That’s No Moon….It’s A Space Station!!

"Your eyes can deceive you...Don't trust them."

Many people read articles or see reports about a shrinking market for Long-Term Care insurance (LTCi) products, such as reporting on suspending the Federal government's Long-Term Care Plan. At the same time, the information is accurate regarding the market for traditional LTCi products, and it is important to recognize how and why Americans may be moving away from traditional LTCi.  

The fact remains, however, that consumers and their advisors need to address the financial obligations associated with future Long-Term Care needs.  If your clients wish to "Self-Fund" their Long-Term Care Planning needs, they must identify how that will occur should they become incapacitated or unable to make those decisions.  For insurance-based planning, most advisors and consumers have the misperception that Long-Term Care insurance is the only way to implement a LTC Plan.  However, there are a variety of alternatives to Long-Term Care insurance available today, so determining and implementing the appropriate plan is a process and not simply the purchase of a “product”, per se.   

In this case, Obi-Wan was correct.....don’t believe everything you read and do your own research.

"Who's the more foolish, the fool or the fool who follows him?"

Since its inception, Medicare has become the primary health insurance provider for those over age 65.   In his remarks on July 30, 1965, when signing the bill into law, Lyndon Johnson said, “many men can make many proposals. Many men can draft many laws. But few have the piercing and humane eye that can see beyond the words to the people they touch.”  While hindsight is 20/20, Johnson’s “humane eye” in creating Medicare failed to see even the most basic actuarial principles.  

In 1965, life expectancy in the U.S. was 73.8 years, so the Medicare program was basically designed to cover medical costs, on average, for approximately nine years.  Life expectancy today has increased to 81.7 years, and the program is now burdened with providing medical coverage, on average, for almost 17 years!!   Additionally, Medicare was created when just 18 million Americans were over age 65, while today, that number has grown to over 40 million.

Ignore the financial viability of Medicare for a moment, and consider the fact that most people fail to understand that Medicare doesn’t cover most Long-Term Care needs.   In fact, if you visit the Medicare website and do your own research, you’ll see what we mean.  Social Security, which goes hand in hand with Medicare as a program for retirees, also makes it clear that planning for Long-Term Care needs is the responsibility of the individual.

Due to cost-cutting measures, Social Security Statements are no longer sent every year, so help your clients visit the Social Security website and set up their accounts.   After setting up an account, you/they can review a personalized statement whenever you want.  Also found on the Social Security site is information on Medicare, and one section reads, “Medicare does not pay for long-term care, so you may want to consider options for private insurance.”  At this point, the failure to help clients understand Medicare and how those benefits fit into their plans is simply unacceptable.

"In my experience, there's no such thing as luck"

Perhaps your clients will have some "luck" and never need Long-Term Care.  However, most Americans over age 65 will require some form of Long-Term Care during their lifetime, and hoping for luck is not a substitute for prudent planning.   That starts with a primary variable of planning for retirement – such as where someone chooses to live – that will dictate the cost of aging and healthcare.  Luck has nothing to do with the fact that Long-Term Care services cost less in Louisiana than in Florida, so once again, planning ahead is the key!   You don't create planning that relies on luck; otherwise, your clients might be better off buying lottery tickets every week and hoping for the best.   That's not a plan either; it's just a bad idea!!  

While most Americans engage in financial and retirement planning throughout their lives, few understand the implications of rising healthcare costs and how those rising costs will impact their savings.  The cost of Medicare Part B, various co-payments and deductibles, plus Medicare Supplement premiums should be recognized, as well as the fact that these costs will be higher for those with higher income. 

Furthermore, Long-Term Care expenses are generally excluded by Medicare, which is unlikely to change.  Although it's impossible to know which client will need Long-Term Care services and to what extent, those clients without a Long-Term Care plan will be forced to use cash flow or savings.  Not only can this derail a financial plan, but it is even more impactful for couples, as one spouse will need to maintain their lifestyle while facing the burden of the other spouse's Long-Term Care event.  

In a galaxy not so far away, it's time to ensure you are having these critical planning discussions with clients.

230315