Physicians often think aboutprotecting their assets againstthe threat of creditors, typicallyfrom an adverse malpracticejudgment. In fact, asset protectionhas become an increasingly urgentissue, as the current malpracticeinsurance crisis deepens. However, asa physician and financial advisormyself, I have found physicians to besurprisingly unaware of their exposureto asset-destroying long-termcare (LTC) costs.
The following scenario is morecommon than you may think.Michael Fredricks and Dr. MelissaFredricks, both age 50, own theirhouse and have just sent off theiryoungest child's final college tuitionbill. Their diligent saving habits haveyielded fully funded retirementaccounts. Life is good, right?
However, clouds are gathering onthe horizon. Michael's father is showingearly signs of Alzheimer's, but hasbeen stable at home with the supportof Michael's mother. Unfortunately,Michael's mother recently suffered astroke, from which she has been lefthemiplegic. At the very least now,Michael's parents will need somehome health care. While they havesome modest savings, with full-timehome health care and nursing homecosts running upwards of $50,000 ayear, Michael and Melissa are concernedfor Michael's parents' future.
They are considering the purchaseof LTC insurance for themselves andMelissa's parents, who are stillhealthy, to protect the family's emotionaland financial well-being fromany future LTC assaults. What shouldthey know ahead of time?
LTC insurance helps to coverwhat Medicare, and traditional medicalinsurance, does not. Services mayinclude help with daily living activities,home care, respite care, adult daycare, care in a nursing home, and carein an assisted-living facility.
The cost of 24-hour home-basedcare averages roughly $40,000 ayear, depending on the skill level ofthe staff. For a nursing home stay,that figure can rise to $60,000 ormore, with the average stay beingbetween 1 and 3 years. It's very easyto see how the dollars can multiplyquickly, draining one's savings.
The following are common misconceptionsabout LTC insurance:
• It won't happen to me.Consider the following statistics:Over 40% of people who turned age65 in 1990 are expected to enter anursing home at least once beforethey die. About 1 in 4 will spend 1year or more in a nursing home, butonly about 1 in 11 will spend 5 yearsor more. Women are more likely toneed nursing home care, due to thefact that they tend to live longer.And, more than 70% of Americansover age 65 will need some sort ofhome health care.
• Isn't my disability insuranceenough? Disability insurance replacesyour monthly cash flow needswhen you're unable to work, butadditional costs for LTC can be substantial.And of course, once youretire, your disability insurance willno longer be applicable (most policiesend at age 65, regardless).
• The government will takecare of me. People are shockedwhen they discover that Medicaredoesn't pay most LTC bills. In fact,Medicare and traditional health insuranceoffer only very limited skillednursing care at home or in a facility,usually just 100 cumulative days ofcoverage, and only with a prior hospitalstay. For Medicaid, only thosewith negligible assets qualify.
Most compelling of all, however,is this comment by Stephen Moses ofthe Center for LTC Financing: "Visit3 nursing homes—a 100% Medicaidfacility, a 100% private pay facility,and a facility with a mixture of privatelyand publicly financed residents.Your 5 senses, especially smell,should tell you where you, your lovedones, or your patients would prefer toreside if and when care in a skillednursing facility becomes necessary."
• My family will take care ofme. You could rely on your family,but they may not be in a position,financially or otherwise, to help.Consider the following: 42% of adultsliving independently believe thatLTC assistance would be providedmainly by a family member, yetalmost 1 of 4 admit their familymember doesn't have enough time ormoney to help them. Less than half ofthose surveyed have discussed thisissue with their children, and nearly20% fear that their children wouldreact negatively if they brought up thesubject. However, 58% of adult childrenwould welcome such a conversationwith their parents.
• LTC insurance is only for theelderly. The LTC consumer is notnecessarily a bedridden senior con-fined to a nursing home. LTC consumersmay need services not onlybecause of frailty or illness, but alsobecause of accidents. In fact, 40% ofAmericans using LTC services todayare between the ages of 18 and 65.
The decision on when to purchaseLTC insurance can depend on a varietyof factors. If you're approachingage 50, now is the time to seriouslyconsider. The premiums are still reasonable,and waiting longer increasesthe chance of developing a conditionthat could make you uninsurable.
THOSE IN NEED
At what asset level should youconsider purchasing insurance? De-finitely investigate LTC insurance ifyou have significant assets andincome that you want to preserve orif you want to stay independent ofthe support of others.
Don't wait until you've developedmedical problems to purchase LTCinsurance, as it may be too late.Insurance companies have medicalunderwriting standards to keep thecost of LTC insurance affordable.
The following are smart ways topurchase LTC insurance:
• Couples discount. Couplesapplying together typically get a significantdiscount (eg, up to 25%).Many companies will award the couplesa discount even if one of theapplicants doesn't qualify for a policy.
• Inflation rider. Even tameinflation rates can take a big bite froma benefit that may not be used for 20years or more, so purchasing an inflationrider is a smart strategy.
• Tax benefits. In what's called atax-qualified policy, you may be ableto deduct part or all of the premiumyou pay for the policy. However, thereare important differences between atax-qualified and a nontax-qualifiedpolicy that you should discuss withyour advisor before deciding whichtype best suits your needs.
• Hybrid life/LTC insurancepolicies. For those bothered byspending money for LTC benefits,new life insurance options have beendesigned with LTC provisions. Theseprovisions allow the policyholder toessentially liquidate their death benefits early, to help pay for home healthcare and nursing home costs. However,if the LTC provision is neverused, the beneficiary receives the fullinsurance amount.
LTC insurance is a valuabletool in the realm of asset protection,and should be seriously consideredas part of any sound financialplan for physicians and theirfamilies. Don't bet your nest eggon the hope that you or a familymember won't need LTC.
This month's article was contributed by Katherine L. Hart, MD, MBA. Dr. Hart has
been a senior associate with the Asset Planning Group in Miami, Fla, for nearly 2
years. One of her areas of specialization is asset preservation.
Thomas R. Kosky and his partner, Harris L. Kerker, are
principals of the Asset Planning Group in Miami,
Fla. Mr. Kosky teaches corporate finance in the Saturday
Executive and Health Care Executive MBA Programs at the University of Miami and
welcomes questions or comments at 800-953-5508. For more information, visit www.assetplanning.net.