10 minute read
The Likelihood And Cost Of LTC May Be Higher Than You Think
A look at a client’s likelihood of needing care and the cost of obtaining that care show the various factors that impact those estimates.
By Robert Pokorski
We often hear conflicting statistics about the likelihood of clients needing longterm care, what kind of care they are likely to need and — most importantly — how much that care will cost. But there are a number of variables that go into the estimates of the cost of LTC and how likely a client will need care. Here are some factors that go into those estimates.
The likelihood and cost of LTC depend on the definition of LTC. There are two ways to estimate the likelihood and cost of LTC, and several factors that determine those estimates.
Method 1: Strict HIPAA definition.
Estimates of the likelihood and cost of LTC are usually based on criteria established by the Health Insurance Portability and Accountability Act of 1996. A person requires LTC if a licensed health care practitioner certifies they need assistance with at least two of the activities of daily living for 90 days or more or need supervision because of severe cognitive impairment. Medicaid and some financial services companies use this definition to determine eligibility for LTC benefits.
This approach underestimates the true likelihood and cost of LTC because people who need care at pre-HIPAA levels of disability are not counted.
Method 2: When care is first needed and costs are incurred.
This approach estimates the likelihood and cost of LTC from the perspective of care recipients and family caregivers. The stages identified here were created solely for the purpose of this discussion. » Stage 1 (IADL care). Help is needed and expenses may be incurred because of difficulty performing the instrumental activities of daily living, including cooking, housework, laundry, managing finances and medical care, phone and computer use, shopping, and transportation.
» Stage 2 (standby care). Medical conditions worsen or cognitive ability declines. Paid caregivers may be needed. Stage 2 is when many people indicate their first need for LTC, regardless of the HIPAA criteria. (See Stage 4.)
What Is The Likelihood That LTC Will Be Needed?
Table 1 displays recent estimates of the likelihood of LTC for individuals and couples. In 75% to 91% of couples, one or both people (joint probability) will need LTC.
These projections underestimate the likelihood that care will be needed because the projections don’t include people
who live beyond their life expectancy or who never reach HIPAA-level disability.
» June 2021. Likelihood that healthy 65-year-olds will need some level of LTC by the time they reach actuarial life expectancy for males (age 86) and females (age 87).
» January 2021. Likelihood of needing LTC from age 65 to death. These are future (prospective) probabilities based on the HIPAA definition of LTC.
Likelihood of needing long-term care for 65-year-old individuals and male-female couples
Likelihood for individuals
Man Woman
Likelihood for male-female couples
Man only Woman only Both One or both Neither
June 2021 January 2021 April 2019
44% 50.9% 64% 56% 61.1% 75%
19% 20% 16% 31% 30% 27% 25% 31% 48% 75% 81% 91% 25% 19% 9%
SOURCE: HealthView Services, Urban Institute research
» Stage 3 (hands-on care). More care is needed and more expenses are incurred. Paid caregivers are often needed. Stage 3 still doesn’t meet HIPAA criteria. (See Stage 4.)
» Stage 4 (HIPAA-level care). A health care provider certifies that LTC is needed according to the HIPAA definition.
Research published by the Urban Institute shows one in four people (26%) who pay for care and almost three in four (71%) who receive only unpaid care are not included in most LTC statistics because their disability does not meet HIPAA criteria.
» April 2019. Likelihood of needing LTC from age 65 to death. These are historical (retrospective) data based on self-reported need for HIPAA-level LTC.
Cost Of LTC Based On HIPAA-level Disability (Stage 4)
Table 2 displays the January 2021 government-sponsored estimate of the cost of LTC. These projections underestimate outof-pocket costs because expenses incurred before reaching HIPAA-level disability (Stage 4) are not included.
Some people in each income group (based on income at age 65) become eligible for Medicaid by the time they need LTC. Reasons include decades of general inflation, plus wage and cost inflation for LTC services; reduced value of Social Security benefits because Medicare premiums (which are deducted from Social Security checks) often increase faster than cost-of-living increases; more taxes paid on Social Security benefits (the share of Social Security benefits included in taxable income is increasing because threshold levels for including benefits in taxable income are not currently indexed for inflation); and increased longevity (some people with a relatively high income at age 65 qualify for Medicaid when they reach their mid-90s because they spend down their assets).
Let’s break down the various income groups and their costs of care. Why do some groups have higher out-of-pocket costs than others?
» Upper income ($86,489 to $142,501)
58% are projected to have zero out-ofpocket costs. Some people with zero costs
never need care, some need care but never reach HIPAA-level severity, and some become Medicaid eligible before spending any of their own money. 10% incur costs of $100,000-$249,999, and 6% spend $250,000 or more. 14% have some LTC expenses paid by Medicaid.
Lifetime out-of-pocket LTC cost (2020 dollars) for 65-year-olds with HIPAA-level disability (Stage 4), by household income at age 65, and share who will have some additional costs paid by
Medicaid. Costs for LTC in stages 1-3 are not counted.
Income
Middle ($53,504 to $86,488) Upper ($86,489 to $142,501)
Highest
($142,502+)
Zero Up to $25K $25K$100K $100K$250K $250K+
Some Medicaid
60% 12% 13% 9% 5% 22% 58% 13% 13% 10% 6% 14% 53% 12% 14% 11% 10% 8%
SOURCE: Urban Institute research, U.S. Census Bureau
» Middle income ($53,504 to $86,488)
60% are projected to have zero out-ofpocket costs. Some people with zero costs never need care (costs are truly zero); some incur significant expenses for care in stages 1-3, but these costs are not counted (only HIPAA-level expenses are included in the study); and some become Medicaid eligible before spending any of their own money. 9% incur costs of $100,000-$249,999, and 5% spend $250,000 or more. 22% have some LTC expenses paid by Medicaid.
» Highest income ($142,502+)
53% are projected to have zero out-ofpocket costs. Some people with zero costs never need care, some need care but never reach HIPAA-level severity, and some become Medicaid eligible before spending any of their own money. 11% incur costs of $100,000-$249,999, and 10% spend $250,000 or more. 8% have some of their LTC expenses paid by Medicaid.
Robert Pokorski, MD, MBA, is a consultant and public speaker with expertise in longevity, long-term care, and the decline of cognitive and financial ability at older ages. He specializes in educational meetings for financial professionals and consumers. He may be contacted at robert. pokorski@innfeedback.com.
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Financial facts and figures powered by AdvisorNews.com
Nearly Half Expect To Retire In Debt
Despite their lofty retirement dreams, 46% of Americans expect to carry debt into retirement. That’s among the findings of MagnifyMoney research, which found that not only do a large portion of Americans expect to retire in debt but they also doubt whether Social Security will be there for them.
The research found some conflicting results. Even though many Americans expect to have debt in retirement, only 20% expect to work in their current field or a new field during retirement.
Only 21% of consumers said they work with a financial professional, yet
more than half of those surveyed (54%) said they have no plans to seek
expert help in planning for their retirement.
In addition, the survey found many people want to leave the workforce sooner rather than later. Researchers said 27% of Generation Z and 28% of millennials want to retire before they turn 50. Women are more likely than men to dream of an early retirement, with 21% of women saying their ideal is to retire before age 50, versus 15% of men.
Caregivers Hit Financially By COVID-19
CAREGIVERS ARE TAKING THESE STEPS TO PLAN FOR THEIR OWN LTC NEEDS
46% are increasing
Caregiving is challenging even in the best of cir- their savings cumstances. Add a global pandemic to the mix, and caregivers are feeling especially stressed, 39% are incorporating LTC into their particularly when it comes to their finances. financial plan That was the word from Northwestern Mutual’s 2021 Planning & Progress Study, 37% talked to their financial advisor which found that one in five Americans said they currently provide care for someone. On SOURCE: Northwestern Mutual average, nearly a third (31%) of current caregivers’ monthly budget goes toward providing care. Those costs include professional support, as well as expenses for services caregivers provide themselves.
The study also stated the pandemic has led caregivers to think about their own future long-term care needs. The study pointed out that a third (34%) of adults have planned for their own long-term care needs while 53% said their views on their need for care have changed as a result of COVID-19.
2 In 5 Admit To Financial Infidelity
Infidelity doesn’t always mean having an affair. Two in five Americans (43%) admit to committing some act of financial deception against someone with whom they have combined finances in a relationship, according to the National Endowment for Financial Education.
Among those who said they were financially unfaithful, 85% said the deception affected their relationship in some way.
Financial infidelity is an act of deception by one partner in a relation-
ship where finances are combined.
Examples of infidelity include hiding purchases, money or accounts or lying about the amount of income earned, debt owed and more. The poll asked respondents about the incidence of financial deceptions in current/past relationships, as well as explanations for — and impacts of — those deceptions.
Among those who admitted to a financial deception, more
than one-third (39%) admitted to hiding a purchase, bank account, statement, bill or cash from
their partner, and about one in five (21%) admitted to lying to a partner about amount of debt owed or amount of money earned.
Workers Lag Behind In Retirement Savings
More than half of American workers say they’re behind on their retirement savings, according to a Bankrate.com survey. What is worse, the accounts of many have been moving in the wrong direction as workers take early withdrawals from their retirement plans because of the COVID-19 pandemic.
The survey reports that 52% of American workers say their retirement savings are not where they need to be. A further 16% are not sure whether they’re on track, and 21% say they’re where they need to be. Only 11% said they're ahead of their plan.
Americans have raided their retirement accounts to stay afloat, too. Of those with accounts such as a 401(k) plan or an IRA, 51% have taken an early withdrawal, including 20% who have taken one since the pandemic began in early 2020.
DID YOU KNOW?
43% of Americans fear their retirement dreams could be derailed due to Social Security running out.
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