Christine Benz: Hi, I’m Christine Benz from Morningstar and welcome to the How to Retire podcast. It’s a companion to my book, which is also called How to Retire. Each episode will provide a bite-sized lesson about how to do some aspect of retirement well.
What are the secrets to a healthy, happy, and wealthy retirement? Find out with Christine Benz’s new book, How to Retire.
If you read my work regularly, you know that I’m a little bit obsessed with the topic of long-term care, not just how to pay for it, but also all the other dimensions of it, like the impact on families. To help discuss that topic, I reached out to Howard Gleckman. He is the author of a book called Caring for Our Parents, and he is also a senior fellow at the Urban Institute, where he is affiliated with the Tax Policy Center and the Program on Retirement Policy. He also writes a great blog for Forbes. I asked him to discuss the basics of long-term care as well as the financial ramifications and implications for caregivers.
Howard, thank you so much for being here. Howard, thank you so much for being here.
Howard Gleckman: Christine, it’s great to be with you.
More from Howard Gleckman
How Long-Term Care Differs From Conventional Healthcare
Benz: It’s great to have you because this is such an important topic and it’s one that we only touched lightly on in the book, so I wanted to go a little more deeply on the topic today. But let’s just start with some stage-setting and talk about what long-term care is and how it’s different from conventional healthcare that we might receive.
Gleckman: Long-term care is not healthcare. Long-term care is the personal assistance that people need to live the best life they can. It might be balancing a checkbook, it might be transportation to the doctor, or for people who are more frail, it might be help eating or transferring or going to the bathroom. It’s the whole range of nonmedical services that often complement healthcare but aren’t really healthcare.
Why Americans Need More Long-Term Care Than Ever Before
Benz: We’ve seen a need for this care grow by leaps and bounds over the past several decades. You made the point in your writing that it’s because our advances in healthcare have basically outstripped our ability to deliver the care. Can you talk about that, about how Americans are needing more long-term care and why that is?
Gleckman: Sure. Currently, there are about 14 million Americans who require a significant level of long-term care. Many of them are older adults who are living into their 80s and 90s, and as you noted, medical technology is making it possible for us to live longer and longer lives and as a result of that, we’re getting diseases of old age that we never got before. The biggest example of this is dementia, Alzheimer’s disease and other dementias. These are diseases of people in their 80s. If you look at, if you put these diseases on a graph, very, very few people in their 50s, 60s, and 70s get these diseases. Not none, but very few. After you hit age 80, the number of people who are going to get dementia increases dramatically. Thirty, 50 years ago people didn’t live to 80, so they never got Alzheimer’s disease.
Now more and more people are living to an old age, and they’re getting these diseases of old age. Think about something like cancer. Breast cancer, for example, used to be a fatal illness. Now it’s a chronic disease that can be managed; women live long, normal lives. This is also true by the way of younger people with disabilities. You don’t think about them so much, but there’s a growing population of younger people with disabilities who need personal services for a very long period of time. A classic example of this is people with Down syndrome. It used to be that people with Down syndrome died in their 30s and 40s. Now they often live into their 60s, and sadly if you have Downs, you are almost 100% likely to get Alzheimer’s disease after age 60. So, you have a population of people who never live long enough to have the disease. Now they are living long enough, and we don’t have the support and services necessary to care for them.
Long-Term Care Isn’t Just in Nursing Homes
Benz: I wanted to talk about where care is delivered. I think a lot of people automatically go to nursing homes and assume that if we’re talking about long-term care, we’re talking about people in nursing homes. Not necessarily. Can you talk about care setting and also how that’s evolved over the past several decades?
Gleckman: It’s an interesting thing. Most people and most policymakers when you talk to them about long-term care, they immediately go to nursing homes. The reality is there are 14 million people who receive long-term care and only about 700,000, only about 5% of them live in nursing homes. There’s another 5% who get care, get post-hospitalization care, rehab, and that sort of thing for a short period of time in nursing homes. But the long-stay residents of nursing homes are about 700,000 people, so 5% of the population. But they get all the attention. They get all the attention from regulators, they get all the attention from politicians, and it’s what people think about the most. It’s a strange business because it’s a product that no one wants to buy. People are terrified of living in nursing homes. But currently, there are lots of alternatives. The vast majority of people who get long-term care, get it at home. And most of them are getting care entirely from family members. A small fraction, again maybe 10%, get care from paid aides, but most of them are getting it from family members. Then there are other settings that are, they’re congregate settings that are not nursing homes. So, there’s assisted living, which has been growing over the last 30 years. There’s memory care, which is becoming a very big trend in recent years. There’s independent senior living. There’s a whole range of other places that older adults can live. Now the thing about it is you need money. These places are not inexpensive. They’re generally not paid for by the government. So, you need the resources. But if you have the resources, you have lots of options that you might not have had 20 or 30 years ago.
Does Medicare Cover Long-Term Care Costs?
Benz: I do want to discuss the financial dimension of this and specifically this question about what Medicare covers with respect to long-term care. There’s a lot of confusion about this. Can you clear that up? Talk about how our healthcare system treats long-term care.
Gleckman: Sure. The short answer is very badly. Medicare, traditional fee-for-service Medicare, does not pay for long-term care. Period, end of statement. Medicare does pay for some long-term care in other programs. There are what they call special needs plans. There are Pace programs, which are a combination of Medicare and Medicaid. And they do pay for some long-term care. There also are the Medicare Advantage plans, and now more than half of Medicare recipients are getting Medicare Advantage. And those Medicare Advantage plans do offer some services for people at home. They may offer food delivery or adult day programs, maybe even an aide who comes in a little bit, a couple of times a week. But it’s very, very limited. To give you a sense of how limited that value of this is probably $50 a month. So, vastly lower than what people would pay for if they were getting full-blown long-term care. But there’s a little bit of it. And it’s grown over the last four or five years. If you’re in a managed care program of some kind, you may get a little bit of long-term care. But for the most part, Medicare does not pay for this.
Who Should Consider Long-Term Care Insurance?
Benz: Naturally, people are concerned about exhausting their resources to pay for long-term care. Can you discuss the long-term-care insurance piece of this? Who should consider it? What they should think about when determining whether they’re a good candidate for some sort of long-term-care insurance product?
Gleckman: First, let’s think about whether you’re going to need it and how much it’s going to cost. Basically, about half of the population of people over 65 will need some long-term care before they die. On average, a man will need it for about two years, and a woman will need it for about three years. About 20% of people over age 65 will need it for a very long period of time for five years or more. Then you think about what the cost is. Nursing homes: $100,000 and up. In a lot of communities, $150,000 and more. Assisted living is maybe $5,000 a month, maybe going up to as much as $10,000 a month. If you’re living at home, a personal care aide these days is $35 an hour, times how many hours of care you need. It could get very expensive, very quickly. Then the question is how do you pay for it?
And there are a number of options. You may pay for it with savings, which Americans don’t really have enough of. To give you a sense, the average amount of retirement savings for somebody aged 65 is about $200,000. So if you need long-term care for a couple of years, you’re going to burn through much of that. You can use your home equity, but again, you need someplace to live. And then you can buy long-term-care insurance. And long-term-care insurance comes in really two different varieties. One is the traditional standard, stand-alone long-term-care insurance policy. You pay an insurance company a premium, and if you trigger the need for benefits, which is usually you need assistance for two activities of daily living, like bathing, transferring, going to the bathroom, that sort of thing, then it pays a benefit. If you never need the care, you never get anything back for the premiums you pay, which is normal for any insurance, but people seem to hate it when it comes to long-term care. They seem to feel like, “I pay these premiums for years, I want to get something out of it.”
It’s kind of odd because why would you want to be in a nursing home? But that’s how people think. The other version, which is a lot more popular these days, is what they call a combo product or a hybrid product. And that combines long-term care insurance with an annuity or with a whole life insurance policy. And to understand how that works, take a simple example. Let’s say you buy a whole life policy that’s got a death benefit of $500,000. If you need long-term care, you get a rider on your policy for a little extra money. And if you need long-term care, then what happens is you draw down that $500,000 death benefit during the time you’re receiving the care. So there’ll be less of a death benefit for your heirs, but you do have a source of income to pay for long-term care while you’re still alive. People like it because their heirs will get something if they never need the long-term care.
The disadvantage is the products can be expensive, they can be very complicated. And because long-term care is so expensive itself, getting an annuity or getting a whole life policy with enough money in it to really be able to afford the long-term care is not easy for middle-income people. So, this is a product that’s useful for upper-middle-income people or wealthy people as part of a larger estate plan.
The Financial Implications of Continuing-Care Retirement Communities
Benz: That’s a helpful overview. I wanted to discuss one care setting that is becoming more popular, certainly more popular among our Morningstar.com readers, which is this idea of a continuing-care retirement community. Can you discuss that? I feel like the financial dimensions of these CCRCs are incredibly complicated. Maybe you can talk about them, what they are, and also how people can think about the financial implications of living in such a community.
Gleckman: Absolutely. And full disclosure, I’m actually on a board of a continuing-care community, just so everybody knows. So, like everything else is, long-term care is complicated. There are basically two models. Generally what happens is you receive the whole continuum of care on one campus. So, there may be independent living, there may be assisted living, there may be memory care, there may be nursing care all on a single campus. Now the two models, one of them is a rental model. Most of the for-profit continuing-care communities do that. Essentially, you just pay a monthly price every month and you get a certain amount of care. The higher the level of care you require, the more the rent is. The other model is sometimes called a buy-in model. What happens there is you pay a large amount of money upfront. Usually, people buy into these when they sell their home. You pay a significant amount upfront, and then you pay a relatively modest amount every month in rent. Now the model for those essentially is that if you leave, either because you die or you choose to leave, within a reasonable amount of time, in several years you may get some of that initial payment back. Now actuarially, it doesn’t really matter whether you pay rent or whether you buy in.
The actuaries look at this, and over your average lifetime, this is going to cost the same amount of money. But some people are more comfortable with the rent, some people are more comfortable with the buy-in. The disadvantage to the rent, of course, is that the developer could raise the rent all the time. Now, the good news about these is they do provide a continuum of care on a campus. This is particularly valuable if you have a couple, and one spouse may need a higher level of care, and they can get the care on the campus, and the healthier spouse can just walk across the street or across the hall and visit them. That’s a real benefit. You also have the certainty of knowing that there will be a good quality facility available to you. The disadvantages are, first of all, a lot of the for-profits are no longer offering nursing-home care. So the idea of a continuum is changing.
So, you have to be very careful about that. The other thing you need to think about is this is a long-term investment, people buy in at age 65 or 70. They will likely live in a facility like this for 20 years, maybe 30 years. And what’s been happening is there’s been a lot of churn in this industry, and it’s entirely possible that the developer, the operator, when you buy in isn’t going to be there when you need the care. And they may be less reliable, and they may change the business model. So, you have to think about that a lot. The other thing that’s very important about any senior living situation, but particularly really about continuing-care communities, because you are there for such a long period of time, is you need to think about your fellow residents. The care you get is very important, obviously. But the culture of the facility really matters a lot.
For example, I live in the Washington, D.C., area and there are continuing-care communities here that cater to the military. So, you have a lot of retired, high-level military people. That’s great for certain kinds of people. But if you have been a liberal Democrat all of your life, who was involved in the MeToo movement, maybe living with military people is not really your cup of tea. So, you need to think about whether or not the culture of the place is really something that you’re going to be comfortable with because you will be there for a long time. You do need to think about the quality and whether or not there is a sufficient number of aides, and how the nursing home is. One of the things that happens is when people go look at a continuing-care community, they look at the independent living. I mean, that’s what they really are interested in. That’s how it’s going to be when they first move in. They never think about what the nursing home is going to be like, or how the assisted living is going to be like. Very important, because very likely that at some point along the way, you’re going to need that. So, when you’re shopping, ask to go visit the nursing home. You may not want to think about it, but you should. Ask to visit assisted living and memory care, see what it’s like.
Howard Gleckman’s Experience With Long-Term Care
Benz: Those are all great points. I know it’s such a complicated area. The last question I had for you, Howard, is about your own experience. You referenced unpaid caregivers, how they really are the heroes in all of this, the informal care that’s being delivered by adult children, but other relatives, friends, and so forth. Can you talk about your own experience and kind of how that has influenced your thinking on long-term care?
Gleckman: The short way to put it is it was the hardest thing I ever did in my life. I was caring for my dad, and for a short time for my mom. It’s the hardest thing I ever did in my life, but it was also the most rewarding. It was an opportunity for me to give back to them, and they obviously took care of me when I was a kid. And I learned a lot. I learned a lot about the failings of the long-term care system and the failings of the medical system for frail older adults. So, it’s an extremely difficult thing to do. It is enormously stressful on older adults and on their family caregivers. Your relationship with your parents changes. By the way, I hate the phrase, parenting your parents. You’re never doing that. They’re always going to be your parent, and you’re always going to be their child. But you’re going to be doing very personal things for your parents. That’s a lot of strain on everybody because it does change your relationship.
For working adult children, it probably means it’s going to distract from their jobs. They’re going to need to take time off. About 20% of adult children quit their jobs to care for parents, and those tend to be women who work at lower-paid jobs. And once you leave a job—a woman leaves her job in her 50s, she’ll probably never get as good a job again when she comes back into the workforce. So, there can be a significant financial cost. There can be a significant physical cost. Being even a paid aide is one of the most dangerous jobs in the country. You’re more likely to be injured on the job as a paid aide than you are being a coal miner in this country. And those are for people who are trained. Now, you think about you’re the adult child caring for your dad, and you have no training. Or even worse, you’re an 80-year-old woman caring for an 85-year-old husband who weighs 100 pounds more than you, and you have no training. There’s a very high probability you’re going to hurt yourself. You’re going to throw out your back. You’re going to do something else. So, it takes a physical toll, and it takes a tremendous emotional toll. We cared for my dad for about 18 months. And after he died, one of the first things I did was go to my own doctor, and I said, “I’m exhausted. I feel terrible.” And he said, “Of course you do. It is exhaustive.” And then, of course, the ending is almost always very sad. They’re going to die. And you have to confront that.
So, it’s very difficult. No putting an easy gloss on it. It’s a hard thing to do. But it’s a very rewarding thing to do. It’s very important that adult children do it. And it’s also very important, if I can say, that grandchildren, young kids, have some engagement with their grandparents. Too often in this country, they don’t. And that’s a tragedy. I mean, they should know their grandparents through their stages of life, even as they’re dying. So, it is an opportunity for multigenerational families to learn about one another. But it isn’t easy. And the healthcare system doesn’t make it any easier.
Benz: Absolutely. Howard, I so appreciate your work in this area. It’s such an important topic. And thank you so much for being with us today.
Gleckman: Christine, it’s great to see you and talk to you again soon, I hope.
Key Takeaways
Benz: Here are the key takeaways for me from this conversation.
First, I loved Howard’s point that the growing need for long-term care is an outgrowth of longevity and advances in healthcare. The longer you live, the more likely you are to experience cognitive decline and need long-term care. Medicare doesn’t cover long-term care.
Another key takeaway is that many people automatically think “nursing home” when they hear long-term care, but most care isn’t delivered in that setting. Most long-term care is delivered at home by unpaid family caregivers.
Finally, the real wild card in long-term care is whether you’ll need it and how to pay for it if you do. As Howard outlined, there aren’t many great options for this. The long-term-care insurance market has been troubled, and many people don’t have the funds to cover long-term care from their investments. But I think it’s valuable for all older adults to think through a long-term care plan. Where they wish to receive care, how they’ll pay for it, and the role of unpaid family caregivers, if any.
My book, How to Retire, goes even deeper on the topic of long-term care, with experts like Carolyn Mcclanahan and Cameron Huddleston.
Thanks so much for being here. I’m Christine Benz for Morningstar.
Watch more from How to Retire with Christine Benz.
