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Tackling Long-Term Health Care Costs

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John Maher:  Hi, I’m John Maher. Today, I’m here with Rick McDonald, President of the US Advisory Group – a family both management company in Massachusetts. Today, we’re talking about “Tackling Long-Term Health Care Cost.” Welcome, Rick.

Rick McDonald:  Good morning, John. How are you?

What’s the difference between short-term and long-term healthcare?

John Maher: Good, thanks. Rick, what’s the difference between short-term and long-term healthcare?

Rick McDonald:  Oh, good question. This area is so full of land mines. We first need to realize that healthcare costs, as we get older, are very, very expensive. We know all of these. We’ve all had an elder parent, ageing parent, or know someone who did, or maybe it’s a spouse – different things for different people by experiences.

The issues we get asked about how to approach this depend upon a number of different things. The financial structure of your family’s a very big part of it. But more immediate thing is, what’s the nature of the need? Is it long-term, is it –? Long-term care are issues where the person needs assistance but what they’re undergoing is not necessarily life threatening.

John Maher:  Okay.

Rick McDonald:  On the other hand, they may have a shorter need and there’s a whole different deliverable for their requirements based upon a shorter need.

John Maher:  Right, so a short-term healthcare cost would be, all of a sudden, I get sick. Something happens. I have to go to the hospital and get some procedure done or whatever it might be. But then, I’m likely to recover from that and be okay. But long-term cost would be I’ve got general health issues that are going to be lasting for maybe the rest of my life?

Rick McDonald:  Right. We start approaching the things that we all get concerned about – dementia, Alzheimer’s, things along that line. But just plain, getting old..

John Maher: Sure.

Aging and Healthcare: Financial Planning

Rick McDonald:  We’re going to get frail. We need assistance. We need assisted living facilities or we just need to be moving in with our siblings. We’re living with our children to have more monitoring, more care.

Everyone’s different. In some others too, there’s a couple of different issues involved with this. Number 1 is the actual ailment – what is the health of the individual we’re talking about. Number 2, what are the familial resources? Who’s around to take care of the person? Who’s the primary? Who’s the healthcare giver? Is there a network of family members who can and are in the position to be able to take care of the person who needs more attention? Should they even more in to the home? All of these are part of the factor.

Do they go into the assisted living facility? Does the assisted living facility have the ability to care for that person’s needs? Ultimately, does it need to be a nursing home? How do we pay for all of this? The money issue, you hear these things and they’re with you all the time. The money issue is always the fear of it. People are always making knee-jerk reactions because of the money issue.

First things first, you had a better assessment of who the person is, what’s going on, what the needs are, and what resources and familial resources particularly are available. Then, you start looking for financial resources. The bottom line is, obviously, long-term care can be very, very expensive – $5,000 or $7,000 a month in an assisted living facility is certainly the norm.

Nursing home care, well, over $10,000 a month, for an average facility. And what’s the average? I can tell you if it’s going into lots of these different things. Average is not such a great place to be living. And so, are these costs which can be hugely detrimental for the family? Are they available for the family? What implication to the surviving spouse will there be, by driving a $10,000 a month bill out of life savings?

One day, you had a very modest, not very comfortable, but modest retirement pool of money. So a handful of IRAs, some nice pension, some personally accumulated cash, and living in a nice home. And once spouse needs to go in to a nursing home. $10,000-$12,000 a month puts a very, very large dent in a retirement plan. And all of a sudden, it’s going to not only challenge the impaired spouse but the surviving spouse – the so called community spouse. They’re life is just changing dramatically and not always for the better, typically. So, what do you do about that?

Again, it starts by what’s the proper assessment? Are we short-term or long-term planning? Too, too, too many times, we see or hear of people making knee jerk reactions for the sake of saving money when the spouse or the parent that goes in a nursing home, passes sooner than expected?

Most of the so-called nursing home plans you hear in the radio are all being advertised by financial salespeople, talk about moving assets irrevocably into illiquid positions. And so, if you don’t stay in the nursing home for a good number of years, a lot of those plans will hurt you more than help you tremendously.

The problem that holds space why there are so many regulatory bodies going after so called elder care, elder financial services for elders. There are some awful lot of abuse in that space, misunderstanding in that space, bad management, bad business decisions about that space because you’re trying to hit a moving target, and it’s not always easy to do that.

But there are a lot of things that one can do for providing for an elder, whether it’s an elder parent or a spouse, and protect assets in some cases, ‘depends upon what your financial structure is because as long as the person in the nursing home or the assisted living facility has assets are going to have to draw them down.

The question is do you move them out of their name?  You might. Maybe that makes sense. There are very clear rules about how long the money has to be moved out before you’re going to be qualified for any assistance.

But the issue remains that you need to make the person indigent. That’s always not a good thing if that person has a lot of money in IRAs. You’ve got to break the IRA up. That’s a very tax-inefficient thing to do, particularly if the person passes, you might have been infinitely better off to have left entirely IRA alone, and let the IRA pass intact as an inherited IRA to other children or grandchildren, or to a simply rolled over upon death to the surviving spouse because they needed the money. All of these things, when addressing nursing home issues, when addressing long-term care issues, have reactions, have implications.

There is no simple decision or magic bullet that will solve all ill issues. And everyone, of course, is looking for that. It’s a tough area. It’s an area stressed out with emotions, both financial and relational. And oftentimes, most people that we see come to us because they made the wrong decision, a bad decision usually driven by a product sales person and we refer them to an elder care attorney to begin to structure, create the various instruments that might better thoughtfully protect assets.

If people have enough money, and they plan in advance, so there’s planning. It’s active planning, not reactive planning. There are things you can do to begin to protect assets legitimately but an awful lot of people are doing things for the wrong reason and frankly suffering consequences as a result.

Planning Ahead for Future Healthcare Costs

John Maher: Right. So, this sounds like something that we need to plan for ahead of time, so that like you said, you’re just not making a knee jerk reaction, you’re not reacting to some ailment that comes up. So, what’s the process for working with somebody who — ‘Maybe we don’t need that assisted living facility right now. I’m a little bit younger. My health is still okay.’ How do I plan for that ahead of time?

Is that something that you look into or is this something that we’re looking at when somebody does get sick. ‘Okay, now, we’re making a plan for how to deal with that?

Rick McDonald:  Well, that’s a great question. Everybody – I would arguably say yes, they pass through 65, certainly by 70 – needs to have a plan. ‘Don’t know what it’s going to be yet. Long-term healthcare insurance is very, very expensive. And by the time you’re 65 or 70, you might feel that it’s too expensive. Others might disagree. So maybe you have long-term care insurance that might help in some cases, typically do not. Our experience is most people don’t have it anymore because it’s just too expensive.

So the point is, as you get older, you need to develop a plan. And this is a family plan because you’re developing a plan that’s probably going to put into action by family members, not you. By definition, it’s to protect someone who no longer can take care of themselves in one fashion, shape, or another.

John Maher:  Right.

Rick McDonald:  Now, it might be one spouse to the other. It very often will involve family members if they’re local. And if they’re not local, they probably still need to involve them. It just creates more stress.

But this is the kind of thing that needs to be talked through with regard to what do you want to have happen to yourself literally in terms of care? Are you going to move into a family residence? Are you going to be into a facility that will provide you the care? That’s a very emotionally charged issue.

Most people might say, ‘There’s no way I’m not moving to my kids’ home.’ They’re not in the position to. There’s still much going on in at that home lately. The environment home is not conducive to something like that. Others will say, ‘I have a child, a daughter, a son who has room, who has an in-law apartment. They’re all set for me. And when that happens, we have something to take care.’

That’s great. That’s still interim planning because then, there will come a time if this is what happens, then you’re going to need more around the clock care. All the way up to an included institutional care. And what does that look like, okay?

So, we need to, number 1, decide within the family who is the ultimate caregiver? Spouse to spouse – natural. Next, which of the children are going to be the caregiver, if that’s what’s going to happen? And if not, maybe it’s some professional that’s going to come in to be hired if that’s going to be something you can afford to do.

So develop a plan of action for the first stage, if that’s probably the thing that will happen more than long-term. In the long-term case, that was because that very well happen but isn’t it given? What do we do at that point?

Now, we started looking at the financial picture dependent upon the structure of the family’s finances. We may either protect the small amount that’s in there so that the surviving spouse is financially okay. If there isn’t a surviving spouse, then we’re talking about an elder parent, for example, but as a single parent.

We’re otherwise talking about that parent spending, ultimately, an inheritance. If that’s a problem, we need to think a little bit about what the implications are. But that’s basically what you’re talking about. Will your parents spend the inheritance and the inheritance? A lot of folks will tell me, ‘It’s my mother’s money. I love her. Whatever she needs, she’s going at the best care.’ And that’s usually the best answer.

And so, you basically do not deal with a lot of crazy things with regard to those assets. You do some modest planning perhaps. But the bottom line is you leave the money, more or less where it is. You’d provide for your elder parent when they go into a home. And know that ultimately where the assets are drawn down, then they may qualify for public assistance.

John Maher:  Right.

Rick McDonald:  If their asset structure is — or the circumstance includes both spouses, what you really have to worry about is making sure that the surviving spouse is not impoverished. And again, there are things to be done with regard to that. They need to be looked at very, very closely because there’s a cause and effect to all of those decisions. And it’s not something you do capriciously.

Have something in place, in plan – a plan in place but you probably will not execute that until the very last minute because the best plan in place actionable in advance will be a disaster if one of the two spouses or the wrong spouse goes into a nursing home.

John Maher:  Right, because you’ll never know what’s going to happen.

Rick McDonald:  You don’t. It’s a moving target. This is why it’s so hard and so many mistakes are made. And then ultimately, if there’s an abundance of assets, then you can begin to start looking at making some prudent decisions about how to retitle or position or structure assets and trusts, or various instruments that will give you some protection from long-term nursing home cost.

But again, all of these are individual. All of these are dependent upon the circumstances, depend upon health, depend upon emotions, depend upon how people – their family, their familial structure. And every one of them is individual, but everybody should have a plan. There should be plan A, if not, plan B in place, ready to pull because you never know.

It happened in our family. Two o’clock in the morning, you get a phone call. ‘Mom slipped, broke her hip,’ and your world changed as a result of that phone call. That’s how it works and that’s how it happens. If you’re not ready for the proverbial two o’clock phone call, when you get the two o’clock phone call, you’re in reactionary mode, not actionary mode. And that’s half the pathway down the slippery slope.

John Maher:  Right, right. Well, great advice, Rick. Thanks for speaking with me today.

Rick McDonald:  My pleasure, John.

John Maher:  And for more information, you can visit the US Advisory Group website at usadvisory.com or call 781-246-0222.

Photo credit: Marcel Oosterwijk / Foter / Creative Commons Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0)

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