End of life care can be a touchy subject. Few clients want to think about their mortality, and perhaps even fewer want to put their hard-earned money towards coverage for hospice care, long-term care and medical procedures that may or may not be necessary.
For most Americans, however, it’s a safe bet to plan ahead. The last few months are usually more expensive than the preceding years, and unexpected long-term care events and uncovered medical services can easily wipe out savings and inheritances. 28 percent of the Medicare budget is spent on the last six months of recipients’ lives, according to Kaiser Health News, and the National Bureau of Economic Research found that out-of-pocket expenses average $11,618 during the last year of life. What’s more, the US Department of Health and Human Services estimates that 70 percent of people age 65 and older will receive some form of long-term care, and that the older people are, the more likely they are to need it.
What specific costs should clients consider? “One of the things I try to educate advisors and consumers about hospice and end of life care is that there are two main components,” said Ed Rich of M&O Marketing. “There’s the medical component, typically covered by Medicare and Medicaid, and there’s the room and board, which typically isn’t.” Rich’s rule of thumb is that a yearlong stay in a nursing facility will typically cost about $75,000, and that six months of inpatient hospice will cost a proportional $37,500. Of course, out-of-pocket costs to consumers vary depending on coverage and location.
As for the medical component, determining costs is usually, but not always, a matter of calculating the relevant Medicare premiums and deductibles. Medicare will cover doctor services, physical therapy and other medical costs incurred during a six-month hospice term, for instance, but it won’t pay for room and board or treatments intended to cure the diagnosed illness. In fact, hospice care isn’t covered at all for patients who seek curative treatments in addition to palliative care.
Regarding chronic conditions in general, the Center for Medicare Advocacy reports that services must be designed to improve, maintain or slow the deterioration of an individual’s condition. However, the same organization reports that “Medicare has a decades-long policy of denying coverage to people who need services which are covered by the Medicare Act on the grounds that the individuals are ‘chronic and stable’ and will not improve.” Said Angie O’Leary, senior vice president of US Bank Wealth Management, adding that Alzheimer’s and other chronic conditions, “are a financial landmine,” which can even require legal guidance for sufferers to obtain appropriate coverage.
Fortunately, there are a few ways clients can drastically reduce their end-of-life costs, even in cases where Medicare won’t foot the bill. For Rich and his advisees, planning begins with the setting aside of a small amount of investment income. “I ask advisors to first look at a client’s overall net worth,” he said. “I then tell them to allocate about one percent of that net worth to potentially pay for the room and board type of coverage.” Assuming a conservative six percent rate of return, for instance, he would have an investors live on five percent and put the remaining one percent towards certain types of coverage.
Those coverage options primarily include life insurance policies and annuities with long-term care riders, both single premium and monthly. “One of the beauties of a life insurance policy with a rider is that the cost can never go up, so the client has a much better opportunity to know what coverage will cost over a lifetime,” said Rich. Many of today’s life insurance policies also feature terminal illness riders, which allow owners to accelerate their death benefits in the event they incur excessive end of life medical costs. Some of these riders provide additional help for a year or more, while Medicare’s hospice coverage only applies to terminal diagnoses of six months or fewer.
Overall, a combination of long-term care and terminal illness coverage can complement Medicare and reduce or eliminate the otherwise exorbitant costs of long-term care, hospice care, end-of-life medical care and the residential stays they often require. The challenge for advisors, then, is convincing their clients to buy sooner than later. “The most important thing is to have a plan in place before you have a diagnosis,” said O’Leary. “Advisors play a really critical role in educating their clients and sharing statistics. The best way to convince them is to illustrate a long-term or hospice care event in their plan, with and without insurance.” Imminent retirees may be hesitant to hike their monthly payments, but these scenarios will show them just how much money they’re protecting by planning ahead for these likely events.