Long-Term Care Planning 101: What Dermatologists Need to Know

As physicians who treat patients of all ages, dermatologists are often aware of the requirement for long-term care (LTC) services as people age but may not have yet considered those needs for themselves and/or their parents. If and when any of us cannot independently accomplish the activities of daily living (ADLs), such as bathing, eating, dressing, and toileting, supplementary care becomes necessary. Assistance with ADLs—whether in an independent/assisted living home, in a skilled nursing facility, or even at home—can be very expensive, and the need for care may last for years.

Just a few numbers tell the story¹: Close to 70% of people turning 65 years old will need some LTC service in their lifetime, and 15 million Americans are expected to have a high need for LTC by 2050. The yearly cost for full nursing home care can easily reach $100,000 and sometimes far exceeds that.

LTC services are expensive, whether necessary for a few months, a year, or several years. Thus, for both family and financial reasons, it is wise to carefully consider how you would cover these potential costs in advance of an LTC need.

Options for Covering the Cost of LTC

Paying out of pocket

Certainly, many dermatologists can afford to pay out of pocket (self-insure) for months, if not years, to cover the cost of LTC services for themselves and their spouses. But is this a wise choice from an overall financial planning perspective? It may not be, especially when insurance coverage is considered.

Insurance coverage

Purchasing insurance to cover LTC needs can be a sound part of a financial plan. LTC insurance products pay for LTC services in many settings: homes, nursing homes, or assisted living facilities. Because there are many different LTC insurance plans and insurance carriers who offer them, it is important to make sure the policy you select will meet your foreseeable needs.

Types of LTC Insurance

Traditional LTC insurance policies

The insurance industry began offering traditional LTC policies in the 1980s. Much like disability insurance, these policies offer a stated daily benefit. Should the policy be unused throughout the insured’s life, there are no refunds or death benefits, so it is a “use it or lose it” option.

Hybrid LTC Insurance

Hybrid coverage uses the death benefit of life insurance to provide the LTC benefit. This is done by adding an LTC rider, allowing the insured to access the death benefit to pay for LTC expenses.

Benefits are received similarly to those under a traditional LTC policy. The monthly benefit amount is selected as a percentage of the death benefit, with the most common being 2%. As you use the benefit for LTC expenses, the death benefit will be reduced dollar for dollar, and any cash value is typically reduced proportionally.

Asset-based LTC insurance policies

Some companies offer LTC insurance policies that allow people to invest assets and secure leveraged LTC coverage (approximately 3:1). These policies are unique in that they pay regardless of the outcome: If you need coverage, it is there; if you cancel your coverage, there can be return of premium options; and if you never make a claim before you die, your children or other beneficiaries will receive a death benefit.

These products offer different premium payment options, ranging from single premiums to 10-payment, 20-payment, or lifetime payments. Unlike the hybrid options, most products in this category are fully guaranteed (LTC benefit, death benefit, cash value, and premium).

Overall, the most important feature of a good LTC insurance policy is a financially sound insurance carrier. LTC insurance carriers must have the financial strength to sustain their ability to pay claims well into the future when millions of baby boomers will begin needing LTC benefits.

The Cost of LTC Insurance

It makes sense to carefully evaluate the cost of LTC insurance. Yet it is equally important to consider the cost of not having this coverage.

Often, we find the best way to understand the potential benefit of LTC insurance financially is to model out 4 scenarios for a client: purchasing insurance and then needing it, purchasing insurance and then not needing it, foregoing insurance and needing the coverage, and foregoing the insurance and never needing it.

Avoiding a Significant Long-Term Cost

LTC insurance protects not only an insured’s ability to get care but also their assets. It reduces the risk that an individual will need to use their savings and cash flow to pay for their LTC needs and ensures their assets can be there for loved ones after they die.

As shown in the video, the cost of not having LTC insurance can far outweigh the cost of having it and not needing it. Although everyone’s need for LTC will not exactly align with one of the 4 scenarios outlined in the video, the need for these services will likely impact nearly every dermatologist’s family in some way—for themselves or their parents or in-laws. It is important to work with an experienced adviser who can help you analyze your options for LTC coverage and evaluate its impact on your overall wealth planning.

Conclusion

The data confirm that many Americans, including physicians, will need expensive assistance when they are older, whether it be at-home or in-facility care. To fully evaluate options for covering the prospective cost of LTC, it is important to consider the various types and costs of LTC insurance and compare them with the potential risks of not having LTC insurance. Although paying out of pocket for LTC expenses is an option, using insurance to pay for such assistance may be the superior solution for many dermatologists.

David B. Mandell, JD, MBA, is an attorney and author of more than a dozen books for doctors. He is a partner in the wealth management firm OJM Group (www.ojmgroup.com).

Michael Lewellen, CFP, is a partner and director of financial planning. They can be reached at 877-656-4362 or mandell@ojmgroup.com.

Disclosure:

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