Long-Term Care: Funding Options
Guest: Barbara Franklin – Owner, Franklin & Associates. Long-term care Planning
Host: Sally Hughes Smith - Artist, Author; The Circle – A Walk with Dementia
Sally Hughes Smith: Welcome to Age to Age. I’m Sally Smith. Let’s talk. We have Barbara Franklin with us today. She is a long-term care specialist who is, definitely, teaching us about her field, which is fascinating, one in which people plan for the end of their lives, not through health insurance, but long-term care insurance, and how to have flexibility and choices at the end of their life. It’s been amazing to hear some of the ways that plays out as far what you can buy in a long-term care package.
What I want to ask you at this point is, okay, here’s the future. I know I’m going to get older. I know I’m going to want to keep my options open, whether I live at home; aging in place, or whether I need to be in assisted living, or a nursing home, or whatever. Now, there are options for funding it. One of them is long-term care insurance, which is a viable option and one that you know a lot about. Are there other factors? Are there government programs? What are the different pieces that we can take with us to add to the options at the end of our lives?
Barbara Franklin: Sure, Sally. There are alternatives. One is paying for it your self. I think that can be a good option. But I advocate that individuals who choose to do that be well-aware of what costs they’re talking about it and examine their situation to be sure that they’ve allowed not only for the current costs, but for the future: How can one be sure that their investments are going to grow to the point that they’ll keep up with the rising cost? So, self-funding is definitely a choice, but one that must be made very thoughtfully.
When it comes to public programs, I would have to say that, over the years, the government has been the primary payer for long-term care. But we’d have to ask ourselves, is that going to be the case as we go down the road, with a wartime economy, record national debt, and with 77 million baby boomers coming down the pike? Can the government continue to do this? Medicare was, really, designed not for long-term care, but for care that pays for doctors, medication, and care that gets you better. Medicaid does pay for long-term care, but it’s a program that I’d have to refer to as welfare program. It is only for people who meet government welfare standards.
In South Carolina in particular, it [Medicaid], really, only pays for care in a nursing home. It’s diametrically opposed to what most people want to do, which is to age in place, or remain at home. So, here we have a government program; the primary payer of long-term care, that isn’t providing consumers with what they really want. So, something is going to have to give there, at some point.
But, what other alternatives are there? We’re beginning to see some movement in the other fields of insurance. For instance, there are life insurance policies, that one can purchase, that have a rider that allows one to use the benefits not only when they die; which is traditional, but if they don’t die. There’s an accelerated benefit rider that allows them to pull some of those funds out to pay for care. Those are fairly new on the horizon, but I think that those are going to be developing more and more for the baby boom generation.
There are also types of annuities. Normally, with annuity, you would not surrender the funds at an early time without penalties. But there are annuities being developed that allow you to pull that money out, without penalty, if you need it for long-term care. Again, early-development stage, but my finger on the pulse of this tells me that these are the kinds of things that baby boomers might be attracted to.
There is one situation, that I find interesting, where the government has really partnered, in a sense, with the private sector to come up with a way to help seniors use their home to stay at home. And, it started, Sally, in 1988 when the AARP prevailed on the federal government to help seniors stay at home. It was a program that most people would know as a reverse mortgage. It’s designed for people 62 and over, and it allows them to tap into equity that has built up in their home on a tax-free basis without having to sell the home, without having to change the title in any way, and without having to take on a monthly mortgage payment; which most seniors don’t want or need.
So, this has proven to be a very successful government venture. It’s through the Federal Housing Administration, and has grown exponentially in recent years. And, predictions are, too, that the baby boomers who are in their homes, and the values have accelerated to some extent, are going to find that [reverse mortgage] as an appropriate tool to pay for homecare, or to pay for aging in place.
Sally Hughes Smith: I see. That is fascinating. And so, at the end of it, say you put in place a reverse mortgage. Obviously, you didn’t sell it, so you don’t have capital gains. You do it through a financial institution. And then, if you die, and they’ve paid out $10,000, you would have to pay them; somebody would have to pay them, $10,000 back in order for that house to go through your estate. How does that work?
Barbara Franklin: Well, it’s interesting, Sally. A common misconception with reverse mortgages is that somebody gets your house, you know, that the government takes the property, and it couldn’t be further from the truth, because the title does not change. So, when the homeowner is no longer in that home as a permanent resident, then whoever inherits the property simply pays back whatever amount of equity was pulled out, and they have a reasonable period of time to do that.
Sally Hughes Smith: So, you sell the house, and the property is just what you sold it for less what you owe back to the mortgage company.
Barbara Franklin: Exactly.
Sally Hughes Smith: Or, if you don’t want to do anything, you just walk.
Barbara Franklin: That’s right. There’s no requirement to sell it, but there is, essentially, a lien that get’s paid back.
Sally Hughes Smith: So, is it like a regular mortgage in that say I don’t have any family? Say I do a reverse mortgage for ten years and at the end of it they’ve paid out all this money and I died. I mean, the house would be collateral, wouldn’t it?
Barbara Franklin: No. They still are only entitled to the amount of money that was paid out to you, not the home itself.
Sally Hughes Smith: So, some third agent has to sell it and pay them back?
Barbara Franklin: Right.
Sally Hughes Smith: It’s not like a house that stands as collateral?
Barbara Franklin: That’s right. The government does not want anybody’s house. There’s simply a lien there. It is, really, the same as a home equity loan, except that the government is willing to wait for their funds; until you either die or leave that property. And, there’s no payment while that’s going on. That’s why it’s really a benefit to seniors. They can use that money; tax-free funds, for care, or for any other reason, and there is no payment.
Sally Hughes Smith: When you say tax-free funds, you don’t pay income tax on what you get from your reverse mortgage?
Barbara Franklin: Exactly.
Sally Smith Hughes: Wow. Well, that’s a pretty exciting thing. So, what you’re telling us is that the ways to fund this [long-term care] are if you’ve just got an unlimited, public (Medicare and Medicaid), which has its limitations, and then you’ve got private options such as long-term care insurance, as well as new, developing, options? You know, I think one thing, Barbara, that’s so interesting are the numbers; the sheer magnitude. I think of it as sort of a tsunami; with 77 million baby boomers. I read somewhere that some huge number, every day, are turning 65.
Barbara Franklin: Exactly.
Sally Hughes Smith: It’s going to be a burden in many ways. And, of course, we’re all living longer; and, hopefully, we’ll be adorable and cute. I saw a magazine recently where they had these two bodybuilders, and they both had white hair. I thought, oh, my gosh. Don’t tell me we’re supposed to look like that. Anyway, some of us will be in great health, and some us, our bodies will keep ticking but we may be falling apart. And it’s going to be a new world.
Barbara Franklin: And it’s what makes my work interesting, Sally. I liken it to the pieces of a puzzle. Someone may have long-term care insurance, but maybe didn’t get enough in the early days, when they acquired it, and still may need to use a reverse mortgage to pay for some of their care. They might opt for one of the other options. All of these tools come together. We’re keeping our fingers on the pulse of the developing options. And I’m sure there will be plenty of those as the years go by.
Sally Hughes Smith: Wow. So fascinating, a new field, really.
Barbara Franklin: Yes, it is.
Sally Hughes Smith: Thank you so much, Barbara, for speaking with us about this today. Thanks to all our listeners, too, for joining us. We welcome your suggestions. Please, give us your comments on our Web site. This is Sally Smith, Age to Age, saying good-bye and wishing you courage and joy on your journey. We are all connected.
If you enjoy listening to Sally Smith, you can buy her book; The Circle. It’s the story of how she personally responded to her mother’s journey with Alzheimer’s disease. It’s a wonderful gift of hope for anyone with a parent with dementia. Just click on Sally Smith’s name under the health professionals tab on the podcast homepage. All profits from sale of The Circle support research at the Center on Aging. Thanks.
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