The CCR study found that advisors understood the risk and cost of these medical costs. Yet, their study also showed that “… those with advisors are even less worried about their risks and their ability to cover the cost of major healthcare shocks”. This was true, even though their study found a majority of advisors both discuss these risks and recommend a specific policy for their clients.
Recently, major health care providers have announced plans to make changes to home health care processes. For example, UnitedHealthcare “has notified providers that it will eliminate prior authorizations for home health services managed” by one if its subsidiaries working in more than thirty states.[1] That change could make care for retirees easier to acquire. Yet, many retirees are not well positioned for the health care challenges they may face in retirement because they did not take advantage of long-term care insurance. Long-term care insurance can help preserve capital for those in early retirement and ensure wealth remains available to transfer to later generations. While many saving for retirement have begun optimizing savings through Health Savings Accounts, they may not understand how those accounts can be used for long-term care insurance premiums when they do retire.
Long-term care usually refers to the “broad range of health and health-related services and supports needed by individuals who lack the capacity for self-care due to a physical, cognitive, or mental disability or condition. Often, an individual's disability or condition results in the need for hands-on assistance or supervision over an extended period of time.”[2]
In a recent article for the Center for Retirement Research (CRR),[3] Alicia Munnell states that most adults greatly underestimate the cost of long-term care. Worse yet, “[o]nly 3 percent of all U.S. adults or 15 percent of those ages 65+ have long-term care insurance….[but] 80 percent of 65-year-olds will need long-term care at some point over their remaining life.”[4] Medicaid is not a viable option for most families as they may not meet the requirements for relying on it. Munnell further writes that the costs of long -term care are significant. “[I]n 2023, the median annual costs were $116,800 for a private room in a nursing home, $75,500 for home health aides, and $64,200 for an assisted living facility.”[5] Lastly, she points out that most of those surveyed think Medicare covers the cost of long-term care.
According to the Congressional Research Service (CRS), of the $467.4 billion spent on long-term care in 2021, only 44.3% was covered by Medicaid, an option most middle-income families will not have. Medicare, the option Munnell and the CRR researchers reported as what most survey participants thought was available to them, covered only 19.8%.[6]
CCR’s study also looked at the disparity between how households perceive the risk of medical expenses and how their financial advisors do. They could that “[u]nlike the households, financial advisors surveyed think that LTC affordability or covering medical costs are the biggest risks their clients face to ensuring a secure retirement.” [7] The CCR study found that advisors understood the risk and cost of these medical costs. Yet, their study also showed that “… those with advisors are even less worried about their risks and their ability to cover the cost of major healthcare shocks”.[8] This was true, even though their study found a majority of advisors both discuss these risks and recommend a specific policy for their clients. The CCR study found that more research is needed but emphasized that clients may still think that Medicaid will pay for long-term care health expenses.
What can advisors take from this new study? It may indicate that advisors need to increase their advocacy on long-term care plans. That could be by increasing how often long-term care options are discussed in client meetings. Or it may be as simple as creating handouts or leave behind materials concerning the specifics on why Medicaid does not cover long-term health care costs. Those handouts could include graphs from the CRS showing how little Medicare funds will cover long-term care costs too.
[2] https://www.congress.gov/crs-product/R47881
[3] https://crr.bc.edu/do-older-adults-understand-healthcare-risks
[4] https://crr.bc.edu/do-older-adults-understand-healthcare-risks
[5] https://crr.bc.edu/do-older-adults-understand-healthcare-risks
[6] https://www.congress.gov/crs-product/IF10343
[7] https://crr.bc.edu/do-older-adults-understand-healthcare-risks-and-do-advisors-help
[8] https://crr.bc.edu/do-older-adults-understand-healthcare-risks-and-do-advisors-help
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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