Paying for old age care long in advance?
May 29, 2012 4:41 PM   Subscribe

Can I pay for assisted living/nursing home/whatever now so that I don't have to worry about being able to pay for it when I need it? And assorted related questions.

Basic information: the need would likely be decades away, and I live in the USA.

If such a thing is possible, is it done through the facilities themselves, or through insurance companies or something? I would guess the latter would be better, since there'd presumably be more chance of a particular facility going out of business in the coming decades than a major insurance company.

But if the insurance company (or the facility, if directly paid to them) does go out of business, am I just screwed? Or is there perhaps some governmental backup along the lines of the FDIC for deposits, where they say "if your old age insurance company goes out of business, you'll get equivalent coverage"? Or you just fall back on your own savings and whatever Medicare provides to everyone?

Anything to watch out for where (for example) they might wind up shunting prepaid people into lower quality care, since they're not paying now?

I'm not really up on the details of "assisted living" as opposed to "nursing home", but I gather I'd prefer the former until needing the latter... do prepaid contracts like this allow you to switch at some point in time?

Any other related information or suggestions would be appreciated also. Thanks in advance.
posted by Flunkie to Grab Bag (19 answers total) 3 users marked this as a favorite
What you're looking for are retirement accounts, and they're available everywhere. This is pretty much exactly what these are designed to be for.
posted by Cool Papa Bell at 4:45 PM on May 29, 2012 [3 favorites]

There is also such a thing as long term care insurance, which most of my family members have and are specifically designed to cover residential costs. You are not buying into a specific facility.

If you can find a decent independent insurance agent, they can break down the options there.
posted by Lyn Never at 4:47 PM on May 29, 2012 [4 favorites]

Best answer: You might also look into long-term care insurance; it's designed to help defray the cost of assisted living and nursing home stays.

As for ALF vs. NH, you're basically right, you'd stay in an ALF before you'd move to a nursing home, as ALFs are generally more focused on keeping you independent with safeguards and minor/moderate nursing services, whereas nursing homes are more focused on intermediate and skilled nursing care round-the-clock.
posted by the artless dodger at 4:50 PM on May 29, 2012 [2 favorites]

Yeah, this is what long-term care insurance is and is for. It's also not a terrible idea to put aside as much of your own cash as possible. Neither of those solutions are perfect, cos it's a bum system all around, unfortunately.
posted by Snarl Furillo at 4:53 PM on May 29, 2012

Response by poster: I'm pretty sure I'm not looking for IRAs. I am looking for something specific to assuring that I can get into (and stay at) a decent elder care place regardless of whether I can then afford it, not something that lets some of my money grow in a tax-friendly manner until retirement. If there's something specific about IRAs that I'm not understanding, which is more along the lines of what I'm describing, please let me know. Thanks.

Thanks also for the "long-term insurance" suggestions - that does sound like what I want, and I'll look into it.
posted by Flunkie at 4:55 PM on May 29, 2012

There are also seniors communities set up for lifetime care. Basically, you pay for a housing unit of some kind (house, condo) in their luxury senior living community plus pay an _enormous_ initiation fee, and ongoing HOA fees. In return you get guaranteed home care and in-home meal delivery when those needs comes, and accommodation in their assisted living facility when that time comes. There are also the usual nice perks of a high-end senior community in the meantime: golfing, activities, fancy communal meals, socials, etc.

I know several very wealthy people who've chosen that route. If you've got a spare couple million lying around, it's a heck of a good life and supposedly a heck of a good end-of-life too.
posted by nakedcodemonkey at 5:02 PM on May 29, 2012

It sounds like what you are looking for is long term care insurance. (Of course, you want to save for your retirement in tax-advantaged accounts, too.) (On preview, what everyone else said.) The problem with LTCI is that it's quite costly, and only becoming more and more expensive. Also, check to see if you are able to buy into such an insurance plan through your employer or other association you may be affiliated with. .

It is my understanding that it is a true insurance product, not a pre-paid benefit product. Which is to say, there isn't really a guarantee that you will receive more in benefits than you pay in premiums. Given the high cost and your relatively young age, it might be more financially beneficial to take what you would pay in premiums and save it instead, on top of your other savings and investments. I think a fee-only financial planner might be able to help you work through your options before you present yourself as a customer to an insurance agent. Hope that helps - I recently helped the in-laws with some of these inquiries!
posted by stowaway at 5:32 PM on May 29, 2012

If there's something specific about IRAs that I'm not understanding, which is more along the lines of what I'm describing, please let me know.

What you need to know is that an IRA is your money, and long-term care insurance is someone else's money.

An IRA is an interest-bearing account that you own. You put your money in a bank and it grows. It's FDIC-insured and there are tax advantages. After X number of years, you pull your money out and voila! Your pile of money is magically bigger than it was before. And if you die before you use it all, you get to give it to your children.

Insurance is a bet you make with your insurance agent. You're betting that you will use more of his service than you pay for. He's betting that you won't -- that either you'll die before you use it, or that he can somehow limit you from using it. He's thought long and hard about this bet, because betting is his business. He has actuarial tables. He does not have qualms about making you work hard to actually get him to pay out on things he's agreed to pay out on! If you thought health care companies deny coverage, just wait to you see what these guys do. You'll be looking forward to spending your elder years deciding if dinner will be creamed corn or creamed spinach.

Meanwhile, do you know what he's doing with your premiums before you go into elder care? HE'S PUTTING THAT MONEY INTO INTEREST-BEARING ACCOUNTS. He's not paying for other people's policies with your premiums. That's what suckers do. Heck no, he's buying reinsurance for that! And do you know how he's paying for the reinsurance? WITH PART OF THE MONEY FROM THE INTEREST-BEARING ACCOUNTS.

Put your money into an IRA and forget about it. Trust me, in 50 years, you'll be happy.
posted by Cool Papa Bell at 5:50 PM on May 29, 2012

Response by poster: I'm aware of IRAs. I fully fund mine and intend to keep doing so. Unless there is something specific about using money from IRAs for long term care, as opposed to using money from IRAs for any other purpose, they're not what I'm asking about. Thanks though.
posted by Flunkie at 5:52 PM on May 29, 2012

As another way of phrasing what Cool Papa Bell said, when you buy insurance, you pay someone else money to take on your risk. Car insurance is a good idea because (even factoring out differences in driving behavior) accidents are things that everyone is at a non-negligible risk of, and some of them are expensive. So paying a modest sum in exchange for someone else to pony up when you hit the anti-jackpot is a sound idea.

On the other hand, needing a nursing home(/assisted living facility) isn't like getting in a car accident. It can more-or-less be foretold when it happens (within 5 years or so), and it happens to everyone (who otherwise lives that long). So there is actually little risk, per se. There are other risks (getting maimed in an accident while still young), for which there is insurance of various types. There are also other retirement-home-related risks you might be worried about -- rising costs for nursing homes, for example -- but if costs rise so much that a retirement savings account can't keep up, insurance companies are not going to do much (read: any) better.

It sounds like you know what you want, and people have told you how to find it. But Cool Papa Bell and I are pointing out that it's worth thinking about what each option (insurance vs. saving extra in a retirement account) entails -- each has its own set of (possibly non-obvious) costs and risks, which are not unworthy of being weighed against each other.
posted by dendrochronologizer at 6:10 PM on May 29, 2012 [1 favorite]

Response by poster: I cannot possibly legally save more in a retirement account than I currently do. I understand what insurance is. Thank you though.
posted by Flunkie at 6:21 PM on May 29, 2012

The problem with long-term care insurance is that it's like pulling teeth to get them to actually pay for anything, so you're still going to need someone comparatively young and sharp to manage the paperwork for you if you end up in a bad enough situation that you need it (in other words, if you have dementia or something and you don't have someone advocating on your behalf, the long-term care insurance company might simply decline to pay, and you might end up in a gross, neglectful facility).
posted by infinitywaltz at 6:35 PM on May 29, 2012

Another option that I believe exists now and surely will exist in the future is the mixed-care facility. You basically buy a condo from them when you hit 55, and they take care of you. In your own apartment if possible, or in a nursing facility otherwise. It costs big bucks, but might be cheaper than paying for LTC + owning another home you aren't using.
posted by gjc at 6:54 PM on May 29, 2012

My dad bought long-term-care insurance for himself and my mom. I cannot tell you what a relief it was to have this when he acquired dementia and needed to go into a memory-care facility.

While LTC insurance is not the same thing as a retirement account, it isn't intended to be, and it can activate regardless of other specifics in your financial situation. Believe me, the Medicaid spend-down and asset-relinquishment requirements can be very onerous.

A robust mix of retirement preparation strategies is best.

Or is there perhaps some governmental backup along the lines of the FDIC for deposits

Sort of, depending on the state, the insurer's overall financial health, the health of claimants, etc.

Anything to watch out for where (for example) they might wind up shunting prepaid people into lower quality care, since they're not paying now?

The problem for us is that LTCI has a defined maximum daily benefit, and my father's care needs exceed that by a significant fraction (about 20% right now). That has to be covered some other way.

do prepaid contracts like this allow you to switch at some point in time?

Generally you have to exceed a specific level of disability to receive benefits under LTCI, measured in "activities of daily living" that you can accomplish, ranging from balancing a checkbook to combing your hair to going to the bathroom without help. This would rule out most assisted living arrangements, which are for people not yet severely disabled, or just in need of convenience services up to and including medical attention. The facility in question isn't really important, it's whether they will accept a patient/tenant in your condition.

is it done through the facilities themselves

When you enter a facility you will often be given this option, except that of course you sign away the money that you don't use if you, er, leave the facility for any reason.

Please look for a specialist in elder care/estate planning who can help you make these decisions.

the need would likely be decades away

This is less and less true as a rule. People can end up needing their LTCI because of an accident, an illness, or something like early-onset dementia (which used to be diagnosed as mental illness until recently).

so you're still going to need someone comparatively young and sharp to manage the paperwork for you

Absolutely -- a key part of planning is a trustworthy person who can have power of attorney including medical power of attorney (they don't have to be the same person). The financial POA in particular can be "springing" so that it comes into effect when you are incapacitated, without the need for a guardianship proceeding.
posted by dhartung at 8:01 PM on May 29, 2012 [1 favorite]

A few weeks ago, The Wall Street Journal had a point/counterpoint article debate about LTCI, Should You Purchase Long-Term-Care Insurance?
posted by caclwmr4 at 8:35 PM on May 29, 2012 [1 favorite]

All these Insurance and Investing ideas are worthwhile and should be the majority of your planning. But what I haven't seen mentioned in this thread is service organizations.

My wife's grandfather was a Mason for many years and now that he's retired and old enough he lives in The Maryland Masonic Home which is literally a castle and really excellent. I think it's either free to long standing members or very cheap. And he gets to hang out with all his Mason friends.

Also, a friend worked for the BPOE retirement home near Jacksonville, FL. I don't know much about how it worked but it was certainly for long standing members and was subsidized by dues.

So if your personal style/ethics/morals/religion make you want to participate in this sort of group, then go for it, it'll pay off in the ling run.
posted by Confess, Fletch at 9:25 PM on May 29, 2012

Along with what Confess, Fletch said, the Loyal Order of Moose has a retirement community, with an attached nursing facility in Florida called Moosehaven. Once you are a member for 15 years and reach a certain age, you and your spouse are eligible to live there.
posted by SuzySmith at 9:34 PM on May 29, 2012

Certain kinds of guaranteed income products can convert upon particular instances into long-term-care insurance, and certain companies that do retirement ALSO do this stuff. From speaking with my client clearly the devil is in the details. Even if something it "standard" I'd read the hell out of it.
posted by Medieval Maven at 5:39 AM on May 30, 2012

People talking about the expense of long-term care insurance and how it's better to put that money into savings do not realize how much home health care/nursing home care costs.

My mother, unbeknownst to my brothers and myself, had saved up a nest-egg of over $200,000. One of my brothers had a time-limited option enroll her in a long-term care policy offered by his company (which he enrolled in himself). She declined, believing the premiums were too expensive etc.

My brother tragically developed terminal cancer. He had 24-hour skilled care and his savings were left to his widow and orphan.

My mother developed Alzheimer's. She stayed home as long as she could. Medicare pays for only 6 weeks of home health care (part-time), the rest was out of pocket. Eventually it was not safe for her to be in her apartment and we moved her to a nursing home with a good reputation. The nursing home cost $16,000 a MONTH (typical in my part of the U.S.) She was in the facility for about a year till she passed. Her nest egg was completely gone.

You'll be looking forward to spending your elder years deciding if dinner will be creamed corn or creamed spinach.

Most people who need to be in nursing homes do not think beyond such things anyway. Certainly Alzheimer's patients don't. My mom was not upset about her nest egg being gone because she had no memory of having one. That didn't make it an OK thing.
posted by RRgal at 5:51 AM on May 30, 2012

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