Tuesday, February 26, 2008
Will You Live Too Long?
It seems like not a week goes by without hearing or reading about the impending baby boomer explosion. Much of the media attention is devoted to questioning the boomer's ability to retire at a reasonable age with a comfortable lifestyle.
Another often discussed subject relates to Medicare and the enormous strain that will occur as the boomer crowd reaches 65 years of age. This is when those who are eligible are automatically enrolled in Medicare.
As important as these issues are, they wane when compared with the problems inherent with long term care. Without proper planning, baby boomers are in jeopardy of depleting their hard earned assets.
The most reliable data regarding population longevity is found with life insurance companies. Indeed, the underwriting of life insurance policies is based on the principle of accurately identifying when various groups of individuals will die.
As a population, we are living longer. In fact, the highest rate of increased longevity belongs to those over the age of 85. Unfortunately, the increase in age is coupled with an increase in mental and medical conditions that require long term care.
Many seniors today believe their long term care costs will be absorbed by Medicare. This is simply not true! Medicare is designed primarily to help someone recover from an illness. Most people who require long term care have chronic conditions which severely limit their ability to recover.
To rely on Medicare to pay for the cost of long term care is foolish. The only government assistance available to pay this cost is found in the Medicaid program, which is federally granted and state administered.
But Medicaid is only for the destitute. It is a welfare plan intended for those who simply cannot pay the cost of receiving custodial supervision by themselves.
For years, the strict rules associated with administering Medicaid have been manipulated by clever individuals and their professional advisors. Many people who have the ability to pay for care were creating special arrangements to make it appear they were destitute when, in fact, they were not.
This so-called Medicaid Planning simply increased the enormous strain already imposed on the welfare system. Recently, Congress took steps to help alleviate this.
On February 8, 2006, President George W. Bush signed into law the Deficit Reduction Act of 2005. This multi-tasked bill closed one of the biggest loopholes in Medicaid Planning and reinforced the fact that Medicaid is for the destitute.
This should serve as a warning to the baby boomers who mistakenly believe their long term care costs will be subsidized by the government. They need to provide for themselves through the purchase of a long term care policy issued by a highly rated insurance company.
The costs associated with long term care are increasing faster than the costs of providing a college education. In some states, it costs over $300 per day to provide long term care. A properly purchased policy can offset much of this expense.
No one is immune to this problem, but it is apparent that the largest exposure exists with the baby boomers. Without adequate planning millions of additional families will be faced with financial ruin.
Their assets will be wasted in order to pay for the cost of having lived too long in an environment of custodial care. The question becomes: "Which asset will you liquidate first?" if you don't have adequate protection?
Jim and Jeanetta Pollard