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#35 - The Good, the Bad, and the Truth About Paying for Long-Term Care: Part 2
Eric Blake:
Welcome to another episode of the Simply Retirement Podcast. I am your host, Eric Blake, practicing retirement planner with over 25 years of experience and the founder of Blake Wealth Management. On this show, our goal is to provide education, resources and supports to empower women to live the retirement you deserve, whether you're single by choice, divorced, widowed, if you're simply ready to take control of your financial future, this show is for you to listen to past episodes, ask a question, maybe even suggest a topic for the show. You can go to www.thesimplyretirementpodcast.com. We're also on YouTube at the Simply Retirement Podcast on this episode. This is the continuation. This is part two with our conversation with Nancy Dykeman, a 20 plus year veteran in the long-term care industry with almost 45 years serving seniors. As we continue our conversation on the challenges that women face when it comes to paying for long-term care and more specifically the good, the bad, and the truth about traditional long-term care insurance. If you miss part one, please go back and check that out.
Nancy Dykeman, welcome back. We are here for part two of our conversation on the long-term care, traditional long-term care insurance, the good, the bad, and the truth about long-term care. We talked a lot about what the problem is in our last episode, just trying to get an overview of what are the challenges that people face. So I really would like to get into start getting into some of the solutions now as we start looking at how do we solve this big problem of people living longer, people knowing that we're more than likely going to need some type of care, whether it's for injuries, sickness, mental incapacity, whatever it might be. So as we start looking at talking about solutions, let's start with kind of the one once. It's very, for many people, it's a misunderstanding and they think that, well, what about my Medicare? What about my health insurance that I have as a retiree? Won't that cover these costs? How do you respond to that?
Nancy Dykeman:
Well, Medicare is medical insurance. It just continues on from your health insurance that you had when you were working, and Medicare then takes over and that is a happy birthday. You're 65, you get Medicare today, but it doesn't cover long-term care or extended care at home, it cover that. It's only medical care. Now, there are some, part C of Medicare is Medicare Advantage, like a certain private company that takes over your Medicare part A, part B, and if you're close to 65, you'll learn more about that or over 65. But they are saying that there's a little bit of home care. Well, it has to be medically oriented. It isn't like extended care where I could give you care, you could give me care. It isn't a professional need necessarily until the caregiver needs help with taking care of someone that is loved. So Medicare does not cover it.
Your regular health insurance does not cover what we do. So when you think about extended care, and let's say, I'll give you an example. God forbid you have a major car accident on a Saturday night, you're going to be in the hospital having several surgeries for two weeks maybe, and then have rehab for six to eight weeks. All of that is paid for by your health insurance. You might get some care at home from a nurse or get bathing a couple, three times a week will be associated with your medical recovery. Now you're at home and you need help getting up and out of bed. That's called transferring. That's the first thing you do in the morning. There's six activities that physically you might need somebody to help you transferring out of bed, standing up, getting to a walker or wheelchair and getting into the bathroom and toileting and the hygiene associated. Well, that's the two big Ts. Then you get into bathing, dressing, eating, and maintaining bowel and bladder control all day without help. Just think if you'd had a major accident, Eric, you had several casts on how do you do all that? You don't. You need some help, but your spouse is a hundred pounds lighter than you, so how is she going to take care of you? She has to have some professional help do that, and that's what this insurance pays for is the non-medical. We call it custodial extended care.
Eric Blake:
Got it. So let's talk about, we know that as far as Medicare, not covering it, health insurance not covering it, what are some of the top solutions? Obviously we've kind of touched on long-term care insurance, traditional long-term care insurance being one of those. But what are the other options? As we start thinking about a plan, which I know is big for you, we start thinking about putting together a plan. What are some of the solutions that women might consider?
Nancy Dykeman:
The first thing is do you have enough money to supplement what an insurance policy would do? I don't believe in over insuring people. I'll hear people call me and say, my financial advisor or my friend told me it's going to be 13 to 15,000 a year and premium for something I might not ever use. And I go, wait, wait, wait, wait, wait. You don't need a policy like that. Let's look at the cost of care. So that's what, first I want to know, what's your motivation? What's driving your thought today? Well, I just got done taking care of my mom and dad and we spent all this money, or I'm worried about my kids having to take care of me and be a burden to them. We don't live near our family. So it's what's your motivation and have you had a prior experience with caregiving?
Because that'll help motivate me on what I'll recommend for them for funding. So once I know their motivation and if they've had a prior experience with care, then I ask 'em, well, what is your net worth? I don't need to know everything. I just need to know, do you have $500,000? Do you have $200,000? Do you have a million and a half? Do you more than that? Because if you can self-fund some of it, we'll put the most of it onto the insurance and that way that's the roadmap that your family is going to follow when you need care. Otherwise, they're in this constant chaos. They can't get out of this chaos because they're starting to worry about money. And that's what can blow kids apart is who's paying, who's taking care. The caregiver is the alpha daughter and she's exhausted and she's mad at everybody else, and the guys call her, my brothers called us on Sunday night and just went, how are you doing?
Okay, alright then you have a good week. But caregiving is so hard, and I'm doing it for my husband right now and daily he needs care. And we didn't think that would happen. But without having a plan put in place, all four children of ours would be in chaos constantly. They're in calmness because they know it's all taken care of and they're so grateful. So I consider any kind of a plan, a gift, but funding is even more of a gift. So I like the combination of some long-term care insurance, which is health insurance and your own self-funding. Maybe you self-fund a hundred thousand dollars of it and the policy funds 200,000. So you've got three to four of care. Eric, you might know this, but women use long-term care, whether they have a plan or not, they only need it three to four years.
So we don't do a policy that's 10 years unlimited anymore. We just don't need to. That's overkill. And the same with the inflation protection being 5% compounding every year to grow the benefits to keep up with rising cost of care. We just don't do that either. We do 3% because the cost of care is rising about three to 4% a year, but men use long-term care about two, two and a half years. I don't know why you just don't do as well as women do, but we need to only be funding that much. So if I can fund half to three quarters of the cost of home care in that community where the person lives that is calling me, asking me for advice, that's still what if they never used the policy? They haven't been over-insured. So I can guarantee you, if you can qualify medically that your height and weight is pretty proportional and you don't have any major health issues that are not being addressed or aren't being controlled, you can have medications, you can have had cancer, you can have had diabetes, we can get you some coverage.
If you're managing your issues well then if you can't qualify, I can guarantee you I can find a plan that is affordable for you. That's the second big concern people have. They think long-term care insurance is too expensive. What's too expensive is the cost of care. If I can find you a policy that is less on an annual basis than one month of care out of your pocket, are you willing to talk to me? And they'll go, oh, I didn't know I could do that. Sure, what's affordable for you? That's where the financial advisors can really help because they know what's in the plan for retirement income and you're going to pay that premium or pay long-term care from income. I look at assets as a capital building, like a bank building with windows, and you're not going to blow out those windows to take care of somebody. You're not going to get rid of that asset. You're going to spend your disposable income on care. Do you have five to 10,000 a month to pay out of your pocket if you need care or do you want to free some of it to the insurance company?
Eric Blake:
One of the things obviously that I love most about what you've said so far is just the idea of having a plan. I think one of the other things, and I definitely want to touch on some of the challenges that the long-term care insurance industry have had, but I think one of the problems is, correct me if I'm wrong, but I think there's been a lot of situations where policies get sold. And back in the day back when I, because I have my insurance licenses, I've sold long-term care, it's been a long time. Now I do rely on great folks like you, but it was the idea that you had to sell somebody the Rolls-Royce policy and not the Honda policy. We had to cover everything. You had to cover a hundred percent home care, 5% compound inflation, lifetime benefit, all so on and so forth, when realistically, that probably has never been needed, but that's what paid the highest commission. So here you go. We're going to, and it's just been the way, not everybody of course, but I know personally that's been some of the issues I've seen
Nancy Dykeman:
As far as planning. Well, lemme tell you, we didn't know what we know today.
When we started selling back in the early seventies was the first plan that was sold and it was $50 a day in a nursing home. Even when I was a nursing home administrator, it was worthless. It didn't pay for hardly anything, but if people had 'em, we used them. Now you have money to pay for care wherever you want to be, and you do better at home for maybe three to five years. And that's really all, if you've had a major health issue, you're over 65, you're going to have a struggle surviving that for 20 years. It could be memory loss, but even with memory loss, we're not seeing the kind of length of time that people need care anymore. So if we can fund it with some of your own money and some of their money, the insurance company, that's a good combination. Now we know how long the claims are.
We now know we didn't have any claims for 25 years. So how would we know that we priced it right? They didn't price it right because they thought it would not last as long, that people wouldn't use these policies very long and that the insurance company would have their part of it and you'd have your part of it. Well, it changed once we knew what the claims were. We know that the claims are longer and more expensive than we ever planned, and the cost of care is driving us to get insurance just like it goes. You have a house that you want to protect, you have insurance for it, maybe you'll never have a claim, but it's so critical for peace of mind and for family planning of what's going to happen to you when you need care.
Eric Blake:
Can you talk about, then let's get into that just a little bit again, some of those challenges that the long-term care insurance industry have faced, because that is one of the horror stories out there that people have heard that I knew somebody, it was a family member, it was a friend, it was somebody that the long term, their insurance premiums just kept going up and up and up to a point where they couldn't afford the premiums. Today there's been a lot of work done. So just talk about that a little bit.
Nancy Dykeman:
We have ways of guaranteeing the premium on traditional long-term care insurance that doesn't have any kind of a life insurance component. And that's if you pay early, you don't pay an annual premium or monthly you pay 10 times and you're done. Or you pay a single premium, a hundred thousand, 200,000 to get 400,000 in long-term care. It's just a way of using some of your own money. And even some of the insurance companies have an investment component that your growth on your benefits has to do with your investments. So there's variable kinds of things that are available or fixed kinds of things. So we have a lot to choose from. We have about 14 different companies at LTCI partners that we can choose from to find the best fit. And some of 'em are short-term care. Some of 'em are long-term care, some of 'em are life insurance with long-term care benefits.
There's a variety of things available out there, annuities for people who can't qualify for anything else because with an annuity, you're just setting your own money aside and you don't have to meet any health qualifications. So there's things that we can offer, but you're right, some rates have had to go up and it's because we didn't have the claims experience. Now the actuaries have that. They've raised the prices already. Eric, on the existing new policies, something somebody buys today for long-term care insurance is higher in premium than it was even a year ago because they've adjusted it for the new buyers hoping, praying that they're not going to have any rate increases for those policy holders in the future. But you could with health insurance, long-term care insurance, you could experience maybe a 10% raise in the next few years, but not at all. What we saw before, we had to bring old policies into today's world.
Now that's been done. The actuaries feel they have priced everything correctly based on the claims experience. So I'm not looking at a lot of rate increases, and that's because I've been in the industry 25 years. I've watched what's happened with these companies and a lot of companies have left. Big name companies are no longer taking any new applicants because they are protecting their policy holders. I like that they're protecting the policy holders from more risk that the company's going to take. And I don't want a phone call that my claim isn't being paid because the company ran out of money. I don't want that call. I will field any call on rate increases because these companies are giving you three or four options to keep it affordable and keep your policy active.
Eric Blake:
Got it. So let's step back into the planning conversation. We've touched on both of these. You've talked about long-term care being retirement disability insurance, which I like that term. I think that's a great way to phrase it. Just to put it in perspective. You've also actually got, you touched on when you're working and you're working years, you have disability insurance because again, if you get sick or hurt, you can't work. You need income replacement. So what's the age? What's kind of the earliest age you would have somebody at least start thinking about it or even then taking that next step to start planning and maybe put something into place?
Nancy Dykeman:
Well, I think we're being guided by the insurance companies that are selling long-term care insurance to groups, to employer groups, large ones and small ones. They're offering long-term care. Insurance is a new benefit and whether the company pays anything or not on the premium, they're offering it at a discount. Well, that's a 40-year-old. So I'll get calls from 40 year olds through our group department to talk about this kind of planning. Why should I do this at this age? Well, the premium is probably less than a thousand dollars a year, maybe a hundred or less a month. So why wouldn't you do it now? And it's portable. You get to take it with you and nothing changes but the address, so for the bills, so 40 would be young. In my world, 57 to 59 is the average age of people buying long-term care insurance.
And then we'll sell up to 80. So I got somebody covered the other day, the 78. She's a yoga instructor, she's in great health. She drinks wine at night, she's doing all the right things, and we could get her some coverage because she didn't put a plan in place. Her kids asked her, what are we going to do if you do fall, you do fail. What are we going to do? So now she has a plan. So we'll normally go up to 80 with life insurance. We can go almost to 90, but it's pretty pricey. So traditional long-term care insurance, we can underwrite someone up to 80 years old. So would the premium change. It could change. We can't guarantee it unless you shorten the payments of the premiums down from annual to maybe 10 pays or five payments, and that way they can guarantee the premium.
Eric Blake:
Well, and I was going to ask you, that was my next question is as far as is there a maximum age as far as different types, obviously long-term care, that's one of the things, again, one of the objections that advisors will hear or anybody will hear is, well, I am too old. It's going to be too expensive. I can't afford it. What would you say to that? Somebody, they're 65, 70, 75. How do you respond to that?
Nancy Dykeman:
If their health is good, their bill, their height and weight is good, we can find a plan that would be a one year to two year plan that would give their family maybe 10,000 a month for a couple years of care, maybe no growth on it so that it is not needing to keep up with inflation protection or anything, growth of the cost of care. They're just going to have a bucket of money that they're going to be able to spend. And it is that roadmap for the family to follow. They're just not in that constant chaos. It's not a big policy, but it may be the only thing they qualify for if they're over 80. But it's usually based on health. And I haven't found a lot of people over 75 that don't have a major health issue that's driving them to worry about this.
So it all depends on what they can qualify for. We even have a life insurance company that has a home care and you don't have to qualify. So we have things that we can offer. It always breaks my heart. If somebody calls me and we go through the exercises that we do about building a policy for you and then they can't qualify, I don't want to just say, sorry, too bad. So sad, goodbye. I don't feel right about that. So we've come up with a lot of different options of kinds of policies and kinds of coverage that we can recommend, so we don't leave people without a thought.
Eric Blake:
You've touched on this a little bit here and there, but I want to maybe tie it all together here. Somebody is, let's say they're 55 and they're ready to start exploring it, and they want to call Nancy and say, Hey, can you help me plan? What does that look like? What are the steps that they would go through to start that process?
Nancy Dykeman:
Because I'm an educator, I do a very simple two different exercises, and even engineers that have numbers in their head all day long, they go, well, this is so simple, this kind of elementary, but I like it. So I'll tell you, first of all, I look with them online. I work with them online, and we look at the cost of care in their community. Most people don't know what that is. And I used to say, don't do that first. No, first you're going to find out their motivation and find out what have they had prior experience with care. Third is what's the cost of care? Most people can't guess that Home care is probably five to 10,000 a month in their community, going to 20,000 a month in 20 years. Assisted living is very similar to home care, but it's a very basic care level at maybe five to 7,000 a month for a single apartment and some care.
And then you buy more care, memory care and private room in a nursing home over 10,000 a month. Okay. So when they know those numbers, then we begin to talk about how to design a plan, and I ask them to take a piece of paper and draw five columns. Oh, okay. And I can hear the scratch on the paper. That's great. So, okay, what's your first column is what's the maximum amount I can get out of my policy when I have a claim as a maximum monthly or daily amount? The second one is policy limit. How big is my bucket? And when I take out the monthly, it's going to deduct from that bucket. That's your policy limit. The third column is a one time deductible period of you. It's on you as the policy holder to pay the first 90 days of care while the benefits are getting ready to be paid out to you, and you don't pay any premium once the benefits start.
So the company's paying your caregivers or the facility and you don't pay the premium anymore. And then the fourth one is inflation protection. I call it growth on the benefits. And that's 3% compounding annually, like adding interest. That's pretty critical for somebody who's in their forties, fifties, sixties, early seventies. After that, I probably would just have a higher benefit and no growth because the growth is a big piece of the premium and the last column is premium. And that's up to you. I don't know what's affordable for you. So let's look together. We look at two or three different companies. They have their worksheet, they talk to their spouse about it. We get together a week later and make a decision. It's pretty simple. I want to keep it as simple as possible and not add a lot of riders, add a lot of things that consumers don't understand. I make it very consumer friendly and they're really designing their own plan.
Eric Blake:
Awesome. Well, and again, I think the big thing you keep, you've come back to it multiple times, but it's have a plan, have a strategy for playing for long-term care, extended care. I need to start using that phrase instead of the long-term care. So having a plan, having a strategy for paying for extended care, reaching out to people like Nancy. So Nancy, if you wouldn't mind, just share your information. How can people get in contact with you if they want to start that conversation?
Nancy Dykeman:
I'm a senior advisor at LTCI like long-term care insurance, LTCI partners. So it's Nancy dot Dykeman, D-Y-K-E-M-A-N, at ltci partners.com. And you can contact me at 608-807-2531 and our website, you can even look at some sample quotes if you want to, is www.ltcipartners.com/ltci.
Eric Blake:
Perfect. Well, excellent. Well, Nancy, thank you so much for joining us today. This has been great. It was exactly what I was hoping for just to get this education out there to hopefully, specifically give women optimism that there is a plan, there's a way you can plan for these issues and these strategies. Whether your objective to provide a legacy for your family, or just make sure you've got the best care that you can get or what the most affordable care is. Have a plan, have a strategy. Please make sure you reach out to Nancy if you do have these types of questions you would like to get some guidance on these issues. Thank you so much for our audience for joining us today. Please like, follow and share the show. If you'd like to learn more about our firm, you can visit our website at www.blakewealthmanagement.com. We will see you on the next episode of the Simply Retirement Podcast.
In the meantime, please remember that retirement is not the end of the road. It is the start of a new journey.
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