Washingtonians for a Responsible Future

A new way to pay for the single biggest expense in retirement

Older Americans increasingly opt for ‘continuing care at home’ plans or join programs that foster community support

By Morey Stettner

May 27, 2019

The couple paid an upfront membership fee of more than $180,000 — and continue to pay about $1,000 a month — for a plan that’s 90% refundable if they terminate the contract. In return, the couple can receive a daily benefit up to $402 to pay in-home caregivers if either of them cannot perform at least one daily-living action, with a maximum lifetime benefit of about $1.1 million. It is one of five plans that GHAH offers; others have lower upfront fees based on one’s age and benefit level.

“At first blush, the care-management component may seem like a minor secondary benefit,” Faga says. “But it’s not. It’s equally important to the long-term-care-insurance component.”

In 2017, for example, Faga underwent major heart surgery. His GHAH care manager arranged for all follow-up services including in-home visits by a nurse, physical therapist and occupational therapist.

“She was very engaged and monitored all of that,” he recalls. “And because it’s Goodwin House calling a provider, the provider has to perform or it’ll lose lots of business. If I had to call care providers on my own, I’m only one person, so I have less clout.”

“If I had to call care providers on my own, I’m only one person so I have less clout.”

— Martin Faga

Faga and his wife also gain peace of mind knowing that if they ever need to move into an assisted-living facility, their GHAH membership will pay off.

“They will never leave you hanging,” he says. “If all of a sudden something bad happens and we have to move, they can work something out among the 50 or so facilities in this area. We know where to turn, and our daily benefit can go toward paying the facility.”

Less insurance, more options

Faga isn’t alone in his concern about where to turn if physical or cognitive decline set in. Aging baby boomers often worry about who will take care of them if they’re unable to manage on their own.

Since the 1980s, some people nearing retirement have mitigated this concern by buying long-term-care insurance. But that’s no longer a popular option, as policies have become more restrictive with longer waiting periods before benefits kick in (up from an average of 20 days in 1990 to 93 days in 2015), lower monthly benefits, shorter benefit periods and less protection against rising costs due to inflation.

Meanwhile, annual price increases ranging from 25% to over 100% have put the plans out of reach for many retirees. Most insurers stopped selling long-term-care policies; today, only about a dozen companies offer new policies, down from more than 100 in the 1990s. Traditional long-term-care insurance may not even exist in a few decades.

“It’s hard to imagine that the retail model of long-term-care insurance is viable in the years ahead,” says Thomas West, a partner at Signature Estate & Investment Advisors in Tysons, Va.

West, a financial adviser and long-term-care expert, says insurers’ actuarial errors made many policies unsustainable and often unprofitable. Low interest rates, lower “lapse rates” (in which fewer policy holders chose to drop their coverage than insurers predicted) and a higher volume of claims than originally projected hit insurers like a triple whammy, leaving many consumers unwilling or unable to renew their policies amid skyrocketing premiums.

With an ever-increasing elderly population, the stakes keep getting higher. As insurers either pull out of the long-term-care market or price their products so high that few can buy them, the upshot is more people are unequipped for the staggering cost of dementia, chronic disease or other perils of old age.

As pre-retirees peer into the future, they need to expand their horizons and consider new solutions to gird for higher long-term-care costs. Advances in longevity mean retirement can last for 25 years or more. About one out of every four 65-year-olds today will live beyond 90, and one out of 10 will live past 95, according to the Social Security Administration.

But living longer comes at a price: More than half of people (52%) turning 65 will need at least some long-term-care services in the future.

“The costs of long-term care exceed what many people can afford,” says Jean Accius, vice president at the AARP Public Policy Institute in Washington, D.C.

He says the median cost of a nursing home is about $100,000 a year, an assisted-living facility costs an annual $45,000 a year and in-home care goes for $33,000 a year for 30 hours of care per week.

It takes a village

When it comes to long-term-care costs, your options vary with location. There are more than 30 “continuing care at home” offerings across the country, says Karen Skeens, executive director of Goodwin House at Home in Alexandria, Va.

Contact your state insurance department to see if any of these still-evolving programs exist where you live. But don’t get too excited: Aside from the steep upfront fee, you must be in fairly good health as you may undergo a medical screening to qualify.

In the past few years, another promising grassroots trend is spreading across America: the so-called village movement. There are now nearly 250 villages in 47 states, where seniors benefit from neighbors who contribute their time and talents.

“We serve primarily middle-class folks with everything from transportation to medical appointments to social visits to making sure they get their groceries,” says Barbara Sullivan, executive director of the Village to Village Network in St. Louis. It’s easier to self-fund your long-term-care costs if you can depend on your community to fill at least some of your daily needs.

About one out of every four 65-year-olds today will live beyond 90, and one out of 10 will live past 95, according to the Social Security Administration.

Unlike the continuing-care-at-home model with its substantial costs, the village concept is a bargain. Annual membership for individuals ranges from $50 to $900, depending on a particular village’s staffing level and other factors.

“Membership can more than pay for itself if you add up all the transportation you’ll get” over the course of a year, Sullivan says. Check the network’s national map to see if there’s a village in your area.

Despite innovative initiatives to address looming long-term-care costs, the unknown nature of what’s to come can prove harrowing. Such fears have led at least one state to propose its own solution.

Lawmakers in Washington state are debating a Long Term Care Trust Act that would establish a public long-term-care benefit. Under the bipartisan bill, workers would pay 0.58% of their wages into the trust program and could claim benefits for services such as skilled nursing care, meal preparation and home health services if they couldn’t perform at least three tasks of daily life.

“Soon-to-be retirees need to anticipate the likelihood that they’ll need long-term care help and budget for it,” says West, of Signature Estate & Investment Advisors. “Programs like continuing care at home, and the village concept can drive better actuarial outcomes and extend the notion of insurance to keep people living at home longer.”