical care in her declining years? Or should you take advantage of provisos of federal law that allow relatively well-off seniors, with a little financial maneuvering, to technically qualify for government programs intended for the indigent? Will she get the same quality of care? And is that fair to other taxpayers?
Should your mother buy a special long-term-care insurance policy now, just in case? And while you’re at it, should you get yourself such a policy, knowing you may not collect any benefits for 40 years, if ever?
Long-term nursing care isn’t a problem for everyone. The rich, of course, can afford it.
The poor are covered by Medicaid (Medi-Cal in California), a program that pays the medical bills of the indigent, including the costs of a nursing home. But to qualify, a person who has not been indigent previously must impoverish oneself to qualify, spending all but $2,000 of financial assets--stocks, bonds, bank accounts, cash.
But long-term care is a real question for the vast middle and upper-middle classes, those with enough assets to worry about.
Married couples have some protection. If one spouse goes into a nursing home, the other can keep their home and financial assets worth at least $81,960. Typically, the man goes into the nursing facility and the wife remains at home. She can keep all the income she received in her own name. If that amount is less than $2,049 a month, she can also keep her income from her spouse in the nursing home, to bring her to the $2,049 standard.
Finding Ways to Distribute Assets
A vigorous industry of lawyers and financial planners has sprung up to advise the elderly and their children on ways to distribute assets to keep the money in the family and still qualify the aged parent for Medi-Cal. Your mother can give away money, buy a new car even if she rarely drives, or renovate her home, all as part of an aggressive campaign to reduce her financial worth against the day when she may need a nursing home.
Naturally, families should discuss the right thing to do while the aging parents are still in good physical and mental health.
One family might sell Mom’s house for $200,000, move her into one of the kids’ homes and use the cash from the sale to hire companions or nurse’s aides to care for the ailing woman. Perhaps their mom insisted that Medicaid is welfare, and she begged them never to put her in a nursing home. They could use all of the $200,000 caring for Mom for the rest of her life.
In another strategy, a family might encourage Mom to spend all her money fixing the house, buying new furniture or a new car, or paying off the mortgage. When she gets down to her last $2,000, the family starts supporting her. Then, if she needs nursing home care, the government will pay the bills. They can protect the house by signing a statement that she intends to return home, no matter how ill and frail she is. When she dies, the children sell the home for $200,000 and divide the money as their inheritance.
All of this is legal. But the state isn’t happy about the middle class using a program for the indigent. Medi-Cal is “designed for individuals who are impoverished,” said Ken August, a spokesman for the California Department of Health Services. “It’s prudent for people to prepare for the possibility that they may someday need long-term care and have options other than impoverishment. Relying on impoverishment as a way to guarantee your medical care is a very risky strategy,” he said.
Long-Term Care Insurance an Option
Another option is long-term nursing care insurance.
In a sense, this is estate insurance, or asset protection for the middle class. The insurance may be expensive, but it will protect assets for surviving family members.
Policies used to be very restricted, but now the best policies provide a pool of money and the flexibility to spend it in different ways. For many, the first choice would be home care, since most people want to stay in their own home if at all possible. The insurance money can pay for home-care aides, who can help with cooking and cleaning or drive a person to go shopping. For someone who is more frail and dependent, the aide can help with bathing and dressing.
These flexible policies would also help pay for assisted living, typically an apartment in a complex dedicated to the elderly. The individual lives alone but takes meals in a common dining room.
The third option is the traditional nursing home for those who cannot live independently.
The younger you are, the cheaper the policy. A policy with benefits of about $100 a day might cost about $700 a year for a 45-year-old, $850 at 55, $1,500 at 65 and more than $3,000 annually at age 75.
California is among a handful of states offering special incentives to buy long-term-care coverage so the state can save money on Medi-Cal. If you buy the state-endorsed policy, you can shelter a big hunk of financial assets--for example $150,000 instead of the regulation $80,000--and still qualify for Medi-Cal.
Arguments rage among financial planners, insurance specialists and aging experts about whether and when to buy a policy.
Few Go to Nursing Homes Before Age 85
Before deciding, it is vital to realize that although most people will spend some time in a nursing home before they die, very few people spend any lengthy duration there. Not until the advanced age of 85 does it become a real threat to any large number of people. A scant 1% of Americans between 65 and 74 are in nursing homes in any one year. The figure rises to 5% of those between 75 and 84, and it jumps to 20% of those over the age of 85.
Although a 45-year-old can buy a policy for comparatively little, the odds are strong that the benefits probably won’t be claimed for 40 years. Even a policy with a built-in inflation rider--most have a 5% annual boost--isn’t likely to keep pace with the accelerating rise of medical costs.
People in their 20s, 30s, 40s and even 50s should not be encouraged to purchase long-term-care insurance now, said Robert Pearson, president and chief executive of Care Quest Inc., a benefits consulting firm.
“They should be contributing that money to any number of retirement savings plans that would give them more security and a better return. LTC insurance shouldn’t be considered until age 60 to 65” unless there is a growing medical concern, Pearson said in an report sent to members of Congress.
Some Employers Offer Group Policies
Some employers offer long-term-care insurance as a new fringe benefit. Typically, the employee pays the full cost but has the benefit of being part of a larger group, which spreads the risk. Someone with Parkinson’s disease, for example, would get turned down for an individual policy. But if his employer offers long-term care, he should grab the chance to get it, regardless of his age.
About 6 million people have such coverage now, a figure that could increase significantly as baby boomers and their parents learn what Medicare doesn’t cover. There are 4 million people in nursing homes now, a figure that could grow to 14 million in 30 years, when even the youngest of the boomers reach retirement age.
Political officials, worried about the budget-busting consequences of any expansion in programs for the elderly, want to encourage people to care for themselves and their parents rather than depend on a federal action. President Clinton has called for a $1,000 tax credit for people who care for elderly relatives at home. Republican leaders of the tax committees in Congress want taxpayers to get a full deduction for every dollar they spend on long-term-care policies.
“Without the assistance of caregivers, most people would require institutional care, and the public cost of long-term-care services would increase significantly,” Rep. Nancy Johnson (R-Conn.), said in a letter to her colleagues in support of the proposed tax breaks.
The message to anyone thinking about health and retirement is clear: It’s going to be your responsibility and your choice. Don’t expect any new government programs.
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Times staff writer Robert Rosenblatt writes the “Health Dollars & Sense” column, which appears the second Monday of each month in Health. He can be reached by e-mail at bob.rosenblatt@latimes.com.
