One of the biggest and most costly mistakes that most people make is failing to consider the very real possibility that they will need some type of long term medical care in the future—either in the home, in a nursing home, rehabilitation center, or assisted living facility—or some combination of all of these.
The good news is that 50% of us won’t need any such long term health care.
The bad news is that half of us will need some form of care, whether at home or in an institution, according to the Health Insurance Association of America. So when we think about risks to our retirement nest egg, we need to think not only of stock market losses and inflation, but of the very real possibility that catastrophic illness may affect our spouse or us.
Ask yourself…could you finance the potential cost of your long term care out of your own nest egg?
The key word in that question is your. It’s essential to understand right from the get-go that nobody else will pick up the tab for you. Medicare and private health insurance plans do not pay for most long term care. And forget about transferring your assets to your children so that you can qualify for Medicare. You’ll impoverish yourself—unnecessarily, in my opinion—and you won’t have any of the choices about your care that you would have as a private pay patient.
Most people don’t realize that our American health care and health insurance systems are designed to provide and pay for acute medical care. By acute care, I mean that a person gets sick, spends a few days in the hospital for diagnosis and treatment, and then goes home with medication and a date for a follow-up visit with the physician. It’s just about the same way we take care of our automobiles. You bring your car into the shop for a diagnosis. The mechanic makes a diagnosis, orders and installs the new part, and sends you on your way with recommendations about preventive maintenance, oil changes, and 5,000-mile check-ups.
Of course, we humans don’t work like that. Many of our illnesses are chronic, meaning that they persist over a long period of time, that there may be no cure but only temporary relief of symptoms, and with modern technology and medication, the illness can cause gradual deterioration of our health over a period of months and even years.
The biggest cost of these illnesses isn’t the two days or two weeks in the hospital, because most of those costs are covered by health insurance, Medicare, and supplementary Medicare plans. The biggest share of the cost—which can easily add up to thousands of dollars a month—is the continuing, day-to-day long term care and assistance.
Who will help you with the basic activities of daily living if you’re unable to do them yourself?
Medicare will not pay for these daily, necessary services. Neither will private health insurance or Medicare supplements.
What Are the Odds of Needing Long term Care?
I met with a client—a retired business executive—recently in my office who had purchased a long term care insurance product from me. Between our first and second meetings, he apparently had talked to several of his friends about it. None of them had this type of protection, he told me, and they questioned why he even needed it. I explained to him, “It’s not you who is buying something you don’t need. It’s your friends, and they are ignoring a very serious, very real issue.”
Let’s compare those odds—the risk—with the chance that your home will burn down or your automobile will be totally wrecked in an accident. (Undoubtedly you have insurance for your home and your automobile.)
Chance of Risk vs. Likelihood of Being Insured
|Risks In Your Life||Chance of Occurrence||Are You Insured?|
|House Burning||1 in 240||Yes|
|Car Crash||1 in 8||Yes|
|Long term Health Care||48 in 100||NO!|
The risk of needing long term medical care is real. It’s serious. And it’s a bigger risk than any other we face in our lives except for longevity.
Keep Your Nest Egg From Cracking: What You Need To Know by Don Patrick, MBA, CFP®