When experts talk about long-term care in this country, the word crisis can quickly enter the conversation. The problem isn’t so much with what long-term care insurance covers, although that also weighs in. More importantly, it is the growing numbers of Americans that need long-term care insurance at a time with more providers are getting out of the game. Retirement planner Susan John, founder and president of Financial Focus Inc., in Wolfeboro, NH, discusses what is happening in the market, and how advisors can best help their clients understand this vital part of a retirement portfolio.
Q: When retirement planners talk about long-term care, what exactly are they talking about?
Susan John: We’re talking about issues that affect many, but not all, people towards the end of life. Or issues that affect somebody with a debilitating long-term illness. Nursing home care is the obvious thing, and that certainly is what most people think of when you say long-term care. But we know some people who at a young age contracted things like multiple sclerosis or had an automobile accident whose life is not going to be the same and who need special assistance with their activities and daily living. They will need care for a longer term than some elderly people that we know.
Q: When the advisors within your practice are meeting with a client for the first time, does the topic of long-term care generally enter into a first conversation or is that something that they deal with later in the process?
Susan John: It depends. Sometimes that is an issue that brings the customer to look for financial planning services: they have or they anticipate a need, and they have concerns about how that will impact their future. It’s usually not the first question, but sometimes in the initial interview it does come up. When we are working with a client doing a total financial plan of course we always bring it up.
Q: We hear a lot about long-term care being in crisis right now. What is that all about? What is happening with long-term care that retirement planners need to be aware of?
Susan John: For one, there are fewer insurers than there were, and that attrition is something that happens regularly within an industry. Years ago it was disability insurance, where a number of insurers left the marketplace because they failed to anticipate the effect of certain new definitions of disability that were in their policies. That’s a natural thing that happens, but it is a real concern. You don’t know, for example, if you’re customer is with one of the smaller carriers if their policy is going to be sold off to another, to one of the survivor firms.
Q: Is there a danger that a customer’s policy could be sold off to a company that doesn’t maintain long-term coverage and they would lose it that way?
Susan John: There’s likelihood that it might be tweaked in some way if the insurer is unable to meet its obligations. Planners have to be aware of the size of the insurer and whether or not that is a major business for them. If not, the chance of the insurance company being consumer by a larger company is greater.
Q: Regarding the typical experiences of your customers with long-term care, what trends have you witnessed?
Susan John: It’s interesting. There are a lot of factors involved. There’s family history. When you’re dealing with retired people oftentimes the survivor has a different view of things if their spouse had a period of prolonged illness. Also, there’s the type of assets that they have; what their desires are to leave money to their family.
Q: If a client is in a situation where they or their spouse need long-term care, what are some of the decisions that a retirement planner must help them with?
Susan John: I will give you an example. Nobody wants to go to a nursing home. That’s like the last ditch effort. So what we help clients that have not previously purchased long-term care insurance to find the appropriate level of help in-house so that the care giver doesn’t become exhausted. The person that needs the care gets a better quality of care than just having one family member be responsible for everything. It’s totally exhausting for one person to be doing that. That is one thing. If we’re recommending the purchase of long-term care insurance for somebody we want to make sure that they’ve got a home health care rider in there so they can get those at-home services.
Q: How does a retirement planner bring up these topics in conversation in the most effective way because obviously some of them are very sensitive, and it’s not a pleasant topic?
Susan John: By the time we get around to this topic we’ve got a pretty good idea of what a client’s retirement assets look like, what’s important to them as far as lifestyle is concerned. You get a pretty good feel as to what sorts of legacy they want to leave to their kids. So it’s easy to bring that topic up. It’s one of the ‘what if’ things that can happen to you in life and that is usually the way that we approach it – what if something happens?
Q: What do clients ask your advisors most often regarding the topic?
Susan John: They usually ask us if they need long-term care insurance and if they can afford to pay for it. The affordability is always a big question. The answer to that question depends on what they’ve got already.
Q: If you have a customer that is very challenged to come up with the money for long-term care coverage, but thinks it is really something they should have, what advice can you offer?
Susan John: First I want to know why they think they’re going to need it, and what level of services they think they’re going to need. Take for example someone who comes from a family where dementia is a big factor – we have tests now for that. So you don’t have to be totally in the dark as to whether you might be a candidate for that. That’s a scary topic because not everyone really wants to know. And yet with some people, you would think it would be settling to know ‘yes’ or ‘no,’ that this is a possibility. And then we talk about assets that could be utilized to cover that cost.
Q: What sort of assets can be utilized?
Susan John: This is something that advisers really should be aware of. In the medical profession there is a great debate as to whether people should stay at home and be cared for at home, or if they really belong in a facility. When it comes time to make those decisions, it’s really important that the retirement planner know where the client’s doctor stands on that subject. The doctor may refuse to sign off on something. There are a lot of community-based services available to people, such as the Visiting Nurse program. That requires a doctor to sign-off on the need for those services. Many doctors are refusing to do that because they have strong feelings that the person is better served being in a nursing home.
Q: That’s a very important because one of the big issues for many families is that they want to have that ability to have somebody cared for at home, and it does sometimes require a special rider or your carrier may not even allow that.
Susan John: Exactly. So the family needs to know whether the physician is going to cooperate. That is going to become a bigger problem for people.
Q: What other issues around long-term care should retirement planners be aware of?
Susan John: One of the things that I wish insurance companies would make more clear is when they should be contacted as far as starting the clock on benefits. A lot of people wait too late, and this is important for advisors to know. Customers may say, ‘well we don’t need it yet; we know there is going to be a 60 day elimination period; and we know that we only get 120 days of home benefits.’ So they don’t want to start the clock, but it’s very important to understand what starting the clock means and to make sure that your clients start the clock at the right time.
Q: What is the client trying to match that window of opportunity to?
Susan John: Well, some people are concerned that if they wait a longer period, to see how mom does, and not start the clock because we don’t want to run out of benefits and have to use actual money.
Q: It’s kind of second-guessing how long a duration you would need the benefits for. It’s almost the same dilemma you have with Social Security – at what age should you start collecting without having any knowledge of how long you are going to live. Should you delay it for a better pay-out, or should you take it early because you’re worried you’re not going to live that long. It’s very hard to know.
Susan John: It is very hard to know, and I think the answer isn’t found in hard and fast numerical rules. It’s whatever gives you the most comfort and the best quality of life.
Q: One thing we haven’t touched on is the role of Medicaid in all of this. How does Medicaid come into play here?
Susan John: That’s a good one, and I think this is a real ethical dilemma for many people. There has been for many years a movement for people to pauperize themselves, so they become eligible for Medicaid and don’t – and this phrase really makes my cringe – ‘give the money to the nursing home’. That’s the money that pays for your care, so you’re not “giving it” to the nursing home.
You can get very creative with the solutions I’ve already mentioned. Life insurance policies – selling them, reutilizing living benefits — there are a number of ways of doing that. But also, often there is one sibling that is better able to take care of mom, so you make some special arrangements for that sibling for them to be the primary caretaker for mom. That’s not to say they will be the only caretaker. They may have assistance from other outside people but they’re the primary caretaker. They’re there most of the day but maybe work part time too. They’re outside the home some hours, which is OK most of the time for mom, being along, watching television or whatever. In exchange for that the siblings are willing to let the caretaker live in the house after mom dies.
Q: What are some of the points related to long-term care that advisors may not really be up on?
Susan John: You really can’t be an expert because one of the things that happens in this area of healthcare — as well as in every other area of healthcare — is that the terms and conditions of the policies are constantly changing. Really, the best thing that you can do is find a couple of people that are really good sources of information so that they can keep you up on what are new and what’s happening. That way you end up helping your client get the best solution for what their needs may be.
Q: Looking ahead to 2014, what are you hoping that we’ll see in the long-term care front that will make the picture a little bit better?
Susan John: I wish that clients could have a shopping cart of elements of long-term care that they could buy insurance for – not the whole shebang, but just parts. Because I think there is a lot of peace of mind to be able to know that you can buy a policy that would give you a home health aide for three or four hours a day for 90 days, or whatever. That would be my wish list. Not that I’m wishing more products on the world, but with something that is as nebulous as long-term care, that that would be a good thing to have.