Informal Caregivers Footing the Bill

I have always had a special place in my heart for caregivers. According to a new study from The Associated Press-NORC Center for Public Affairs Research, family and friends are assuming more of the responsibility of caring for the nation’s growing senior population, often at the expense of their own personal and professional lives. For about one-quarter of these “informal caregivers,” the amount of time they spend providing care each week is the equivalent of a full-time job.

Additionally, 80 percent of caregivers pay for costs out of their own pockets (13 percent spending $500 or more a month); 43 percent with incomes of less than $50,000 have dipped into their personal savings; and 23 percent have reduced how much they save for their own retirement.

The emotional and financial costs are steep, but for many families, there are not a lot of viable choices. Medicare, the health insurance plan for those over age 65 and Medicare Supplement Insurance (Medigap) policies cover some home health care for the treatment of an illness or injury, but do not pay for more advanced services, or “custodial care.”

There is often confusion between Medicare and Medicaid. Medicaid is a state-based program that provides health services to the poor and impoverished. Medicaid can cover custodial and long-term care, if you qualify for your state's guidelines. (Savings of $2,000 for an individual and a $560,000 to $840,000 exemption toward your home, depending on the state of residence.)

It is the hope to qualify for this coverage that encourages some retirees to “spend down” their assets to required levels or to move assets to family members to become eligible for Medicaid. Before you start transferring assets willy-nilly, you should know that states have the authority to examine a Medicaid applicant's past five years of finances. Any gifts or transfers of assets made within the five-year look back are subject to penalties.

Presuming that you don’t qualify for Medicaid, the options are not great. You can shell out money for a home health aide ($22/hour) or spend time in an adult day care center ($72/day). You may also be thinking about an assisted living facility ($4,000/month) or a nursing home ($7,441/month for a semiprivate room, $8,365/month for a private room) but those prices make these options available only to wealthier Americans.

Now do you understand why so many have become informal caregivers?

Meanwhile, those who thought they were being wise to purchase long term care insurance (LTC) years ago, may have been smacked in the face with premium increases over the past few years. These spikes occurred because the insurance companies’ actuaries completely botched their projections of life expectancy, cost of care and interest rates. As a result, they mispriced the very policies that were supposed to protect unsuspecting consumers and have petitioned states to increase premiums, to make up for their own mistakes. I know, it doesn’t seem fair, but it is legal.

Genworth Financial received approval from state regulators this year to raise costs an average 58 percent on some LTC policies, after 28 percent increases in the two previous years and Mass Mutual is seeking a jump of about 77 percent. These premium increases caught most policyholders by surprise and left them with terrible choices: dump the policy or reduce the coverage amount to afford the new higher premium.

The insurance industry is responding with a slew of new hybrid products, which combine life and LTC components. I urge you to tread very carefully before purchasing one of these complicated and expensive products and please get a second opinion from a advisor who is held to the fiduciary standard before making the decision.